Committing capital

International financial institutions are actively supporting Vietnam in its transition towards a green economy and sustainable development.

The Asian Development Bank (ADB) plans to mobilize resources of up to $3 billion for some 23 projects in Vietnam during the 2023-2026 period, ADB President Masatsugu Asakawa said at celebrations for the 30th anniversary of the Vietnam - ADB partnership held by the State Bank of Vietnam (SBV) and the ADB on March 13 and attended by Prime Minister Pham Minh Chinh.

The ADB’s cumulative support for Vietnam over the past 30 years has amounted to some $18 billion, improving regional connectivity, strengthening environmental management and green investment, promoting the transition to climate-resilient development, increasing access to education, health, and social services, and supporting the development of ethnic minority communities. The ADB has also committed $2.1 billion to Vietnam for implementing the Just Energy Transition Partnership (JETP) and the Energy Transition Mechanism (ETM), which is a new financial tool for coal-fired thermal power plants to cease operations and be replaced by cleaner energy sources.

Active support

Also in March, leaders from the US’s Export-Import Bank (EXIM) and the Vietnam Development Bank (VDB) signed a $500 million MoU during a visit by a delegation of leading US companies to Hanoi from March 18 to 21. EXIM will work with the VDB to pinpoint potential infrastructure and renewable energy projects that accelerate Vietnam’s green transition. The agreement signals US support for Vietnam’s ambitious climate goals and the energy transition needed to achieve them.

“The MoU we signed demonstrates our shared commitment to strengthening the US-Vietnam commercial relationship and dedication to creating opportunities that strengthen the economies of both our nations,” said EXIM President and Chair Reta Jo Lewis. “We are excited to collaboratively seek financing opportunities to advance mutually-beneficial projects and support US exporters looking to do business in Vietnam.”

On March 6, meanwhile, the International Finance Corporation (IFC) announced a new investment through a green loan facility that will help develop more renewable energy projects in Thailand, Indonesia, and Vietnam, with $64 million going to the Sermsang Palang Ngan Company Limited (SPN) to address the region’s growing energy demand.

The IFC also invested some VND3.5 trillion ($150 million) in Vietnam’s first local currency sustainability-linked bonds (SLBs), issued recently by the BIM Land JSC and its subsidiary, the Thanh Xuan JSC, to allow them to improve water conservation and energy efficiency in three of their hospitality assets. “Private capital is key to Vietnam’s green transition,” said Mr. Thomas Jacobs, IFC Country Manager for Vietnam, Cambodia, and Laos. “The issuance

of the first local currency SLBs in the country will signal the viability of innovative green financing instruments as an alternative source of capital for climate-smart projects. The IFC’s funding will also encourage developers to align their interests with responsible investment and to mobilize funding from green capital markets, paving the way for a sustainable tourism sector.”

To date, the IFC has committed over $900 million in longterm finance to support climaterelated projects in Vietnam. Its total commitments reached close to $1.9 billion in fiscal year 2023, ending June 30, helping local companies recover from the Covid-19 pandemic and navigate the challenging internal and external environments.

Vietnam and the World Bank (WB) have agreed to quicken the implementation of existing projects and promote game-changing endeavors within the framework of the latter’s $5-7 billion loans for Vietnam over the next three years, according to an agreement signed by Prime Minister Pham Minh Chinh and WB President Ajay Banga in Dubai last December on the sidelines of the 28th UN Climate Change Conference of the Parties (COP28). Mr. Banga affirmed that the WB considers Vietnam an important partner and will continue to help it meet its development goals.

The WB’s Board of Directors previously approved a $263.9million International Development Association credit for Vietnam aimed at bolstering the country’s efforts to achieve an inclusive, green, and digitally-driven economic recovery, with reforms aimed at supporting households and businesses and the expansion of renewable energy. “Reforms supported by this credit will strengthen Vietnam’s ongoing recovery from the Covid-19 pandemic and subsequent commodity price shocks, while paving the way for more inclusive, greener, and digital-friendly development,” said Ms. Carolyn Turk, WB Country Director for Vietnam. “We look forward to working with the government to implement these reforms and support Vietnam to achieve its development goals.”

