Cambodia’s ESG Journey: Striking a Balance Between Development and Sustainability after earthquake March 2025

As one of Southeast Asia’s fastest-growing economies, Cambodia is undergoing rapid industrialization and urbanization. However, this growth comes with challenges, including environmental degradation, social inequality, and weak governance frameworks. In recent years, Cambodia has begun to embrace Environmental, Social, and Governance (ESG) principles as part of its development strategy.

While Cambodia still lags behind its regional peers in ESG adoption, there are signs of progress, driven by international pressure, government initiatives, and private sector engagement. This article explores Cambodia’s recent developments in ESG, focusing on environmental sustainability, social equity, and governance reforms, as well as the challenges and opportunities that lie ahead.

1. Environmental Sustainability: Addressing Critical Challenges

Cambodia’s economic growth has led to significant environmental challenges, including deforestation, water pollution, and vulnerability to climate change. However, the country is beginning to take steps to address these issues and transition toward sustainable development.

a. Climate Change Vulnerability and Adaptation

Cambodia is one of the countries most vulnerable to climate change, with rising temperatures, unpredictable rainfall, and increasing flood risks threatening its agricultural sector and infrastructure. Recognizing these risks, the Cambodian government has developed strategies to enhance climate resilience.

Nationally Determined Contributions (NDCs): As part of the Paris Agreement, Cambodia has committed to reducing greenhouse gas emissions by 41.7% by 2030, conditional on international support. The country’s NDCs focus on renewable energy, reforestation, and sustainable agriculture to mitigate climate change impacts.

Climate Adaptation Projects: Cambodia has been working with international organizations, such as the United Nations Development Programme (UNDP) and the Asian Development Bank (ADB), to implement climate adaptation projects. These initiatives include building flood-resistant infrastructure, improving water management systems, and promoting climate-resilient crops.

b. Renewable Energy and Sustainable Development

Cambodia’s energy sector is heavily reliant on hydropower and fossil fuels, but the government is beginning to explore renewable energy options to diversify its energy mix and reduce its environmental impact.

Renewable Energy Potential: Cambodia has significant potential for solar and wind energy, and the government is encouraging investment in renewable energy projects. In recent years, several solar farms have been developed, including the 80 MW solar park in Kampong Chhnang Province, which is one of the largest in the country.

Hydropower Challenges: While hydropower accounts for a significant share of Cambodia’s energy production, it has raised concerns about its environmental and social impacts, particularly on river ecosystems and communities. The government is now seeking to balance hydropower development with environmental conservation.

c. Deforestation and Biodiversity Conservation

Cambodia has one of the highest deforestation rates in the world, driven by illegal logging, land clearing for agriculture, and infrastructure development. However, efforts are underway to address this issue and protect the country’s rich biodiversity.

Protected Areas and Reforestation: Cambodia has designated nearly 40% of its land as protected areas, including national parks and wildlife sanctuaries. The government and non-governmental organizations (NGOs) are also promoting reforestation programs to restore degraded forests.

Combating Illegal Logging: The Cambodian government has intensified its efforts to combat illegal logging and enforce environmental regulations. However, challenges remain, including corruption and weak enforcement mechanisms.

2. Social Equity: Addressing Inequality and Promoting Inclusion

Cambodia’s social development has made significant progress in recent decades, with improvements in poverty reduction, education, and healthcare. However, challenges such as income inequality, labor rights, and gender disparities remain critical issues in the country’s ESG landscape.

a. Poverty Reduction and Inclusive Growth

Cambodia has achieved remarkable progress in reducing poverty, with the poverty rate declining from 53% in 2004 to around 18% in 2020. However, many Cambodians remain vulnerable to economic shocks, and income inequality persists.

Rural Development: The majority of Cambodia’s population lives in rural areas, where poverty rates are higher. Government programs and international aid are focused on improving rural infrastructure, access to education, and healthcare services to ensure inclusive growth.

Microfinance and Social Entrepreneurship: Cambodia has a thriving microfinance sector, which plays a critical role in providing financial services to underserved communities. Social enterprises are also emerging to address social and environmental challenges, particularly in areas such as education, agriculture, and clean energy.

b. Labor Rights and Working Conditions

Cambodia’s economy relies heavily on the garment and textile industry, which accounts for a significant share of its exports and provides employment for millions of workers. However, labor rights and working conditions remain a concern.

