- A new report shows that major banks operating in Southeast Asia are failing to address the environmental and human rights consequences of their investments in large-scale hydropower dams along the Mekong River.
- The report from sustainable finance watchdogs reveals regulatory shortcomings at regional and national levels that it says fail to hold banks accountable for their investments.
- Riverside communities and rights groups have long questioned why banks operating in Mekong countries continue to fund environmentally damaging hydropower projects in neighboring countries, despite the high costs and consequences for communities in their own country.
- The report calls on financial institutions to adopt more sustainable banking policies and practices when deciding which projects to support.
Major banks operating in Thailand and Vietnam aren’t doing enough to address the environmental and human rights consequences of their investments in large-scale hydropower dams along the Mekong River, according to a new report.
The report, by Fair Finance Asia, a network of more than 90 civil society organizations led by Oxfam, and Netherlands-based sustainability research organization Profundo, scrutinized the policies of three banks based in Thailand and three based in Vietnam, including their capacity to uphold their publicly stated environmental, social and governance (ESG) commitments.
The findings reveal regulatory shortcomings at national and regional levels that fail to hold banks accountable for their investment decisions. The report also uncovered a lack of meaningful implementation of international standards in environmental and human rights among Mekong hydropower funders.
Given that the power purchase agreements that essentially greenlight hydropower projects ultimately hinge on the availability of long-term funding, the report says banks and investors play an important role in ensuring that environmental and social safeguards are implemented by companies during the construction, operation and decommissioning of hydropower plants.
Experts are calling on banks and investors to adopt more sustainable banking policies and practices when deciding which projects to support. In particular, they call on the region’s financial institutions to align their practices with international standards.
“Large hydropower infrastructure projects have been proven to cause extensive social and environmental damage,” said Bernadette Victorio, program lead at Fair Finance Asia. “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.”
The report is the latest evidence to raise questions on why banks operating in Mekong countries continue to finance environmentally damaging hydropower projects in neighboring countries, despite the high costs and consequences for downstream countries, including their own.
Of the six assessed banks, Thailand’s Siam Commercial Bank (SCB) was evaluated as being the most closely aligned with a set of five criteria based on international sustainability standards. As the only bank with a sector policy on hydropower and the only signatory to the Equator Principles, SCB commits to identifying, assessing and managing environmental and social risks, according to the report. However, all six banks scored poorly on areas such as human and labor rights, assessment of cumulative impacts of projects, and supply chain standards.
The report also found that although banking associations operating in Thailand and Vietnam encourage responsible investment, at least on paper, countries such as Cambodia and Laos are yet to develop any such rules or guidance. The banking guidelines issued in Thailand and Vietnam, however, are far from adequate, the report notes, being only voluntary frameworks.
Decisions overly reliant on investment
Hydropower dams have been a regional sticking point in the Mekong Basin for decades. There are currently more than 160 hydropower dams along the river and its tributaries, including 13 that span the river’s entire mainstream channel. With nine further mainstream projects in various stages of planning in Laos and Cambodia, largely motivated by the prospect of selling energy to regional neighbors like Malaysia and Singapore, the pace of damming continues unabated, despite the risks.
The relentless damming has altered the river’s crucial seasonal flood pulse that drives regional fisheries and agricultural productivity, with implications for the lives and livelihoods of millions of basin residents. Dams also disrupt sediment flows and sever fish migration routes, jeopardizing ecosystems and freshwater wildlife unique to the region. According to the new report, the impacts of dams on communities and ecosystems could amount to $145 billion by 2040.
Activists and watchdog groups have long pointed to the basin’s outdated governance structure as a driver of poor decision-making along the river system. The 1995 Mekong Agreement between the four lower basin countries of Laos, Thailand, Cambodia and Vietnam and implemented through the intergovernmental Mekong River Commission, for instance, is not legally binding and does not allow any national government the powers to veto projects on the river, even if deemed harmful to the river and its resources.
As a result, dams have typically been built on a project-by-project basis, with decisions focused more on the availability of funding rather than a sincere assessment of the cumulative impacts of dams or whether the dam is actually required in the first place.
Riverside communities who ultimately bear the consequences of dams have also criticized the lack of civil society input into development decisions. Participation is particularly difficult in cases where developments are situated in neighboring or upstream countries outside of the governance systems with which communities can engage. Many say they feel felt left in the dark.
“Ultimately, the developers are just thinking about budgets, profits and business. They don’t think about people or the environment, just business money,” a Thailand-based environmental activist told Mongabay in 2023.
Moreover, women are particularly hard hit by the consequences of community displacement and resettlement due to dams, according to the report. Unpaid care and domestic work, poverty and stress-related health issues are typically poorly addressed in financiers’ and developers’ impact assessments, and women often have trouble accessing compensation mechanisms.
Align with international standards
Given the central role of investment decisions in the fate of Mekong hydropower projects, and in turn, their influence on the integrity of the whole river system, investment regulations must be strengthened to align with environmental and human rights standards, the report says.
It calls on banks to develop and disclose clear policies on human rights and environmental due diligence aligned with U.N. principles; improve risk assessment processes by considering gender and historically marginalized groups; support efforts to improve the civic space in Asia; and develop and implement measures that seek to remedy impacted communities and businesses. It also calls on national and Association of Southeast Asian Nations (ASEAN) member state policymakers to set stricter environmental impact requirements for hydropower projects and to prioritize assessments of their transboundary and cumulative basin-level impacts.
Cross-border financing of hydropower will also have an immense impact on the Mekong region’s capacity to transition its energy sector away from fossil fuels to meet national decarbonization goals, the report says. With this in mind, the report recommends that financial regulators encourage commercial banks and asset managers to develop hydropower sector policies and central banks to create more inclusive dialogue platforms that facilitate cross-border coordination.
Investors must consider the rights and wellbeing of communities and ecosystems to ensure the energy transition is just and equitable, Victorio said. “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.”
Juliette Laplane, senior policy researcher at Profundo, said banks also have a role to play in undoing some of the harm already exerted on the river system and the communities it sustains. Upholding transparency, accountability and responsibility in line with international standards will be key to this process. “This includes exerting their responsibility to enable remediation when they have business relationships with companies involved in human rights violations.”
Carolyn Cowan is a staff writer for Mongabay. Follow her on 𝕏, @CarolynCowan11.
Banner image: The 1,285-megawatt Xayaburi Dam spans the mainstream Mekong in Laos. Communities downstream in Thailand have blamed the megadam for dwindling fish catches and unseasonal water level fluctuations. Image by Water Alternatives via Flickr (CC BY-NC 2.0).
See related story:
Robust river governance key to restoring Mekong River vitality in face of dams
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