Green finance discord to be addressed

April 16, 2024 | 09:48
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Establishing a detailed green classification system and independent evaluation are recognised as key elements for steering Vietnam’s green finance sector in line with international standards.

Pham Thi Thanh Tung, deputy head of the Credit for Economic Sectors Department at the State Bank of Vietnam (SBV), underscored the potential of green finance as a pivotal lever for Vietnam’s ecological transition and net-zero targets during a seminar more than a week ago.

Tung cited robust growth in green credit, reporting an average annual increase of over 22 per cent from 2017 to 2023. By the end of 2023, the issuance of green credit by 47 financial institutions had jumped 24 per cent on-year to approximately $26.2 billion, making up about 4.5 per cent of the total economic debt.

“Investments have been channelled primarily into renewable energy and green agriculture,” Tung said, underscoring the critical role of tailored green credit programmes in business and environmental transitions. “Environmental and social risk assessments have become more robust, with such evaluated loans now constituting over 20 per cent of our economic lending, reflecting a substantial on-year growth.”

Despite the progress, however, the absence of a green classification list is particularly acute.

“The list originally identified only 12 sectors but has failed to evolve alongside the industry changes. In terms of financing substantial projects, there’s a mismatch between the long-term credit issuance and the short-term capital raising prevalent among financial institutions,” Tung explained. “This misalignment forces lending institutions into a tight spot, trying to meet the regulatory standards for short-term capital allocations to medium- and long-term loans.”

Thus, a national green taxonomy, aligned with international norms, is pivotal for precise assessments and prioritising of capital for green projects, she emphasised, suggesting that this would be foundational for aligning credit institutions with Vietnam’s green ambitions.

Green finance discord to be addressed
Green finance discord to be addressed, Source: Shutterstock

Discussing the green bond market, Dr. Can Van Luc from BIDV noted its relatively slow growth, predominantly led by major firms such as Masan and Vingroup.

“The market’s development, while more positive in recent years, has been modest with an issuance volume around $1 billion, which is small compared to Vietnam’s financial market needs and potentials for medium- and long-term financing,” he said.

Echoing the need for a robust framework, Dr. Nguyen Dinh Tho, director of the Institute of Strategy and Policy on Natural Resources and Environment, advocated for an independent certification system, an approach receiving backing from international entities and the SBV itself.

“The assessment of green projects can be complex. For simplicity and transparency, we propose that local environmental departments should handle smaller-scale projects, with larger, more complex projects managed by units under our ministry,” Tho said.

The alternative, involving direct assessments by financial organisations, brings its own set of challenges.

“It’s vital to avoid any conflicts of interest. An independent organisation would ensure the integrity of green assessments and prevent ‘playing and refereeing the game’ scenarios,” Tho added. “Also, how do we deal with projects that lose their green status post-certification, or worse, those that commit green credit fraud? These are pressing concerns that require robust solutions.”

As Vietnam positions itself in the next generation of free trade agreements, these issues take on even greater significance.

“Building a green classification system to international standards is not just beneficial but crucial for Vietnam’s sustainable and environmental goals,” Tho said.

Meanwhile, Nguyen Thien Huong, officer of the Sustainable Banking Advisory Programme at the International Finance Corporation, highlighted the adoption of independent evaluation models as recommended by the majority of countries, noting that in 2019, 86 per cent of issued green bonds were subject to independent evaluation.

“In Vietnam, organisations providing certification services as well as those offering assurance services are well-positioned to confirm environmental aspects, social management, and green project validation. For these organisations to provide independent evaluations, there is a need to enhance their financial and technical capabilities,” she said.

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In recent years, financial institutions have pivoted from solely emphasising green finance to investing in businesses that both adapt to and mitigate climate risk impacts.

By Luu Huong

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