The power of finance in green recovery

Michele Wee, CEO of Standard Chartered Vietnam

What will be the key environmental trends for a post-pandemic recovery?

With the acceleration of vaccination by governments and the reopening of economies, the stories now seem to focus more on the recovery rather than the count of new COVID-19 cases. Eyes are now on whether there will be a pivot to a sustainable way forward. The world will be shaped by how governments, companies, and investors choose to respond, and whether we choose to invest in a better future.

It is during the pandemic that countries have demonstrated that it is possible to reduce carbon emissions, and many have acknowledged the corresponding positive impact on the environment. It has, however, also shone the spotlight on issues, such as social inequalities and public health, which are being further exacerbated.

Green recovery has been a strategy discussed by many governments and international organisations, and I think it is the right way to go for a sustainable future.

How would Vietnam in particular benefit from a green recovery?

We believe that a green recovery will bring a lot of benefits to emerging economies like Vietnam, especially as it is playing an increasingly important role in the global economy and supply chain.

The world is increasingly demanding more green elements in products and services. This is the chance for Vietnam to increase its competitiveness over the long run, especially in terms of its exports to more developed economies where laws and regulations are more stringent on the product origin and environmental footprint.

In our recent survey “Borderless Business: Europe-ASEAN Corridor”, Vietnam tops the list of target markets for expansion by European companies with an ASEAN focus. Another survey conducted by Standard Chartered earlier this year suggested that Vietnam is among the top expansion destinations for ASEAN companies looking for growth opportunities in the 10-nation bloc. Green growth will help Vietnam improve its attractiveness to foreign investors and draw quality and environmentally-friendly investments into the country.

The Vietnamese government recently approved the National Green Growth Strategy for 2021-2030, with a vision towards 2050. The overall goal of the strategy is to contribute to accelerating the process of restructuring the economy in association with growth model transformation in order to achieve economic prosperity, environmental sustainability, and social equality.

What should be the role of businesses and investors in assisting a post-pandemic recovery?

The pandemic has further highlighted the importance of sustainable finance for global and local economic resilience. Previously, it was estimated that there was a $2.5 trillion funding gap per year to be filled in order to achieve the United Nations’ Sustainable Development Goals (SDGs) by 2030. The world was already falling behind in efforts to achieve the SDGs prior to the pandemic. Now, more so than ever, investments are needed from both the public and private sectors to tackle environmental and societal issues in the future.

The amount of investments needed to address world environmental and social issues is rather large, and investors, now more than ever, have an opportunity to play a meaningful role in using their capital to contribute towards sustainable development.

More and more businesses have now been aware of the need to focus on sustainability as well as environmental, social, and governance (ESG) practices. We anticipate that over the next five years we will see a continuous accelerating trend in investors putting money into the sustainable and impact investing sector. A larger segment of the markets will accept that impact investing can provide equally strong if not better returns than more conventional products.

How is financing for a green recovery initiated?

There is an increasing demand in the space of ESG finance and impact investing. A clear indicator for this is the year-to-date ESG bond volumes which have exceeded last year’s volumes 1.8 times over. We are also seeing that from a price point, ESG financing is able to price at the same levels as more conventional bonds.

Securitisation techniques with in-built tranching technology, when applied to ESG and impact assets, can lead to innovation that can accelerate and create more momentum in this space. Blended finance combines the objectives of investors willing to accept lower returns to enable impact with those who want to create impact while not foregoing return by creating products that cater to both needs. One way this can be done is via tranching in a securitised product.

Since securitisation transactions are backed by multimillion-dollar portfolios of loans and bonds, they can move the needle on ESG and impact assets in a significant way.

Given the money raised in such a space, there is a lot of interest in ESG-structured investments and markets have started to observe ‘Greenium’ for these assets. Structured investments lend themselves particularly well to innovative features, where specific ESG constraints are followed carefully.

Financing packages must not upset the sensitive balance between economic growth and natural capital. Vietnam has set a new renewable energy target of 15-20 per cent by 2030 and 25-30 per cent by 2045. The transition financing requirement in the energy sector will be sizeable.

Standard Chartered’s Opportunity 2030 report estimates that Vietnam will need $45.8 billion in financing by 2030 to achieve the SDG targets across clean water, clean energy, industry, innovation, and infrastructure.

How can international organisations like Standard Chartered support Vietnam’s recovery?

We have been an early leader in sustainable finance focused on emerging markets, from mobilising more than $5 billion in blended finance for economic development, to stopping the financing of new coal-fired power plants anywhere in the world.

Our approach brings together three themes. Firstly, we believe in the critical importance of being a responsible institution through managing the potential negative impact that our activities could have with strong ESG risk filters.

Secondly, we believe in the power finance can have to catalyse a positive impact on our communities and the environment. Our dedicated Sustainable Finance team brings together our experience and expertise in managing ESG risk as well as spotting opportunities and structuring solutions to drive positive impact financing.

Finally, we are focused on where we believe catalysing new sustainable finance matters most - regions where more capital is needed to drive related growth and where their pathway to a low carbon future will have a major contribution to the world’s ability to meet the Paris Agreement’s goal of keeping global warming well below 2oC.

As an international bank with 117 years of history in Vietnam, Standard Chartered is committed to supporting Vietnam in its endeavours to forge a green future. Recently, we partnered with the British Chamber of Commerce in Vietnam to launch a webinar series to promote sustainable development in Vietnam and the application of ESG among businesses.

The series will focus on topical matters and involve key relevant stakeholders from the government, regulators, and industry leaders to help participating businesses and organisations devise effective strategies. We kick-started the first session in late September, which drew over 200 leaders and representatives from businesses and organisations.

We have also been promoting sustainable finance in Vietnam through a range of initiatives. Just recently, we worked with Vietnam’s Military Bank to facilitate the funding for Tan Thuan and Hanbaram wind power projects. We have also launched our new Sustainable Trade Finance Proposition, designed to help businesses implement more related practices across their ecosystems and build more resilient supply chains.