Businesses, entrepreneurs and other organizations came together to explore ways innovation can boost Cambodia's sustainable development, with climate financing emerging as a dominant topic.
The AFD group organized the innovation and entrepreneurship for sustainable development in Cambodia discussion, which also examined finance for sustainable development, as well as new trends and opportunities on June 7 at Factory Phnom Penh.
The panel discussion highlighted the importance of climate financing and the need for tailored financing approaches to support companies that have a positive impact on the environment, society, and governance (ESG).
It highlights the efforts of private sector investor, SEEVA Capital, in providing flexible financial instruments, such as equity and revenue-based lending to support growth-stage companies.
The focus is on "impact gender and climates", where investments go beyond compliance and aim to add value to the investments by supporting businesses that make a positive difference in their communities.
Tean Ly, Managing Director at SEEVA Capital, said that climate financing is critical in addressing the issues surrounding adaptation and mitigation of climate change on a global scale.
She said as investors, it is important to not only consider a company's climate impact but also to ensure they have the appropriate financing, such as providing flexible financial instruments, equity for growth-stage companies, working capital for trading or agriculture, or revenue-based lending for markets where exits are challenging.
Revenue-based lending allows companies to have debt-like financing, with payments tied to their turnover. This model provides flexibility for companies to pay more when they are doing well and less when they are not. After a certain number of years, the investor gets their money back, and the owners retain the remaining shares of the company. This model is suitable for companies where assets are not readily available or there are mortality challenges.
Mao Savin, Founding Member of EMIA, added that it is important to match the financing offer with the actual needs, size, and point in the life of a specific company that investors are targeting. This tailored approach to financing is crucial to meet the company’s actual needs and capacity.
He said EMIA currently has three funds. Fund One focuses on supporting entrepreneurs who want to grow their business. The next steps, for Fund Two and Three, will target companies that are already strong, want to grow, and follow the rules. He calls this "impact gender climates”.
“We're not just trying to avoid harm, we're trying to add value to our investments,” he said, adding that he invests in companies that offer services or products that go beyond just following compliance.
“For instance, we put money into an insurance company that helps farmers protect their crops in Cambodia, where such services are rare. We want them to launch commercially viable initiatives that can really help farmers in this area,” he added.
“Our approach goes beyond mere compliance because in Cambodia, it is very difficult to find a business that meets all the legal and ethical standards. However, we value businesses that have a vision to make a positive difference, not just to earn profits, but to create a lasting impact on the communities and the society they operate in,” Mao said.
He added that he knows that this is not an easy task, but he is also confident that these entrepreneurs are dedicated and hard-working.
He emphasized that finding a balance between compliance and commercial returns for shareholders, staff, and stakeholders is not easy. However, he believes that if they establish a strong foundation and set it right, there is an opportunity to achieve both commercial success and impact.
Alexandra Mandelbaum, Country director at SNV, highlights her intuition to invest in private sector businesses that have a positive impact on the environment, society, and finances.
“We support the creation of these businesses through a process called origination, where we assess their potential and reduce risks. We work with the Dutch Entrepreneurial Development Bank (FMO), to review the businesses before they enter the origination phase.
"This helps us pre-screen them before they go through origination. If a business graduates from origination, it can receive an investment of €3 to 10 million ($3.23 to 10.78 million) from the Dutch Fund for Climate and Development.
This is a global fund with €500 million ($539 million) in total, so businesses from many countries are competing for the investment. She understands that Cambodia, for example, may have limited capacity for a €3 million ($3.23 million) project, but she believes that origination can still help businesses find other funders. She added.
Alexandra said to view this process as a development project, rather than an investment opportunity, it is their expectation that only about half of the businesses that enter origination will receive an investment from them. However, she believes that all participants will benefit from the derisking process and find other funders.
In the field of development financing, Alexandra sees a lot of capital-chasing deals. This has led to many interesting mechanisms for financing, and new enterprises are emerging to take advantage of them.
However, there is still a challenge in educating both investors and businesses about each other's needs and goals. She believes that financiers are doing a better job of recognizing the challenges that businesses face, and supporting funds that help address these challenges.
In some ways, Alexandra thinks financiers are recognizing the challenge that companies have faster now. However, she added that businesses should educate themselves about the eligibility criteria and seriously consider the financing that makes sense for them, instead of chasing unsuitable options that can lead to frustration and burnout.
“The importance of businesses understanding eligibility criteria and suitable financing options to avoid frustration and burnout. Recognizing happiness is important, too. It's essential to identify where you are in the business cycle and determine the financing that will help advance your company to the next stage. I believe this will bring more joy to the process.”
She also mentions the trends in development financing, including green financing, impact reporting, and the need for transparency and disclosure to combat greenwashing.
Hin Wisal, co-founder and Chairman of PLATFORM-Impact, highlighted the first option is green financing, specifically carbon credits. This term is becoming more common in Cambodia and similar locations where people have many questions about how to make money from carbon credits and how to plant trees to cash-on within six months.
He added that the second option relates to reporting on impact, which is about being transparent and disclosing information. The EU recently enforced new regulations related to this, but it remains unclear how many people are aware of this news.
Businesses should know It is important to be aware that the EU is tightening regulations to combat greenwashing. This means that companies not only in Europe but also those they work with, must comply with these guidelines. It is an opportunity for financing.
At Platform, he said that the third focus is on developing a pipeline of small and medium-sized enterprises and startups that are committed to this journey.
He added, “We believe that the ecosystem is growing and has the potential to reach new heights. Students can play a role in this by contributing to the vibrancy and dynamism of the ecosystem. Creating such an ecosystem is the only way to achieve this goal.
"I believe that diversifying financing instruments is one of the major trends for Cambodia. This involves not only debt, liquidity, and grants, but also planning for different types of instruments. Additionally, transparency and disclosure are becoming increasingly important."
Wisal suggested working on building a pipeline for Cambodia to attract more high-quality capital. is still perceived as a frontier market, but developing this pipeline can help change these perceptions.
“We want to attract more capital and eliminate the idea that Cambodia is just a frontier market. Remember, Marx is a frontier market, and aiming for that kind of mass is a function of this," Wisal said.
Tean Ly revealed the key qualities sought in the enterprises that criteria are willing to invest in. “It starts with the person first, then we think from there we can start talking about finances and other things. I think for me, the entry into a relationship is through the person,” she said of when she first meets the founder.
From there, she can tell if she wants to have a long-term relationship with them based on their passion, commitment, management style, and desire to build a sustainable business.
Alexandra added that it is important for enterprises to have a founding team that is truly passionate about their work and committed to building a sustainable business for the long-term. In fact, enterprises need to have a growth mindset and a clear vision of where they want to go.