Stronger cross-border policy coordination needed to promote sustainable hydropower finance in Mekong region, Fair Finance Asia study urges

16 May 2024

Financial institutions must play an active role in ensuring that hydropower projects along the Mekong River uphold the rights of communities and protect the environment, according to a new report by Fair Finance Asia (FFA), with support from research partner, Profundo. 

Launched on March 14 International Day of Action for Rivers, the new report, Enhancing Sustainable Finance in Mekong Hydropower: Challenges, Opportunities, and Ways Forward, highlights large hydropower projects’ links to extensive social and environmental impacts, such as loss of forests, wetlands, and mangroves that could amount to USD 145 billion by 2040, and increased unpaid care and domestic work, poverty, and mental health stresses, particularly for female community members, due to displacement and resettlement. 

The report found key gaps in national and regional regulations, and in the environmental and human rights due diligence policies of banks providing cross-border financing to Mekong River hydropower projects. Developed in consultation with national coalitions in Cambodia, Lao PDR, and Thailand (CLT), this report aims to serve as a key source of information and recommendations for groups urging for sustainable Mekong region hydropower financing and, more broadly, for the Association of Southeast Asian Nations (ASEAN) to strengthen frameworks supportive of Asia’s just energy transition. 

Bernadette Victorio, Program Lead, Fair Finance Asia, said, “Large hydropower infrastructure projects have been proven to cause extensive social and environmental damage. It is time for governments, financial institutions, and other stakeholders to prioritize cross-border financing models and regulations that promote responsible hydropower development in line with international standards in environmental and human rights due diligence. Sustainable hydropower financing is not just about power generation, but also about creating a lasting legacy of responsible and equitable resource management for future generations and laying the foundation for a just energy transition in the Mekong region.” 

In the newly released FFA study, the policies of the six financial institutions (three from Thailand, three from Vietnam) were assessed using a methodology comprised of 31 criteria based on international sustainability standards and the Fair Finance Guide International (FFGI) Methodology 2023. These criteria were spread across five themes developed specifically to assess publicly-stated commitments to environmental and social (E&S) due diligence when financing hydropower projects, and expectations for financed and/or investee companies. Notably, the six financial institutions scored highest on the themes of Biodiversity and Environment (4.5), followed by Commitment and Transparency (3.1). Average scores for three other themes (Human Rights and Labor Rights, General Requirements, and Supply chain) were alarmingly low (less than 2.5 out of 10).  

A financial flows analysis to hydropower projects was beyond the scope of the study, so financial institutions from Thailand were selected based on the value of their loans to customers and the proportion of outstanding loans in the utilities and services industry, which was deemed most closely related to hydropower. For financial institutions in Vietnam, selection was based on consideration to highlight their good practices in environmental, social, and governance (ESG) commitment and further engagement with the selected banks. Financial institutions from Cambodia and Lao PDR were not assessed since they are primarily active domestically. The analysis is based on publicly available information. 

Mar Sophal, Program Manager, The NGO Forum on Cambodia, said, “Downstream Mekong River communities in Cambodia are particularly vulnerable to the social and environmental impacts of hydropower projects in the region, such as restricted water flows. Hydropower project developers have a responsibility to ensure that the sustainable energy future of the region does not come at the expense of nature and the rights of the most vulnerable, such as local and Indigenous communities and women.” 

The report also found that countries in the Mekong region are at different levels of maturity in terms of embedding E&S considerations in financial regulations and banking supervision practices. While Thailand and Vietnam appear to be encouraging banks and investors to consider social and environmental impacts of hydropower projects, most of the related guiding documents are voluntary, as they are from banking associations and platforms, not central banks and financial supervisors. Cambodia and Lao PDR, meanwhile, have yet to develop regulations relevant for sustainable hydropower financing.  

Given that CLT are all ASEAN Member States, the report observes that provisions in the ASEAN Taxonomy could be useful for embedding social and environmental considerations in regulations related to hydropower financing, particularly Do No Significant Harm (DNSH) criteria and social safeguards. 

Douangchanh Lopaying, Lead, Fair Finance Laos, said, “Promoting a ‘just’ energy transition in ASEAN depends on responsible and sustainable financing and investment into hydropower in the Mekong region. Lao PDR, as the ASEAN Chair in 2024, has a unique opportunity to make this a key consideration in discussions related to the development of the ASEAN Plan of Action for Energy Cooperation (APAEC) Phase III for 2026-2030.”  

To ensure that hydropower financing upholds the rights of Mekong River communities and the environment, the report urges the ASEAN and its member states to review their approach to large-scale hydropower projects based on a more nuanced assessment of their cumulative transboundary and basin-level impacts, and to set stricter requirements for dams and hydropower projects. Financial institutions are also recommended to develop and disclose an overarching human rights policy and due diligence process, as well as a hydropower sector policy, among other recommendations. 

Juliette Laplane, Senior Policy Researcher, Profundo, said, “As this report shows, stronger cross-border policy coordination and regulations are needed to ensure that policies relevant for hydropower financing in the Mekong region uphold the rights of communities and the environment. Given the transboundary basin-wide impacts of hydropower projects, financial institutions should do more to manage the actual and/or potential environmental and social impacts they are connected to through their business relationships in alignment with international standards. This includes exerting their responsibility to enable remediation when they have business relationships with companies involved in human rights violations.”   

Victorio said, “Financial institutions should play a role in strengthening the social and environmental standards in the hydropower sector, while also actively supporting a robust and engaged civic space that is crucial to monitoring the transparent and accountable cross-border policy action.”  

To read the full report, click here

For Further Inquiries, contact: 

Kyle Cruz 

Knowledge and Communications Manager 

Fair Finance Asia 

kylejuliene.cruz@oxfam.org  

Note to Editors: 

About FFA 

Fair Finance Asia (FFA) is a regional network of Asian CSOs committed to ensuring that financial institutions’ funding decisions in the region respect the social and environmental well-being of local communities. For more information about FFA, visit: https://fairfinanceasia.org/