Minimum Wage Policies: The Cambodian government has introduced minimum wage policies for garment workers, which have been gradually increased in recent years. These policies aim to improve workers’ living standards while maintaining the competitiveness of the industry.

Labor Rights Advocacy: NGOs and labor unions are advocating for better working conditions and greater protection for workers, particularly in the garment sector. Issues such as excessive working hours, workplace safety, and gender-based discrimination are key areas of focus.

c. Gender Equality and Empowerment

While Cambodia has made progress in promoting gender equality, challenges remain in ensuring equal opportunities for women in education, employment, and leadership.

Women in the Workforce: Women make up a significant portion of Cambodia’s workforce, particularly in the garment and agriculture sectors. However, they often face wage disparities and limited access to leadership roles.

Education and Empowerment: The government and NGOs are working to improve access to education for girls and promote women’s empowerment through programs that provide skills training, microfinance, and support for female entrepreneurs.

3. Governance: Strengthening Accountability and Transparency

Governance is a critical component of Cambodia’s ESG development, as the country seeks to address issues such as corruption, weak institutions, and limited regulatory enforcement. Recent efforts to improve corporate governance and attract sustainable investment reflect Cambodia’s growing focus on accountability and transparency.

a. Corporate Governance Reforms

Cambodian businesses are beginning to adopt corporate governance practices to align with international standards and attract foreign investment.

ESG Reporting: While ESG reporting is not yet mandatory in Cambodia, some companies, particularly those with international operations or investors, are voluntarily disclosing their ESG performance. This trend is expected to grow as global investors increasingly demand transparency and accountability.

Capacity Building: Organizations such as the Cambodia Securities Exchange (CSX) and the Securities and Exchange Regulator of Cambodia (SERC) are working to promote corporate governance and ESG awareness among Cambodian businesses.

b. Anti-Corruption and Regulatory Frameworks

Corruption remains a significant challenge in Cambodia, undermining trust in institutions and hindering sustainable development. The government has taken steps to address this issue, but progress has been slow.

Anti-Corruption Measures: The creation of the Anti-Corruption Unit (ACU) marked a step forward in addressing corruption, but enforcement remains inconsistent. Greater transparency and stronger institutions are needed to build investor confidence and improve governance.

Regulatory Reforms: The Cambodian government is working to strengthen its legal and regulatory frameworks to support ESG development. This includes improving environmental regulations, labor laws, and corporate governance standards.

c. Public-Private Partnerships and International Collaboration

Public-private partnerships (PPPs) and international collaboration are playing a key role in advancing governance and ESG practices in Cambodia.

Foreign Investment and ESG: International investors and development organizations are encouraging Cambodian companies to adopt ESG principles as a condition for funding and partnerships. This is driving improvements in areas such as environmental compliance, labor standards, and corporate governance.

Capacity Building Initiatives: International organizations such as the United Nations, the Asian Development Bank, and the World Bank are supporting Cambodia’s ESG development through capacity-building programs, technical assistance, and funding.

4. ESG Investment and Green Finance: Emerging Opportunities

Cambodia’s nascent ESG investment and green finance sector is beginning to take shape, driven by international initiatives and growing awareness of sustainable development.

a. Green Finance Initiatives

Cambodia is starting to explore green finance as a means of funding sustainable development projects.

Green Bonds: Green bonds are an emerging opportunity for Cambodia to raise funds for renewable energy, infrastructure, and climate adaptation projects. The government is working with international partners to develop a framework for green bond issuance.

Sustainable Banking: Cambodian banks are starting to integrate ESG criteria into their lending decisions, particularly for large-scale infrastructure and energy projects. However, the adoption of sustainable banking practices remains in its early stages.

b. Responsible Investment

International investors are playing a key role in promoting ESG development in Cambodia by prioritizing responsible investment.

Development Finance Institutions (DFIs): DFIs, such as the International Finance Corporation (IFC), are supporting ESG projects in Cambodia, particularly in sectors like renewable energy, agriculture, and microfinance.

Private Sector Engagement: Cambodian companies are increasingly recognizing the importance of ESG for attracting foreign investment and accessing global markets. This is driving greater awareness and adoption of sustainability practices.

Conclusion: The Road Ahead for ESG in Cambodia

Cambodia’s ESG journey is still in its early stages, but the country is beginning to embrace sustainability and governance as critical components of its development strategy. The government’s climate commitments, corporate efforts to improve labor rights, and emerging green finance initiatives reflect a growing recognition of the importance of ESG.

