Fair Finance Asia Launches Report on Enhancing Sustainable Finance in Mekong Hydropower

Fair Finance Asia Launches Report on Enhancing Sustainable Finance in Mekong Hydropower

Fair Finance Asia (2024, March), Enhancing Sustainable Finance in Mekong Hydropower: Challenges, Opportunities, and Ways Forward. 

On March 14, 2024, Fair Finance Asia (FFA), in collaboration with research partner, Profundo, launched a new report urging financial institutions to play an active role in ensuring that hydropower projects along the Mekong River uphold the rights of communities and protect the environment.

Launched on 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 devastating 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, 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. 

To ensure that hydropower financing upholds the rights of Mekong River communities and the environment, the report makes the following recommendations toward financial institutions: 

  • Develop and disclose an overarching human rights policy and due diligence process aligned with the United Nations Guiding Principles on Business and Human Rights (UNGPs). 
  • When conducting risk assessments, financial institutions should apply an intersectional perspective that considers the specific risks faced by women and other minority groups, such as Indigenous Peoples. 
  • Develop and disclose a sector policy for the hydropower sector.
  • Work to address the challenge of shrinking civic space in Asia. 
  • Develop measures that enable effective remedy for affected stakeholders. 
  • Align hydropower financing and investments with green technical screening criteria of national and/or regional taxonomies. 

Recommendations for ASEAN and national policymakers include: 

  • Central banks and financial regulatory authorities should make more active use of existing tools and guidelines developed at the regional level, including ASEAN. 
  • Countries that still lack national taxonomies (Lao PDR and Vietnam), as well as Cambodia, should develop and launch taxonomies following a transparent and inclusive process. 
  • Regulators should encourage commercial banks and asset managers to develop hydropower sector policies. 
  • Central banks and financial regulators and regional development banks should consider changing their approach to large-scale hydropower based on a more nuanced assessment of their cumulative transboundary and basin-level impacts. 
  • Central banks should require the banking sector to include material Environmental, Social, and Governance (ESG) risks, including those related to hydropower, in their credit risk assessments. 
  • Policymakers should prioritize studies investigating the cumulative impacts of hydropower dams and integrate their findings in national legislation, policy frameworks, and strategic planning processes related to hydropower development. 
  • Thailand, Vietnam, and Cambodia, and other countries in the region should set stricter requirements for dams and hydropower projects (including for life-cycle emissions and Do No Significant Harm/DNSH), such as those outlined in the European Union (EU) Taxonomy and other credible standards. 
  • Central banks and national governments should consider introducing incentives for banks and other financial institutions to increase their portfolio of green, social, and sustainability-linked financial instruments. 
  • Central banks should create civil society roundtables, committees, or working groups that serve platforms for dialogue between central banks and representatives of a range of research and civil society organizations (CSOs), as well as community and voluntary groups. 

To read the full report, click here.