How to make hydropower financing in the Mekong Region more accountable

00:00 – 00:24

Welcome to SEI Asia’s podcast on environment and policy in Asia. In this podcast series, we invite experts to discuss the many critical and complex environmental challenges in Asia and how to find solutions through policy and partnerships.

00:33 – 00:58

Rajesh: Thank you, Bea, from Fair Finance, for joining us in this SEI Asia Series on Environment and Policy in Asia. Fair Finance is a regional network of Asian civil society organizations committed to ensuring that the business decisions and funding strategies of financial institutions in the region respect the social and environmental well-being of the communities in which they operate.

00:59 – 01:12

Rajesh: In today’s episode, we want to discuss Fair Finance’s recent report showing how financial institutions in the Mekong are not adequately integrating social and environmental impacts when financing large-scale hydropower dams.

01:13 – 01:14

Rajesh: Welcome, Bea, to this episode.

01:15 – 01:23

Bea: Thank you, Rajesh, and very glad to be here. Thank you for having us, and looking forward to sharing more about our report.

01:24 – 01:53

Rajesh: Excellent, thanks, Bea. So, as I have explained in the introduction, Fair Finance is doing work to ensure that the business decisions of financial institutions respect social and environmental well-being. In this particular episode, we want to look at hydropower dams and how they’re funded. We do know the huge social and ecological impacts of large-scale dams that range from destruction of ecosystems, fisheries and livelihoods to also displacement and resettlement.

01:54 – 02:18

Rajesh: And we also know these impacts are especially bad for rural and Indigenous women. We also know banks are financing most of the hydropower in the Mekong Region. So given your recent report, could you provide Bea an overall context for our listeners? Why do you think banks need to be held more accountable for their hydropower finance and investments?

02:19 – 02:45

Bea: Thank you, Rajesh. So, I think there are two things to consider here. Firstly, it obviously is the responsibility of financial institutions to develop more sustainable policies so that the funding decisions they make and the investments that they make in particular – companies, projects or sectors – are also following international standards on sustainability.

02:46 – 03:01

Bea: This is very important if they are really committed to using their leverage, and their influence to ensure that the companies that they work with are also following those sustainability principles and commitments that they have.

03:02 – 03:24

Bea: And that kind of segues to the next point that I mentioned that given that many financial institutions these days are also having a higher level of awareness of their role. They’re not just villains in this story, but they also have an influential role to actually make the change should they want to.

03:25 – 03:55

Bea: We need to make sure that they are aligned and, transparent and accountable with all these sustainability principles that we are also advocating for. But at the same time, we believe that they are, and they can be, partners for change should they want to. Because as financial institutions providing capital, providing funding for large projects, including hydropower dams, they can make a change in this sector if they use their influence towards those companies that they work with.

03:56 – 04:20

Rajesh: Excellent, thanks Bea. You did mention aligned and accountable, and we’ll come to that soon enough because that, I think is probably the core of this episode. How can we make financial institutions more accountable for hydropower financing? But just to go quickly to the report itself, in the methodology, you have assessed publicly available policies of three Thai and three Vietnamese financial institutions that are relevant to financing hydropower projects.

04:21 – 04:39

Rajesh: The methodology also comprised 31 criteria related to human rights, labour rights, climate, and biodiversity, and I also understand these criteria are based on international sustainability standards relevant to the hydropower industry as well. Could you briefly highlight the key areas of the bank’s shortcomings?

04:40 – 05:09

Bea: So, just to begin with, we have used the Fair Finance Guide International (FFGI) Methodology to assess the policies of the banks that are part of this report, and the FFGI Methodology is the core guiding principle of Fair Finance coalitions and the regional and global network in the way that we look at where financial institutions should bring their level of sustainability policies towards.

05:10 – 05:35

Bea: This FFGI Methodology, obviously, is something that we continuously update depending on the new developments happening in the space because, as you would know, this is a very dynamic space now sustainability, especially towards the financial sector. And there are a lot of new policies coming out in various levels at the regional level, even in Asia in Europe. So this is definitely something that keeps updated all the time.

05:36 – 06:13

Bea: Within the FFGI Methodology, as you rightfully mentioned, we selected specific criteria that relates and very much looks into the specific business dependencies, risks, opportunities that are related to the hydropower sector. And very briefly, these are commitment to transparency, where we assess whether the financial sector or the financial institution is addressing environmental and social risks and using human rights and environmental due diligence process in their implementation or funding decision activity.

