ESG and GESI principles transforming businesses

In the lush fields of Mondulkiri province, Ms. Pel Nean, a Bunong Indigenous farmer, tends to her coffee plants with renewed hope. She explains in her own words: “I am very happy to work with Kofi Company. They have provided me with climate-resilient coffee trees to expand my farm and replace my dead trees. Additionally, I have received technical support and a commitment to purchasing my coffee cherries. These efforts have motivated me to continue growing coffee to generate income for my family.”

Ms. Nean’s story embodies a small yet significant victory in Cambodia’s broader fight against climate change—a fight that cannot be won without transforming businesses' operational practices.

Cambodia stands at the intersection of climate vulnerability and economic development. As temperatures rise and weather patterns become increasingly erratic, the country faces an existential threat. Floods and droughts now occur with alarming frequency, jeopardising the agricultural sector that employs over 60% of rural Cambodians and contributes nearly a quarter of the nation’s GDP.

For an economy that still possesses a strong agrarian component and a significant rural population reliant on natural resources, these climate disruptions threaten not only individual livelihoods but also national food security and economic stability. Yet, as the danger escalates, the resources available to tackle it remain limited. Globally, merely 20-25% of climate finance is allocated towards adaptation efforts, resulting in a funding gap of approximately USD 711 billion, according to the UNFCCC.

Investors examining Cambodia perceive both opportunities and risks. The country presents considerable growth potential; however, climate vulnerabilities and historically limited corporate governance pose significant barriers to investment. This is where the concept of “de-risking” becomes essential.

For businesses pursuing international investment, showcasing robust ESG practices has become vital. Mr. Song Saran, CEO of Amru Rice, one of Cambodia’s prominent rice exporters, has witnessed firsthand how the implementation of ESG can facilitate access to financing.

“When we began developing our Environmental and Social Management Plan and implementing our Environmental and Social Management System, we witnessed immediate interest from international investors,” said Mr. Song Saran, CEO of Amru Rice. “Impact investors who had previously been reluctant to engage with businesses in emerging markets are now approaching us, as we possess a safeguard management system that provides assurance on how we mitigate risks and create sustainable value. This has not only attracted financing options but has also fostered more favourable and long-term partnerships.”

This investment reality resulted in the establishment of the Dutch Fund for Climate and Development (DFCD) in 2019. Operated by a consortium that includes the Dutch Entrepreneurial Bank (FMO), Climate Fund Managers (CFM), the World Wide Fund for Nature—Netherlands (WWF-NL), and SNV, DFCD aims to strengthen the resilience of vulnerable communities while safeguarding essential ecosystems.

When DFCD first approached Cambodian businesses about integrating Environmental, Social, and Governance (ESG) principles alongside Gender Equality and Social Inclusion (GESI), the reception was often tepid. Many businesses initially perceived ESG requirements as regulatory obstacles rather than strategic advantages. Kofi, a coffee company based in Cambodia's northeastern highlands, experienced a significant shift in perspective through their collaboration with DFCD.

The challenges were significant. Many Cambodian businesses, especially small and medium enterprises (SMEs), lacked the technical expertise and financial resources to effectively implement ESG and GESI frameworks. Cultural and social norms created additional barriers, particularly regarding gender-inclusive policies. Weak institutional enforcement and the lack of standardised guidelines further complicated adoption.

SNV, through the DFCD programme, began collaborating closely with companies such as Amru Rice and Kofi, providing training, mentoring, and technical support to assist them in integrating ESG principles into their operations. External consultants evaluated environmental and social safeguards within the management practices, operations, and supply chains of both companies. Based on these assessments, Environmental and Social Management Plans (ESMPs) were developed, outlining strategies to mitigate risks and enhance sustainability. At the same time, Gender Action Plans (GAPs) were created to incorporate gender-inclusive strategies into business operations, ensuring equitable opportunities and promoting inclusive growth throughout their value chains.

What began as compliance exercises soon revealed deeper business value. For Kofi, the transformation was particularly striking. "We now fully understand the significance and impact of integrating ESG and GESI into our business strategy and supply chain," says Mr Chhay.“ Since implementing these initiatives, we have gained a strong reputation for conducting impactful business. This has enabled us to collaborate effectively with local NGOS in Mondulkiri and other projects. Additionally, we have built trust with coffee farmers, resulting in nearly double the supply in 2024."

This enhanced reliability in the supply chain represents a concrete business benefit. By collaborating more equitably with indigenous farmers and adopting climate-resilient agricultural practices, Kofi has ensured a more stable source of raw materials—an essential advantage in an age of climate disruption.

For Amru Rice, the benefits extended directly to accessing capital. Mr. Saran notes, "The Environmental and Social Management Plan and Gender Action Plan, developed with the support of DFCD, have been crucial in assisting Amru Rice to mitigate risks and ensure compliance with the environmental and social safeguards required by buyers and potential investors."

Capital flows follow good practice

The results speak for themselves. DFCD's initiatives regarding ESG and GESI have significantly contributed to mitigating risks associated with Amru Rice's investment profile. Emerging Markets Investment Advisers (EMIA), based in Singapore, was the first to invest, thereby strengthening Amru's balance sheet and making it more appealing to larger financiers. Subsequently, Amru received term sheets from other institutional investors, which paved the way for significant growth.

Meanwhile, Kofi obtained financing from a local bank to upgrade its coffee roasting facility and is actively seeking additional funds to expand agroforestry coffee production in Mondulkiri province.

A ripple effect of resilience

Integrating ESG and GESI principles does more than attract investment; it fosters resilience throughout the value chain. When businesses such as Amru Rice and Kofi adopt regenerative agriculture and agroforestry practices, they assist communities in adapting to climate change while preserving biodiversity and protecting vital ecosystems. By implementing gender-inclusive policies, they harness the full potential of their workforce and supply chains, often unearthing innovative solutions that drive economic progress and enhance project success.

The integration of ESG and GESI principles creates a virtuous cycle. Companies become more resilient to climate shocks, more appealing to investors, and more advantageous to their communities. This enhances business performance, which attracts further investment, enabling a greater impact across the value chain.

The successes of Amru Rice and Kofi demonstrate that ESG integration is not only possible in the Cambodian context, but also advantageous. However, challenges persist in scaling these practices across Cambodia's private sector, particularly among smaller enterprises with limited resources.

Organisations like SNV continue to play a crucial role by providing the technical support and capacity building essential for making ESG integration accessible to businesses of all sizes. Success stories such as Amru Rice and Kofi help to shift the narrative from viewing ESG as a compliance burden to recognising it as a business opportunity.

For Ms. Nean and thousands of other Cambodian farmers and workers, this shift represents more than an abstract business concept; it signifies climate-resilient livelihoods, equitable economic opportunities, and a more sustainable future. As climate change intensifies, these outcomes are not merely desirable; they are essential for Cambodia's ongoing development and prosperity. By thoughtfully integrating ESG and GESI principles, Cambodian businesses are not only preparing for climate challenges; they are constructing a more resilient, inclusive, and sustainable economy, one company, one farmer, and one investment at a time.