Unleashing new investments

Mr. Shantanu Chakraborty, Country Director, Vietnam Resident Mission, at the Asian Development Bank (ADB), tells VET how international finance fuels green economic development and sustainable development in Vietnam.

■ What recent support has the ADB given to promote green economic development, sustainable development, and shifting green capital flows in Vietnam?

With a vision of becoming the climate bank of the Asia-Pacific region, the ADB is elevating its ambition in climate financing. We expect to provide $100 billion in cumulative climate financing from our own resources to our developing member countries during 2019-2030.

The ADB’s Country Partnership Strategy 2023-2026 outlines our approach to support Vietnam in transitioning to a green economy and harnessing the private sector and promoting social equity. ADB has allocated about $300 million of its recent green bonds proceeds to eligible low-carbon transport and climate adaptation projects in Vietnam. Looking ahead, a majority of our pipeline, as agreed with the government, is in climate-positive projects in the urban, agriculture, and natural resources sectors, amounting to around $800 million of estimated climate finance.

In private sector lending, the ADB has been promoting green and sustainable economic development in Vietnam through several green loans to Vietnamese enterprises for renewable energy, electric vehicles, etc. which meet international green bond principles standards.

The ADB is also promoting green growth and supporting Vietnam’s strong climate commitment of “net-zero emissions by 2050” through energy transition initiatives. To support Vietnam’s Just Energy

Transition Partnership (JETP), the ADB has pledged up to $1 billion of public sector financing and up to $1.1 billion in non-sovereign financing to fund appropriate investments. Through the ADB’s energy transition mechanism (ETM), we are exploring assisting Vietnam in unleashing new investments in clean energy, grid strengthening, and energy storage, in alignment with the strategy and master plan for electricity and energy from the Vietnamese Government, by undertaking studies on decarbonizing its power sector.

In supporting Vietnam’s green growth agenda, the ADB is leveraging its extensive experience in the region. The ADB has supported countries in developing sustainable bond markets, such as developing bond frameworks and taxonomies; supporting the preparation and issuance of green bonds by government entities and State-owned enterprises; and investing in green bonds. ADB is also a major participant in sustainable capital markets as an issuer itself. We have issued a total of $10 billion equivalent of green bonds, and also issued our first blue bond of $300 million in 2021.

■ What are the key factors to successfully promote green economic development, sustainable development, and shifting green capital flows in Vietnam?

One of the key factors for Vietnam is the strong political commitment to green growth and ambitious climate targets. These targets need to be effectively implemented with a comprehensive and multi-faceted approach to successfully promote green economic development, sustainable development, and shifting green capital flows in Vietnam. This approach should include:

Developing a robust national policy framework on the green economy that prioritizes sustainable development goals and green growth initiatives. Vietnam’s National Green Growth Strategy, which covers the 2021-2030 period with a vision to 2050, provides a blueprint for restructuring the country’s growth model to achieve economic development while minimizing the environmental impact. While this framework includes clear targets, timelines, and actionable strategies for green growth, it needs further revisions and flexibility to adapt to new developments and initiatives to attract resources from and the involvement of the private sector. Vietnam also adopted the Law on Environmental Protection, which took effect on January 1, 2022. The Law aims to harmonize Vietnam’s laws with international rules and practices and provides more details for implementation. However, carbon pricing and emissions trading systems are still in the development stage and need to be enhanced quickly. Effective enforcement and monitoring mechanisms are also necessary to ensure compliance and accountability within these frameworks.

Prioritizing investments in renewable energy sources, such as solar, wind, hydropower, and biomass, can significantly reduce Vietnam’s reliance on fossil fuels

and contribute to a cleaner energy mix. Encouraging the development and adoption of clean technologies, such as energyefficient appliances, green building practices, and sustainable transportation solutions, is equally important. Providing financial incentives, such as tax credits, subsidies, and attractive feed-in tariffs, can stimulate private sector investment in these areas.

Investing in green infrastructure and the green economy, such as energy-efficient buildings, sustainable transportation networks (e.g., public transit, cycling infrastructure), and effective waste management systems, can significantly reduce the environmental impact of urban areas. Promoting sustainable urban planning practices, such as compact city development, green spaces, and resource-efficient construction methods, can contribute to a more livable and resilient urban environment.

Improving the legal framework on green finance in line with Vietnamese practice and compatible with international practices and standards can help ensure consistency and transparency. The completion of the legal framework will help facilitate the development of green finance and at the same time also promote the development of the financial market in general, especially the capital market. It is necessary to improve both the regulatory framework for green economy sectors in general, and the development of conventional financial markets to create a foundation for green finance. These frameworks may include requirements for businesses to undertake mandatory reporting to selfassess their impact on green criteria.