However, significant challenges remain. Cambodia must address issues such as deforestation, weak institutions, and social inequality to fully realize its ESG potential. Greater international collaboration, stronger governance frameworks, and continued investment in capacity building will be essential for Cambodia to achieve sustainable and inclusive growth.

As global demand for ESG compliance grows, Cambodia has an opportunity to position itself as a responsible and sustainable player in the regional and global economy. By leveraging its natural and human resources and aligning its development priorities with ESG principles, Cambodia can chart a path toward a greener, more equitable, and resilient future.

Earthquakes, by their nature, profoundly expose vulnerabilities in existing systems—be they physical, social, or economic. In a country like Cambodia, where development has often surged ahead sometimes at the expense of comprehensive sustainability measures, an earthquake would not merely be a momentary shock but a catalyst that compels a serious rethinking of Environmental, Social, and Governance (ESG) frameworks.

*Remarks after earthquake in March 28, 2025

Physical and Infrastructural Impact

Cambodia’s infrastructure, built during rapid development spurts and often under lax regulatory oversight, may not always meet the rigorous safety standards required to withstand severe seismic events. An earthquake could decimate or damage critical structures, leading to costly rebuilding efforts and loss of life. This kind of damage highlights a significant gap between rapid economic development and long-term sustainability goals. Investors and businesses would likely face increased scrutiny regarding resilience planning and risk management. As resilient design and improved construction standards become indispensable, these factors will have to be integrated into the national and corporate ESG strategies2.

Social and Community Implications

Beyond the physical destruction, the societal fabric can be significantly impacted. Earthquakes tend to disproportionately affect poorer and underprepared communities, bringing social inequities to the forefront. In Cambodia, where community resilience may already be strained by rapid urbanization and uneven development, a major seismic event could amplify vulnerabilities in education, housing, and healthcare. This disruption in social stability may push policymakers and businesses to adopt more inclusive and community-centered ESG practices. Essentially, the earthquake acts as a harsh lesson in the cost of ignoring proactive social governance, emphasizing the need for comprehensive disaster preparedness and community support structures.

Governance and Regulatory Shifts

From a governance standpoint, an earthquake would likely spur a dramatic reassessment of existing legal and regulatory frameworks. Although Cambodia has been moving toward the integration of ESG principles—albeit at a relatively nascent stage—the shock of a natural disaster could serve as a wake-up call for regulators to overhaul building codes, urban planning standards, and environmental assessments. Strengthening governance in the wake of an earthquake becomes not only a matter of public accountability but also essential for restoring investor confidence and securing sustainable economic recovery. Such regulatory reforms would be critical for aligning development with long-term sustainability objectives2.

Unprecedented Impact on Development-Sustainability Balance

A seismic event underscores the inherent tension between rapid economic development and the necessity for sustainable, resilient practices. It forces a reckoning: the pace of development must be recalibrated to incorporate risk assessments and adaptive measures that guard against future disruptions. An earthquake in Cambodia would, therefore, serve as both a tragic setback and a unique opportunity—a turning point that accelerates the transition toward a more sustainable, integrated, and ESG-compliant growth model.

In the broader regional context, such a shock could stir both local stakeholders and international investors to demand higher standards of transparency, accountability, and preparedness. Companies might be required to incorporate disaster risk reduction measures into their ESG reporting, thereby increasing overall resilience and aligning Cambodia more closely with international best practices.

Looking Ahead

While Cambodia has not historically faced frequent or severe earthquakes, the hypothetical unprecedented impact of one serves as a powerful reminder: sustainable development cannot be an afterthought. Integrating sustainability and resilience into every facet of governance, business strategy, and community planning is paramount. This event would likely spark debates over necessary investments in resilient infrastructure, foster regulatory innovations, and reframe how ESG is understood in the context of national development strategies.

Beyond earthquakes, similar discussions can be extended to other natural hazards such as floods or landslides, which also pose significant risks in rapidly developing economies. The imperative remains the same: development policies must evolve to embrace a balance where economic growth does not compromise long-term social and environmental sustainability.

Exploring these impacts further, one might consider how global shifts in ESG criteria—such as those driven by climate change and natural disaster risks worldwide—could influence Cambodia’s future policy adjustments and business practices. This intersection of natural hazards and sustainable development provides fertile ground for both academic research and practical policy reforms.