Elsewhere, HSBC Vietnam has announced its commitment to arranging up to $12 billion of direct and indirect sustainable financing for Vietnam and the country’s corporate sector by 2030. The funding targets support for the Vietnamese Government’s aspiring climate goals and COP26 commitment to become a netzero economy by 2050. The bank has expressed its plan to financially and expertly back corporates’ promising and critical green and sustainable projects in Vietnam, which play a vital role in decarbonizing the country’s economy.

“HSBC Vietnam has always supported our clients in their transition journeys,” said Mr. Daniel Small, Head of Structured Banking & Sustainable Finance at HSBC Vietnam. “So far, we have supported a variety of different sectors across the public and private sector, including pure green players like renewables, water, and waste, those vulnerable to climate change risks, such as agriculture, and others in the manufacturing sector, like textiles and garments and electronics.”

Absorption capacity

Vietnam has publicly announced a set of ambitious sustainability targets, including committing to achieving net-zero emissions by 2050, HSBC has noted. The country expressed its determination by becoming the 12th country to submit its updated Nationally Determined Contribution (NDC) in 2020. Since then, multiple strategies and policies have been created to realize these commitments. “The general policies are supportive of green and sustainable economic development,” Mr. Small said.

Vietnam’s National Green Growth Strategy 2021-2030 and vision to 2050 is a testament to the country’s efforts. The JETP Resource Mobilization Plan, meanwhile, was announced at COP28 and is now under preparation for implementation and piloting.

The Power Development Plan VIII (PDP8) and its upcoming implementation plan have revealed huge potential for investment in renewable energy in targeting up to 40 per cent of renewable energy in the energy mix by 2030. Since becoming the third country to enter into a JETP, Vietnam has continued to work on its legal framework while building a mechanism for implementation and identification of pilot projects. This is pushing positive changes in its legal environment, paving the way for future private investments in its energy transition.

Vietnam’s sustainable finance market currently consists of green credit, green securities, and green bonds. Outstanding green credit has posted significant average growth of over 20 per cent a year, or higher than the average credit growth in the economy in the 2017-2022 period. Forty-three credit institutions had participated in financing green and sustainable projects as of June 2023. Compulsory environmental, social, governance (ESG) disclosures and the launch of the Vietnam Sustainability Index (VNSI) for listed companies have partly resolved problems in transparency and information asymmetry. From 2019-2023, Vietnam issued over $1 billion worth of green bonds to fund projects in renewable energy, waste, and agriculture.

Mr. Banga especially appreciated the efforts and determination of the Vietnamese Government in green transformation, climate change response and sustainable development, and the implementation of a project to plant 1 million hectares of high-yield, lowemissions rice, considering this a model WB project in green agri

Total financing needs for the resiliency-building roadmap are estimated at $254 billion from 2022 to 2040, including about $219 billion to upgrade private assets and public infrastructure plus $35 billion for social programs.

In the decarbonization roadmap, the total capital need in the 2022-2040 period amounts to $114 billion, mainly to support the energy transition process (about $64 billion) and partly for industry, transportation, and agriculture ($17 billion) and social support programs ($33 billion). Source: World Bank

culture around the world that helps reduce methane emissions and brings clear financial benefits to people through the carbon credit mechanism.

Meanwhile, Mr. Asakawa expressed his appreciation of Vietnam’s participation in resolving global issues such as empowering women and, especially, its commitment, vision, determination, effort, and solutions in response to climate change and achieving net-zero emissions by 2050.

However, one of the main challenges in sustainable development and financing is the lack of a detailed classification system, especially in defining “sustainable” and “green”, according to HSBC. Though the government is working on the legal framework, the banking sector still mainly relies on internal monitoring. The absence of clear regulations also leads to hesitation to proceed with large sustainability projects that require complex financing.