06:14 – 06:43

Bea: We also look at general requirements. While the word general is there, it’s actually going more specific because here, we assess whether the financial institutions are setting clear expectations for the financed companies to develop specific policies, for example related to environmental and social risks in hydropower plant projects. In this case, risk to involuntary resettlements, or the cumulative impacts, overall, of hydropower projects.

06:44 – 07:22

Bea: We also looked at biodiversity and environment. This is one of the biggest recorded impacts of large hydropower dam projects, and here we really assess, you know, how financial institutions look at their environmental expectations, particularly with the companies they invest in this sector and how they treat, for example, specific elements that are covered under the whole biodiversity section, which is animal species, ecological protection of areas, etc. We also looked at human rights and labor rights.

07:23 – 07:56

Bea: This definitely, by itself, covers a broad area that doesn’t only look at labor but also Indigenous Peoples’ rights, community compensation schemes, identification of gendered impacts, which is also one of the biggest impacts that we see when there are large hydropower projects established and where large number of populations are displaced involuntarily and losing livelihoods. So, women are the ones in the front lines that are usually impacted by these projects.

07:57 – 08:33

Bea: And lastly, we also looked at supply chains, and this specific section addresses whether the financial institution has specific requirements for the companies they finance to integrate criteria on biodiversity, human rights, labor rights, not only on the specific projects they work on, but overall as a company in their principle. So, using these broad criteria, we selected banks that are providing cross-border investment in the Mekong hydropower sectors or across the countries where FFA works.

08:34 – 09:07

Bea: So that includes Thailand, Cambodia, Lao PDR, and using this methodology, we selected what financial institutions have a significant amount of cross-border funding, and I think this is quite important and operational term here. Cross-border financing is important because what we are seeing now is that, while there are many financial institutions that are still investing domestically, like the Cambodian financial institutions, which are not included in this assessment.

09:08 – 09:40

Bea: For example, many Thai banks are already in the business of cross-border investment, including the ones that we looked at in Vietnam. And what does this mean? This means that when a bank crosses borders, the type of policies they adhere to the type of sustainability principles standards that they adhere to also changes across the border, and this is quite important because Lao PDR is usually the destination of these hydropower investments at the moment and this is what we looked at in our report.

09:41 – 10:17

Bea: We know very well that Lao PDR is not one of the most advanced countries in terms of developing these high standards in financial sector policies governing environmental, social, and governance standards, and therefore, we have to ensure that cross-border financing and financial regulation needs to be also advancing as quickly as these financing and investments are being disbursed into these projects because the impacts are cross-border and the grievances will be cross-border.

10:18 – 11:05

Bea: So, to answer your question, when we looked at the financing of the banks that we selected our financial institutions or selected for this study, we realized that out of the scale of 10, which is the maximum score that they could gain for the indicators that we talked about, biodiversity and environment is quite high, so they are already scoring at an average, all of them 4.5 / 10 there, which means that there are already policies, there are already principles included in some banks policies looking at biodiversity and environment, particularly in this sector, commitment to transparency is also there, but slightly low.

11:06 – 11:35

Bea: But we see this more as also because many of these countries that we are looking at, Lao PDR, Thailand, and Vietnam, already has ratified national policies relating to anti-corruption, for example. And so, those are not necessarily related to the financial sector in hydropower. Still, because those are very strongly embedded in the national policy-making, they are scoring quite well in that area. Human rights, however, is something that is lagging behind as well as labor rights.

11:36 – 11:55

Rajesh: That was extremely useful because it helps us understand the landscape in which the banks are operating, because it’s interesting when you say that when they go cross-border, the principles change, and many of these impacts of the dams are also cross-border. It, of course begs the question then as, as you say, the banks will have to step up and the country regulations will also have to step.

11:56 – 12:19

Rajesh: It’s a two-way thing. Just quickly on that, if I could ask about the banks that you did study, it seems from the report, as far as I read, there are a couple of banks that have good standards, like Thailand Siam Commercial Bank. It seems to fare a bit better. They actually have a sector policy for the hydropower sector and then Bangkok Bank as well. They seem publicly committed to conducting consultation.

12:20 – 12:28

Rajesh: Do you think this is the standard that, for example, that the two Thai banks have done that? It’s something that other banks could follow for sustainable hydropower financing?

