Developing a green bond market is crucial to Vietnam's sustainable development efforts

A green bond market could supply crucial capital to underpin Vietnam's economic recovery

The Global Green Growth Institute (GGGI) today launched its report “Green Bonds Make More Cents?” which analyses trends of green bond markets globally and the experience that Vietnam can consider in order to develop its own domestic green bond market.

The report indicates that Vietnam has been building up substantial momentum to kick-off its green finance journey. The updated Nationally-Determined Contribution declared by the government reinforce its focus and commitment on a low-carbon pathway.

The recently passed Law of Environmental Protection (2020) lists out green sectors and a roadmap for potentially defining a national taxonomy of green which could give the investors much needed clarity on what defines "green" in Vietnam.

Meanwhile, Vietnam is still in the early stages of its bond market. However, reforms introduced in 2018 on easing private placement of bonds and improving disclosures are bound to propel the bond market which would attract quality investors to invest in Vietnam’s growing economy.

In addition, ASEAN Green Bond Standards (GBS) present a viable framework for the issuance of green bonds. With Vietnam’s increasing leadership in the ASEAN economy, it is well poised to adopt the ASEAN GBS.

As short-term as it may seem, the pandemic has put the brakes on climate action across the world. Vietnam’s inter-linkages with the global economy may also slow down Vietmam’s economic recovery. The country is highly vulnerable to climate change and at the same time it may also be subjected to the impacts of global carbon pricing that may be put in place to combat climate change. This could be a potential dual threat to Vietnam’s economy.

Meanwhile, climate finance requirements are considerably diverse given the country’s need. These would have to vary across energy, buildings, industry, and new infrastructure. A focus on only one sector may risk the other sectors falling behind.

Considering the nascent state of green bond market in Vietnam, the report argues that the country would focus on defining eligible green investments, introducing a regulatory framework needed to establish a green bond market as well strengthening the investor base for the green bond market.

Piloting green bond issuance through different issuer types (corporate, sovereign, municipal) is one of the steps to accelerate the development of Vietnam’s green bond market. Meanwhile, the country should sustain the long-term development of the green bond market with a strong pipeline of well-educated talents and the adoption of advanced technolgoies.

According to Hanh Le, GGGI's Vietnam country representative, in the context of post-COVID-19 recovery, countries are urged to "build back better"’ to create a more inclusive and sustainable economy that is climate resilient. Green bonds will open a new capital mobilisation channel for long-term investment projects in the infrastructure and renewable energy sectors which are not fully satisfied by traditional financial products.

"In Vietnam, it is evident that sustaining an impressive growth rate while enhancing climate resilience and addressing environmental degradation is a challenging task. It is estimated that Vietnam needs at least $35 billion by 2030 to address climate impacts and achieve its Nationally Determined Contribution target. As such, investments in clean technologies and sustainable infrastructure need to be enabled and scaled up rapidly," she said, noting that green bonds are one of the innovative financial instruments to address the challenges.