Setting the path towards integrated climate financing

Ramla Khalidi, resident representative in Vietnam of the United Nations Development Programme

At the International Conference on Financing for Development in Seville in July, member states reaffirmed their commitment to catalysing investment for sustainable development, addressing rising debt crises, and reforming the international financial architecture for greater equity.

Vietnam’s Deputy Prime Minister Ho Duc Phoc also underlined the importance of these areas as he addressed the plenary, calling for the mobilisation of resources for green transition, circular economy, innovation, digital transformation, along with reforms to multilateral funding and increasing cooperation and knowledge sharing in key areas.

These international commitments take on particular significance for Vietnam, where development financing has shown steady growth, reaching 34.8 per cent of GDP in 2020. Yet this impressive figure masks a critical gap. The World Bank estimates that Vietnam requires $368 billion in cumulative funding by 2040 for climate mitigation and adaptation alone - a scale far beyond current development flows, underscoring the urgency of reforms needed in the country’s climate financing approach.

Vietnam’s remarkable economic transformation over recent decades has demonstrated the nation’s capacity for strategic reinvention. However, achieving the ambitious goal of high-income status by 2045 while building climate resilience demands a fundamental shift in approach to development financing.

Vietnam needs a comprehensive plan that treats development and climate goals not as competing but complementary priorities. This must take into account what the total cost of climate action and green transition will be, how they can be mobilised and deployed to advance economic development, inequality reduction, other national development priorities, and at the same time, also addressing climate action.

National ownership is key

Current climate commitments, including Nationally Determined Contributions (NDCs), national action plans, and the net-zero pledge represent important foundational steps. However, these efforts, while highly commendable, have been driven significantly by external frameworks and compliance requirements rather than from the national development agenda.

To unlock its full potential, Vietnam must transition from externally driven climate action and financing to an integrated and comprehensive, nationally owned strategy that positions climate investments as drivers of economic competitiveness rather than mere regulatory obligations.

While Vietnam has developed its NDCs, it still lacks an accompanying financing strategy that incentivises private and public investment for implementation. The NDCs also do not integrate social sectors and national development goals.

The Ministry of Industry and Trade estimates that for the power sector alone, Vietnam needs to mobilise $142 billion for renewable energy and the electricity grid between now and 2030. To put this figure in perspective, total investment in Vietnam was $117 billion in 2021.

The $15.5 billion Just Energy Partnership (JETP) between Vietnam and the G7 is an important contribution to this effort, but even under the most optimistic scenarios would represent a small fraction of the financing required.

The 80th anniversary of Vietnam’s financial sector formation offers a strategic moment for reflection. The sector’s evolution from supporting a centrally planned economy to facilitating market-based development demonstrates remarkable adaptability. Now, it must evolve once again to become a catalyst for green growth, channelling resources towards investments that simultaneously advance socioeconomic development and environmental sustainability.

Integrated climate financing represents a paradigm shift that embeds climate considerations into national budgeting and financing systems, strengthens inter-ministerial coordination, and develops domestic capital markets capable of channelling funds towards long-term climate investments.

Vietnam has started laying some important groundwork for this integration. The State Bank of Vietnam’s development of a green taxonomy provides a classification system for sustainable investments, while green bond market development and climate risk assessment initiatives demonstrate growing institutional capacity. These achievements, however, require scaling and deeper integration across government institutions and the financial sector to realise their full potential.

Public and private capital roles

Realising this vision requires concrete action across several dimensions. Firstly, Vietnam must systematically embed climate considerations into annual budget processes, moving beyond project-based funding to climate-integrated fiscal policy. This transformation demands robust climate budget tagging systems and ensuring alignment between fiscal decisions and NDC targets, creating coherence between spending patterns and climate commitments.

Secondly, effective cross-sectoral coordination is essential to effectively mobilise and deploy climate finance at scale. A coordination mechanism with clearly defined governance structure, roles, responsibilities and accountability is needed.

In Vietnam, the Ministry of Finance, especially after the merging with the former Ministry of Planning and Investment, is well positioned to play the leading role in a multi-stakeholder coordination platform, stewarding public and private actors under strong political leadership to align and synergise on climate investments, unlocking greater development impact. Coordination must be accompanied by critical institutional capacity building across all relevant levels of government.

Thirdly, mobilising private capital through innovative de-risking instruments and collaborative financing structures remains crucial. Public resources alone cannot meet Vietnam’s climate investment requirements. However, the domestic financial system is constrained in its capacity to mobilise capital on the scale required in a prudent, non-inflationary manner.

The government must create an enabling environment and regulatory frameworks for private investment through guaranteed mechanisms, risk-sharing instruments, and blended finance structures that leverage public resources to attract private capital at scale.

The JETP exemplifies the potential of blended finance approaches to mobilise private sector investment. This landmark initiative, for which we act as a secretariat support agency, demonstrates how strategic public sector commitments can catalyse broader financing flows. By combining concessional public finance with market-based mechanisms, the JETP creates a framework for attracting private investment in renewable energy infrastructure while ensuring just transition principles for affected communities and workers.

Fourthly, Vietnam should expand its sustainable finance taxonomy to ensure compatibility with international standards while reflecting national development priorities. This alignment will support market development and provide clear signals to investors about the country’s strategic direction, facilitating cross-border investment flows while maintaining sovereignty over development choices.

Finally, robust regulatory frameworks should support public and private climate financing to align with Vietnam’s NDCs and green growth strategy. This requires removing regulatory barriers to innovative financing instruments, streamlining procedures for climate finance project approval, reducing transaction costs and accelerating the deployment of climate solutions. Additionally, regulatory reforms are needed on eligibility criteria for accessing concessional finance, to support Vietnam in reaching its development goals.

With an estimated $4 trillion annual financing gap to achieve the UN’s Sustainable Development Goals globally, Vietnam’s success in demonstrating that integrated, country-led climate financing delivers superior development outcomes will provide valuable lessons for other countries navigating similar constraints and opportunities. An integrated national financing framework for climate could set out the framework for this effort.

As Vietnam embarks on this transformation, the path forward is clear: integrated climate financing driven by national priorities offers the most promising route to achieving both development ambitions and climate objectives. The question is not whether Vietnam can afford to pursue this approach, but whether it can afford not to.