12:29 – 12:47

Bea: First, Siam Commercial Bank, for example, they are a member of the Equator Principles. They are a signatory of the Equator Principles, and that means that they are already kind of signing up to higher level standards of, or at least you know in written format for, higher standards of sustainability in their business practices.

12:48 – 13:13

Bea: With Bangkok Bank, this is one of the banks that they’re definitely not new to the hydropower sector, so they’ve been exposed to engagement with civil society organizations, including Fair Finance Thailand, which is actually actively working at the national level in Thailand. So, they have been also constantly improving on their policies relating to hydropower sector because it’s a big part of their portfolio.

13:14 – 13:34

Bea: It’s very important for them to continuously improve those policies as well and, therefore, create a market signal or a healthy competition within the other peers in the financial industry to say, like look, our competitors are having these really good standards, and we have to keep up.

13:35 – 14:05

Bea: Bargaining with the company to make the changes in very extreme cases where the company refuses to make the change. What we would recommend the bank, for example, is to create a very public statements of divestment. If there is really no change in the way that they implement their practices and policies, and this is also a very big statement because if they divest and if they publicly say why they divested and what are the issues that they found that they could not change or engage with.

14:06 – 14:22

Rajesh: Excellent. There’s a lot to unpack there, but I was going to pick on one thing. In this part of the world, we know that people in banks can go end up in the hydropower companies. People in hydropower companies can end up in policy; people in the policy can end up here.

14:23 – 14:48

Rajesh: There’s quite a revolving door around these. And so when we talk of this kind of a divestment and a public statement or a public stand being taken by the banks saying that we should raise the level of our involvement and be more influential. In reality, what is the probability that it could work? Given the situation with the revolving doors of people going between these three entities?

14:49 – 15:52

Bea: I think within the Fair Finance network, at least, we have seen some kind of good examples that this could happen. The examples I’m going to share with you are not happening in Asia yet because Asia is, of course, we are still, you know, at the development and the nascent stage of developing stronger sustainability policies. But for example, our partner and our coalition in Sweden has had a good experience in engaging with Swedish investors or banks, investing in companies like H&M with supply chains in countries like Bangladesh with not providing proper living wage, and so they uncover these kind of issues and raise it with the banks and say, look you have to have stronger policies in this area otherwise you cannot work with such suppliers that provide very low living wages or not even reaching the standard of the international definition of a living wage.

15:53 – 16:26

Bea: And this is not only in the hydropower sector; we hear this also in the fossil fuel sector, for example, banks that are providing even financing in that area. And yes, it’s disheartening to know that there will be a race to the bottom to fill that gap if one company or bank leaves. But still, I think that’s why we have to create like a tipping point where many of these financial institutions start to say no to these things, and more and more of them are standing for sustainability principles.

16:27 – 16:45

Bea: More and more of them are really using their leverage towards that the others who are not really adhering to that become the minority rather than the majority, and there would be more stigma for those financial institutions that continue to support those kinds of practices and businesses.

16:46 – 16:52

Rajesh: That’s actually empowering to hear. There are signs of hope, signs of change, and there are actually case studies where this has happened.

16:53 – 17:24

Rajesh: Let me go to a larger philosophical question then because we do talk of banks, yes, we talk of finance, hydropower standards, but there’s also this larger, shall we say, scaffolding, where profits are what the bank is interested in, and when it gives money to the hydro company, it wants profits. So sometimes, or I would say most times, the bank’s decision whether to give finance or not then helps the decision to build the dam rather than an assessment of energy needs or ecological impacts.

17:25 – 17:34

Rajesh: So in your view, how can we switch this around so that ecological and local needs are prioritized? Do you think banking standards would help to make this switch?

17:35 – 18:11

Bea: That’s a really good question, but also, like, I think it comes with a more complex answer, because if you talk to banks, they will tell you that we have clients that we work with, right, and our clients are the ones doing the business, right. So, a company that wants to build this dam is probably working with the government that has commissioned that project to create that dam, and therefore, the company is not itself an independent body that makes its own decision just to build a dam, but part of a large scheme of strategy developed by the country.

18:12 – 18:40

Bea: How do you create a decision there that addresses that dilemma for the bank? So, especially because in the countries where we look at, a lot of them are now in the mindset of creating energy security for themselves, and this comes under the broader picture of just energy transition as well, which is a very, very important and hot topic in Asia right now.

