PHNOM PENH — The National Bank of Cambodia’s (NBC) Sustainable Finance Taxonomy is now in effect — but how do banks actually use it to structure, assess, and disburse a genuine “green loan”?
The 110‑page document provides detailed Technical Screening Criteria (TSC), but the most practical guidance comes from Annex 5, which contains two fully worked case studies: one for a solar power plant loan and another for a grid expansion loan.
This article walks through both cases step by step, showing exactly how banks can apply the taxonomy to real projects — and avoid the pitfalls of greenwashing.
Before You Start: The Taxonomy’s Core Requirements
To qualify any loan as “green” under the taxonomy, a bank must verify three things for the underlying economic activity:
- Substantial Contribution – The activity meets the Green or Amber TSC thresholds (e.g., emissions intensity, certification, technology type).
- Do No Significant Harm (DNSH) – The activity does not damage other environmental objectives (water, biodiversity, circular economy, pollution).
- Minimum Social Safeguards (MSS) – The borrower complies with Cambodian labour laws and international human rights standards.
The taxonomy also allows a three‑year remediation pathway for DNSH or MSS gaps, during which the loan can still be labelled green if a credible action plan is in place.
Case Study 1: Bank A – Green Loan for a New 20MW Solar Power Plant
The Scenario
Client A, a renewable energy developer, approaches Bank A for a US$10 million loan to construct a utility‑scale solar PV plant in a Cambodian province. The client wants the loan designated as a “green loan.”
Step 1: Activity Identification
Bank A reviews the project proposal, technical specifications, site plan, Environmental Impact Assessment (EIA), and financial projections.
Identified activity: Electricity generation from solar PV – listed under the Energy Sector (Activity 6.1.2.1, ISIC code 3510/3510).
Step 2: Check if the Activity Is in Scope
The bank consults the taxonomy document. Solar energy generation is explicitly included.
Conclusion: In scope.
Step 3: Assess Substantial Contribution (Apply TSC)
The taxonomy’s TSC for solar energy is simple:
- Green: All energy generation from solar is eligible.
- Amber: Not applicable.
Bank’s verification actions:
- Confirms the project involves construction and operation of a solar PV plant.
- Reviews documentation showing the plant will connect to the national grid for general electricity supply (not for captive use by a fossil fuel facility).
- No emissions threshold to calculate – solar is automatically green under the whitelist.
Conclusion for Step 3: The project meets the “Green” TSC for substantial contribution to climate change mitigation.
Step 4: Assess Do No Significant Harm (DNSH) – Voluntary but Recommended
Although DNSH is not yet mandatory in Cambodia’s taxonomy, Bank A’s internal green finance policy requires it. The bank reviews:
- Climate change adaptation & resilience: The EIA includes a climate risk assessment for flooding and extreme heat. Site elevation and panel cooling strategies are documented.
- Water & marine resources: Water-efficient panel cleaning methods are specified. No impact on local water availability.
- Circular economy: The client has a plan for end‑of‑life panel recycling (though Cambodia’s recycling infrastructure is developing, the plan is considered adequate).
- Pollution prevention: Construction waste management and soil protection measures are outlined.
- Biodiversity: The site is not in a protected area; an environmental management plan minimises habitat disturbance.
The bank finds no significant harm. It documents all findings.
Step 5: Assess Minimum Social Safeguards (MSS) – Voluntary but Recommended
Bank A checks the client’s adherence to:
- Labour rights: Compliance with Cambodia’s Labour Law (1997), Social Security Law (2019), and Trade Union Law (2016). The client provides written commitments.
- Land acquisition: The land was acquired on a “willing‑seller, willing‑buyer” basis with no forced resettlement. Documentation is provided.
- Community health & safety: Traffic management and site security plans are in place.
- Indigenous peoples & cultural heritage: No impact on indigenous communal land titles or cultural heritage sites.
Conclusion: The client meets MSS requirements.
Step 6: Conclude on Taxonomy Alignment and Structure the Loan
Bank A determines the solar PV project is Green Aligned.
Loan terms:
- Designation: Green loan.
- Use of proceeds: Exclusively for the development, construction, and commissioning of the specified 20MW solar plant.
- Covenants: Client must provide annual operational reports (energy generated, emissions avoided). Optional environmental impact update.
- Reporting: Bank A includes the loan in its green asset portfolio and can report it as taxonomy‑aligned to the NBC and investors.
Case Study 2: Bank B – Green Loan for Electrical Grid Expansion
The Scenario
Client B, a national transmission system operator, seeks a US$50 million loan to:
- Build a new high‑voltage transmission line and substation connecting a 100MW solar power park to the national grid.
- Reinforce the grid in a rapidly developing industrial zone (not dedicated to a single renewable generator).
The client wants the entire loan designated as “green.”
Step 1: Activity Identification
Bank B identifies two distinct economic activities under the same loan:
- Component 1: Transmission line and substation dedicated to connecting the solar park.
- Component 2: General grid reinforcement for the industrial zone.