ESG disclosures are also an ongoing challenge worth mentioning. Over 90 per cent of Vietnamese companies are small and medium-sized enterprises (SMEs), but only listed companies are required to touch on ESG performance and strategy in their annual reports. Even then, most of the information provided is basic, without third party verification, except for a modest number of companies possessing international certificates. Investors may not be able to rely on this to rate a company’s ESG performance, however, and so lack the confidence to invest.

At the same time, the current sustainability standards for Vietnamese corporates also create challenges in financing. “Since the country’s official standards are not available yet or set for future implementation, financial institutions like HSBC have to follow and adapt international standards,” said Mr. Small. “These standards may be too advanced for most firms, which prevent them from accessing sustainable financing.”

Proposals for Vietnam

According to the WB, Vietnam is one of the countries most vulnerable to climate change. Without appropriate adaptation and mitigation measures, it is estimated that climate change will shave 12-14.5 per cent off its GDP annually by 2050 and could put up to 1 million people into extreme poverty by 2030. To implement a climate-resilient development roadmap and reach net-zero emissions, it is expected that Vietnam will need to invest an additional $368 billion, from now to 2040. With the right policies and strategies in place, Vietnam could leverage its decarbonization activities to achieve development goals, so that net greenhouse gas emissions reach zero without reducing GDP growth. Government commitments can and should be reinforced by the participation of the domestic private sector and through foreign, public, and private financial resources.

Specifically, adaptation measures should focus on the country’s most vulnerable sectors and locations, especially agriculture, transportation, industry and trade, coastal areas, and the Mekong Delta. Complementary policy reforms in the fiscal and financial sectors could stimulate investment from both the public and private sectors.

For Vietnam to reach the goal of netzero greenhouse gas emissions by 2050, large investments are needed in energy, transportation, agriculture, and industry. Industry investments will need to be supported by carbon pricing tools, which would change behavior and help fund the transition. For example, increasing the carbon tax to $29 per ton of carbon dioxide equivalent (tCO2e) by 2030 and $90 per tCO2e by 2040 would generate $80 billion in additional revenue. Support measures will also help achieve the netzero emissions target without slowing GDP growth.

To meet capital needs, it is necessary to reallocate savings from the domestic private sector to climate-related projects, increase savings from the public sector, and mobilize external financial support. Public investment could account for about one-third of total investment and could be financed through carbon taxes or borrowing on the domestic market. Private capital equivalent to about 3.4 per cent of GDP a year could be mobilized through green credit from banks, green stocks, and green bonds, as well as applying risk mitigation tools.

As a member of the Glasgow Financial Alliance for Net Zero (GFANZ), which will help arrange $7.75 billion from the private sector for Vietnam’s JETP, HSBC believes blended finance is a promising tool to help mobilize the required financing for Vietnam’s transition with joint investment between public funds and private capital. For example, HSBC helped arrange the world’s first $425 million Exchangeable Sustainable Bond and a $500 million Syndicated Green Term Loan for Vingroup and its subsidiaries.

Mr. Small added that a clear legal framework and policies are the foremost conditions to promote the development and investment in sustainable technologies and projects. Currently, many investors remain cautious when investing in Vietnam. Their main concerns are transparency, validation, and an unclear legal framework. Many policies are published but implementation is sometimes only vaguely explained. Incentives are also an important factor in boosting participation, as green and sustainable projects are usually medium-to-long term with high risks that may be outside the risk appetite of financial institutions.

“To help shift green capital flows and increase Vietnam’s sustainable development, the government needs to increase transparency, tighten regulations related to ESG, and limit information asymmetry between investors and corporates,” Mr. Small said. “In recent years, a small group of companies has applied voluntary ESG disclosure measures to attract foreign investors and to satisfy the strict conditions of certain export markets such as Europe, but in order to receive large-scale positive results, robust ESG disclosures need to be regulated by law.” ■