18:41 – 19:13

Bea: The fossil fuel versus renewable energy discussion, and in some cases or in many discussions, they will say that hydropower is forming a type of renewable energy. So therefore, investment in this area is actually broadening or creating diversity in the energy mix of our country. And this is important for us, and that’s why energy security becomes even a sensitive topic because it also creates a pushback towards the civil society, talking about the negative impacts of this type of energy.

19:14 – 19:59

Bea: So there has to be these kinds of steps that come from the higher-level leadership to consider those other bigger priorities in line with overall just transition and then creates, you know, more clear policies and strategies embedded either in their financial sector, regulations, their taxonomy, the type of incentives they provide for companies and banks to move towards provision of financing and capital towards renewable energy development and what are those types of renewable energy that we are financing? Are they really clean? Are they really in line with what we consider sustainable, not only environmentally, but also socially?

20:00 – 20:15

Rajesh: You have done a brilliant job, I think, explaining this. These are also philosophical questions, as you say, for not only companies but for governments. It’s interesting that you mentioned policy plans and strategies because that is where I was heading as well.

20:16 – 20:23

Rajesh: As you know, this podcast series focuses on policy in Asia and on environment. So, let’s go to the policy aspects.

20:24 – 20:35

Rajesh: Your report provided a list of policy recommendations for financial institutions and policymakers. Could you highlight some of the key messages for our listeners for private banks and national policymakers?

20:36 – 21:40

Bea: Firstly, I think our main call is for financial institutions to really develop and disclose an overarching human rights policy and due diligence process aligned with the UNGPs when investing in this sector. So, this is the first line of call for them and also for them to develop and disclose sector policies in line with the hydropower, but at the same time, diversify their sources of information when conducting risk assessments. And when we say diversify their sources, it means that they do not only rely on the companies to provide the risk assessment information, but also conduct like broader consultations with impacted communities with, civil society, and other independent stakeholders that could provide more nuanced and detailed information on what would be the cumulative negative impacts of these projects.

21:41 – 22:14

Bea: For policymakers, we definitely recommend to develop clearer guidelines, including a taxonomy which has definitions of what is renewable but it’s clean. So, there are existing guidelines already internationally for this, and when developing such type of guidance at the national level, they should be adhering and following these science-based and international standards. We also, of course, call for more mandatory regulation.

22:15 – 22:41

Bea: And I think this is especially important for countries sharing a resource like the Mekong. Water governance is a very important part already of the relationships between the Mekong countries. At the same time, it can also be leveraged to create cross-border collaboration and more policy coordination relating to financing of the projects that are there in that important water resource that they share.

22:42 – 23:20

Bea: Of course, I’m going to mention this that our report only looked at cross-border finance coming from Fair Finance countries like Thailand and Vietnam. But, of course, there is a larger amount of funding coming from countries like China into the Mekong. And when we talk about that amount of finance that’s flowing towards that sector as well. There has to be more consideration and, of course, to create like a level playing ground for financial institutions and for cross-border coordination and how they could adhere to greater sustainability and ESG standards.

23:21 – 23:40

Bea: I already mentioned this, you know, just energy transition is becoming a big topic because energy security is in everybody’s mind, and with energy security, many countries, all countries almost in Asia, are rolling out policies to ensure that there is really security for their countries.

23:41 – 24:08

Bea: But it doesn’t necessarily always follow the sustainability principles or the international standards that we are expecting in alignment, for example, the Paris Agreement. So, if companies and financial institutions are able to champion that greater, bigger space, more robust space for communities and civil society to participate, then it definitely would help set a signal that this space requires more broadening and safeguarding.

24:09 – 24:25

Rajesh: And I think in that context, Fair Finance has done an excellent job bringing these things out for discourse and debate and unpacking so many of these issues that are needed for this part of the world. I thank you, Bea. I don’t know if you have anything to add or you think you’ve missed saying something. Please go ahead.

24:26 – 24:46

Bea: I just want to thank you also, Stockholm Environment Institute and Rajesh, for highlighting this topic. We, as Fair Finance Asia and our coalitions working on this, really find that this is a very important topic to discuss, and we are very happy that you have provided the space for us to share this message broadly.

24:47 – 24:50

Rajesh: Thank you, Bea. Thank you for being part of this episode, and hope to see you again soon.

24:51 – 24:52

Bea: Thank you.

24:53 – 25:21

Thank you for listening to SEI Asia’s podcast on environment and Policy in Asia. For more information on these topics, guests, and our work, please visit our website on www.sei.org.