Both fall under Transmission and distribution of electricity (Activity 6.1.2.14, ISIC code 3510).
Step 2: Check If Activities Are in Scope
The taxonomy explicitly includes transmission and distribution infrastructure. Both components are in scope.
Step 3: Assess Substantial Contribution (Apply TSC Separately)
Component 1 (solar connection):
The taxonomy’s Green criteria include: *”Transmission and distribution infrastructure dedicated to a direct connection … between power plants with energy intensities less than 100g CO₂e/kWh (life‑cycle emissions).”*
Bank B verifies:
- The line is built solely to connect the 100MW solar park.
- The solar park’s life‑cycle emissions (using industry benchmarks) are well below 100g CO₂e/kWh.
- Conclusion: Component 1 is Green.
Component 2 (industrial zone reinforcement):
This is not dedicated to a low‑carbon plant. The taxonomy offers two alternative Green pathways:
Option A: At least 67% of newly connected generation capacity in the system over a rolling five‑year period is below 100g CO₂e/kWh.
Option B: The average system grid emissions factor is below 100g CO₂e/kWh over a rolling five‑year average.
Bank B’s challenge: Precise, life‑cycle‑based data for Cambodia’s grid is not yet available. The bank works with Client B to:
- Use the Power Development Master Plan (PDP) 2022‑2040, which projects a rapid increase in solar and hydropower.
- Estimate that over the next five years, new renewable capacity will exceed 67% of all new connections in that region.
- Document assumptions and data sources transparently.
Based on the PDP and recent renewable additions, Bank B concludes that Component 2 is on a credible decarbonisation trajectory and therefore meets the Green criteria under Option A.
Conclusion for Step 3: Both components are Green.
Step 4: Assess DNSH (Voluntary)
Bank B reviews:
- Climate adaptation: New lines and substations are designed to withstand typhoons and flooding (based on climate risk mapping).
- Pollution: SF₆ gas used in substations – client has a leak detection and end‑of‑life management plan.
- Biodiversity: Route selection avoids protected areas and critical habitats; bird diverters and re‑vegetation plans are included.
No significant harm is identified.
Step 5: Assess MSS (Voluntary)
Same as Case Study 1 – labour rights, land acquisition (transmission lines cross multiple private plots; compensation was paid with no forced resettlement), community safety, cultural heritage. Client B provides evidence of compliance.
Conclusion: MSS requirements are met.
Step 6: Conclude on Taxonomy Alignment
Bank B determines that both components are Green Aligned. The entire US$50 million loan qualifies as a green loan.
Loan terms:
- Designation: Green loan.
- Use of proceeds: Allocated to the specified transmission lines and substation.
- Reporting (optional): Client to provide updates on renewable generation connected to the reinforced grid.
Key Lessons for Banks from the Two Case Studies
| Lesson | Case Study 1 (Solar) | Case Study 2 (Grid) |
|---|---|---|
| Disaggregation | Single activity, easy to assess. | Multiple components; each must be assessed separately. |
| Data availability | Solar is whitelisted – no complex emissions data needed. | Requires system‑level data or credible projections (PDP, grid mix). |
| DNSH/MSS | Voluntary but recommended to avoid future regulatory risk. | Same; essential for credibility with international investors. |
| Documentation | Keep EIA, land agreements, labour compliance records. | Document assumptions for decarbonisation trajectory (e.g., PDP). |
| Third‑party verification | Not yet mandatory but strongly advised for large loans. | Highly recommended for complex infrastructure. |
Practical Steps for Banks to Implement the Taxonomy
Based on the case studies, banks should:
- Train credit officers on the taxonomy’s TSC for at least the three initial sectors (Energy, Transport, Buildings).
- Create an internal green loan checklist mirroring Steps 1–6 above.
- Develop a remediation plan template for DNSH or MSS gaps (three‑year grace period allowed).
- Engage with independent verifiers (e.g., environmental consultants, accredited auditors) for large or complex loans.
- Integrate taxonomy alignment into loan documentation – use‑of‑proceeds covenants, reporting obligations.
- Start tracking green, amber, and red assets in the loan book – the NBC may soon require disclosure.
FAQ: Green Loans Under Cambodia’s Taxonomy
Q: Is independent verification mandatory for a green loan?
A: Not yet. The taxonomy encourages third‑party verification, and it is expected to become mandatory in future phases. For now, banks can self‑assess, but verification adds credibility.
Q: What if a project meets the TSC but fails DNSH or MSS?
A: The taxonomy allows a three‑year remediation pathway. The bank can still label the loan green if the borrower provides a time‑bound action plan to correct the deficiencies.
Q: Can a loan be partially green?
A: Yes, if only part of the proceeds finance a green activity (e.g., grid component 1 is green, component 2 is not). The bank should disclose the green share.
Q: Where can I find the full case studies?
A: Annex 5 of the NBC’s Sustainable Finance Taxonomy for Cambodian Banking Sector (Version 1, April 2026), pages 80‑88.