ESG implementation spurs bank progress

According to State Bank of Vietnam (SBV) Governor Nguyen Thi Hong on November 11, 50 credit institutions have generated green credit with a total outstanding balance of approximately $27 billion, accounting for around 4.5 per cent of the total credit of the entire economy.

“Of this, credit for renewable and clean energy constitutes about 45 per cent, while credit for sustainable and green agriculture accounts for 30 per cent. Notably, the outstanding credit where institutions have assessed environmental risks when extending credit has increased to approximately $625 billion out of the total system’s credit of $133.3 billion,” said Hong.

These results demonstrate that the banking sector’s efforts have contributed to promoting environmental, social, and governance (ESG) practices and greening banking activities, promptly meeting the capital needs for green and sustainable projects for community benefit.

ESG implementation spurs bank progress

Furthermore, it has raised awareness and enhanced the capacity for complying with environmental protection and social responsibility regulations among enterprises using bank resources, thereby adjusting behaviour towards ESG standards and greening business operations, contributing to the economy’s sustainable development goals.

According to Dr. Pham Minh Tu, deputy director of the Banking Strategy Institute under the SBV, integrating ESG into business operations helps banks manage risks effectively while leveraging new opportunities.

“The key drivers for banks to adopt it include the increasing number of new regulations. ESG management enhances reputation and mitigates reputational risks, and integrating it into business models anticipates international trends, boosting competitive advantage. ESG risks can also negatively impact asset value, financial status, or a bank’s reputation,” said Tu.

In practice, implementation in the banking sector has recently seen considerable progress, from developing a legal framework to specific action plans such as improving governance quality to meet high international standards, digital transformation, green credit, and applying environmental risk assessment mechanisms to loans. International experience indicates that leading financial institutions in key markets are those that excel in ESG practices.

The latest data released by the SBV indicates that for a decade, financial institutions have shifted their awareness of sustainable development and ESG practices in banking operations.

Many of them, based on the regulations of the SBV, have collaborated to receive green funds and technical support from international financial organisations to develop internal regulations for managing environmental and social risks in certain credit activities.

Tu said that ESG practices in banking activities and corporate operations are becoming increasingly urgent. While opportunities exist, challenges remain for both regulatory bodies and implementing entities.

“To promote ESG practices and green the banking sector towards sustainable development goals, the SBV will continue to research and improve the legal framework to strengthen environmental, social, and climate risk management in the credit activities of financial institutions. Monitoring, guiding, and promptly resolving issues during the implementation of environmental risk management.”

Additionally, the SBV will direct financial institutions to focus resources on funding green economic sectors and projects that support national growth model transformation with low emissions, while guiding financial institutions to issue green credit and report on the implementation after the PM’s issuance of the national green classification list.

Tu also emphasised the active participation in domestic and international forums on green credit, green banking, ESG practices, and sustainable growth; alongside promoting communication, training, and enhancing the quality of workers in the banking sector to meet implementation and international sustainability standards.

“Strengthening negotiations and facilitating international financial institutions and domestic financial institutions to engage in international cooperation activities and fund green projects with environmental and social benefits will enhance resource mobilisation, contributing to the implementation of the national strategy for green growth and promoting ESG practices in Vietnam,” stated Tu.

Tran Thi Khanh Hien, research director MB Securities Company In Vietnam, the trend of ESG or sustainable investing is gaining increasing attention from both businesses and investors, especially amid global uncertainties and rising capital costs. Vietnam is an attractive destination for such investments due to its stable political environment, significant green energy potential, high urbanisation rate, and expanding middle class. Vietnamese investors are also seeking more sustainable investment targets given the current uncertainties. However, major challenges include a limited number of businesses with strong ESG practices, restricting investment opportunities; and insufficient and inconsistent information and data on corporate sustainability practices, hindering access and evaluation. To boost the development of sustainable investment funds in Vietnam, strong cooperation among market participants, including regulatory authorities, fund managers, and enterprises, is essential. Businesses should publish sustainability reports in compliance with specific regulations and under regulatory oversight. This would provide reliable data for building sustainable investment products. Additionally, incentive mechanisms should be developed to encourage the growth of sustainable funds and offer benefits to organisations and individuals investing in these funds, creating momentum for capital flow in this field during the initial phase. Le Hoai An, banking consultant Integrated Financial Solutions ESG and green projects not only reduce environmental impact but also ensure long-term economic and social benefits, contributing to a sustainable and equitable economy. However, the transition to green credit and bonds faces challenges, mainly due to the lack of clear criteria for assessing the green aspects of these projects. The domestic green bond market is valued at only around $1 billion, while the green credit market reaches about $20.8 billion. Green credit in Vietnam focuses on renewable energy projects, with evaluation standards often based on individual bank criteria rather than international practices. Few Vietnamese businesses meet the stricter requirements for funding from international green investment funds. Developing a set of quantitative standards to measure ESG compliance is a crucial first step for banks and financial institutions to objectively assess the environmental, social, and governance factors of a project. This standard should include specific criteria, such as CO2 emission reduction capacity, resource management efficiency, positive community impact, and transparent governance practices. Applying these standards not only ensures environmental sustainability but also enhances social responsibility and governance, attracting investors committed to comprehensive sustainable development.

Inefficiencies remain with ESG in banking Approximately 90 per cent of Vietnam’s banks have incorporated environmental, social, and governance practices to some extent, but significant challenges, such as data shortages, policy gaps, and insufficient expertise, hinder full implementation.

Factors to take into account for ESG implementation The COP29 summit, starting November 11, is pivotal for addressing global climate challenges. From our perspective, such international gatherings are crucial as they lay the groundwork for future policies and agreements that influence businesses worldwide, including in Vietnam.