Vietnam is one of the fastest growing economies in Southeast Asia, with an average GDP growth rate of 7.5% (between 2001-2005), 6.3% (between 2006-2010) and 5.9% (between 2011-2015), showing an expansive but not sustainable development model. Moreover, the growth in Vietnam has been based on a carbon intensive path which has put a lot of pressure on the environment.
The mounting air pollution and acute consequences of climate changes are caused by exponential energy demands, over reliance on coal and oil as primary energy sources, insufficient participation by the private sector, inadequate legal frameworks, and lack of budget.
Vietnam’s GHG emissions are increasing dramatically. Between 2010 and 2030, its overall emissions will increase fivefold, per capita emissions fourfold, and the carbon intensity of GDP by 20%. In Vietnam, banks and financial institutions can play an important role in lowering the carbon footprint of rapid growth by redirecting capital flows to environmentally responsible projects and innovative technologies. Capital markets, which have a crucial role to play in financing the transition to a green economy, remain relatively under-developed.
Key policies and governance approach
In 2018, the State Bank of Vietnam approved a program and action plan on green bank development. The action plan is aimed to further encourage and incentivize credit flows into green projects, especially those aligned with Vietnam’s national goals for sustainable development by 2030. The regulator has set two targets by 2025. First, all financial institutions will set up an environmental and social (E&S) management system and integrate E&S risk assessment into credit risk assessment. Second, at least 10 to 12 banks will establish specialised units for E&S risk management and green finance.
To achieve the goals, the Government of Vietnam has issued several policies in relation to sustainable finance. For example, the directive on promoting green credit growth and environmental and social risks management in credit granting activities (No.03/CT-NHNN), the Action Plan of the banking sector to implement the National Green Growth Strategy until 2020 (Decision No.1552/QĐ-NHNN), Decision approving the scheme on green bank development in Vietnam (No 1604/QD-NHNN, State Bank of Vietnam, 2018), and Decision 1731/2018/QD-NHNN issued to set the Action Plan of the banking sector towards the 2030 agenda and Vietnam SDGs (State Bank of Vietnam, 2018).
Furthermore, the new Law on Environmental Protection (No.72.2020/QH14) was enacted and will come into effect from 1st January 2022. In contrast to its predecessor, the new law introduces green credits and green bonds as resources for environmental protection. It will also lay out a further roadmap for the grant of green credit and mechanisms to encourage such green credits.
Successes and Remaining Challenges
A survey conducted by the State Bank of Vietnam in early 2019 revealed that 76% of participating banks had developed sustainable financing strategies. In addition, 17 banks had established environmental and social systems to comply with regulatory requirements, and 25 banks had conducted risk-based environmental and social due diligence for corporate and project financing transactions. The results show the readiness of Vietnamese banks to pursue sustainable financial policies, which are critical to capturing new business opportunities.
Initiatives and Development Plans
The State Bank of Vietnam (SBV) is actively developing a number of initiatives to support the flow of green finance, including financial incentives, a catalogue of green assets and products, and green credit reporting guidelines.
- Develop mechanisms for enhancing the exchange and cooperation among investors to enhance capital mobilization, improve capacity, and promote participation in green projects.
- Improve the policy framework and instruments to mobilise resource for green growth, focusing on programs and measures to promote carbon markets, such as the creation of a unified "green and sustainable taxonomy," a list of projects and mechanisms to promote green investment, and the synchronized development of green capital markets, insurance, project appraisal systems, and market-based emission exchange mechanisms.
- Increase state investment and prioritize funding from public investment programs for green growth. Promote the role of state-owned enterprises and large corporations to orient the market and lead to green production and consumption.
- Strengthen the mobilization of climate change and green growth finance from financial institutions and international funds. Prioritize concessional loans, ODA, and technical assistance from other countries and international organizations to implement green growth goals.
- Formulate or amend institutions and policies for green public procurement, incorporate environmental standards into the procurement process, train professionals for green public procurement, and establish specific incentive mechanisms for companies to participate in the supply of green products and services.
- Continue to effectively apply economic instruments such as special consumption taxes, environmental protection fees and levies to regulate unreasonable consumption behaviour that adversely affects health, culture and the environment.
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