Encouraging public-private partnerships can leverage the private sector’s expertise, resources, and innovative capabilities to drive sustainable development initiatives. Collaboration between government agencies, businesses, civil society organizations, and research institutions can foster knowledge exchange, resource-sharing, and the development of green solutions.

Strengthening international cooperation and partnerships can facilitate the transfer of green technologies, knowledge sharing, and access to green financing mechanisms. Attracting FDI and international funding for green projects, such as through green bonds, carbon markets, and climate finance initiatives, can provide the necessary capital for sustainable development efforts.

■ What are the advantages for Vietnam to promote green economic development, sustainable development, and shifting green capital flows? In particular, what are the advantages for organizations like the ADB?

Vietnam has distinct advantages that position it well to promote green economic development, sustainable growth, and the shift towards green capital flows. These advantages include:

Government prioritization and strong commitment

The Vietnamese Government has prioritized sustainable development, attracting attention from both domestic and foreign investors. The endorsement of the National Green Growth Strategy demonstrates a high-level commitment to restructuring the economy towards green practices. Furthermore, the government is also taking approaches to meet the country’s net-zero commitment by 2050, made at COP26, and the implementation of the JETP Resource Mobilization Plan announced at COP28.

The growth of the green credit balance shows the authentic commitment of not only the government but also the whole economy towards sustainable development goals. In the 2017-2022 period, average growth in green credit reached approximately 23 per cent per annum; higher than that in the whole economy, which was around 15 per cent. As of September 2023, there were 45 financial institutions that provided green credit, accounting for 4.4 per cent of the total outstanding credit balance of the whole economy, focusing on clean energy, renewable energy, and green agriculture. According to the State Bank of Vietnam (SBV), the target is to reach 10 per cent of the total economy’s outstanding balance by 2025.

Strategic initiatives and legal framework enhancements

The country has taken significant initiatives and policy frameworks to steer its economic trajectory towards green and sustainable growth. Decision No. 1658/QD-TTg, approved by the Prime

Minister, outlines specific models resilient to climate change, such as the circular economy, driving green transformation amid economic recovery.

In particular, regulations, policies, and strategies have been proposed to orient the banking industry, including Decision No. 1604/QD-NHNN from the SBV on “Approving the Scheme for Green Banking Growth in Vietnam”, and Decision No. 1408/QD-NHNN from the SBV on “Promulgating the Action Program of the Banking Sector for Implementing the National Strategy for Green Growth in the 2021-2030 Period and the Scheme for Tasks and Solutions for Implementing the Results of the United Nations Climate Change Conference of the Parties - COP26”. Policymakers also specify orientations and goals for developing green credit and green banking in the instruction for Circular No. 17/2022/TT-NHNN guiding credit institutions on implementing environmental risk management in creditgranting activities.

Interest of foreign investors According to the Foreign Investment Agency, the business sector, comprising both FDI and domestic entities, has invested approximately $9 billion in green growth areas, constituting about 2 per cent of GDP. Notably, green growth investments have displayed remarkable annual growth of 10-13 per cent over the past two years. Recent foreign investments promoting green development in Vietnam include those from the LEGO Group, DHL Express, and Pandora, etc.

Vietnam’s JETP, with a $15.5 billion funding pledge, half of which is private sector funding, will boost renewables and combat climate change, ensuring an energy transition process that is just and inclusive will be a key contributor to Vietnam’s transition to green growth.

Business realignment

Vietnamese businesses are being encouraged to reorient their strategies towards green growth, placing emphasis on the importance of embracing new values that align with emerging demands for sustainability and inclusivity. This shift from a traditional “brown economy” to a green economy is essential for ensuring long-term sustainable growth. Multiple major corporations have attached their green and sustainable goals towards their long-term visions and missions, showing more social and environmental responsibility. Ensuring green and sustainable supply chains are attracting significant concern from both domestic as well as international consumers. This represents the motivation for green transition in traditional manufacturing from not only craft villages but also large corporations.

“VIETNAM HAS DISTINCT ADVANTAGES THAT POSITION IT WELL TO PROMOTE GREEN ECONOMIC DEVELOPMENT, SUSTAINABLE GROWTH, AND THE SHIFT TOWARDS GREEN CAPITAL FLOWS.”

Mr. Shantanu Chakraborty Country Director, Vietnam Resident Mission, at the Asian Development Bank (ADB)

■ What are the challenges?

Along with those advantages, there are several challenges that pose hurdles to the development of green finance in Vietnam:

Nascent regulatory framework: Vietnam’s legal framework regarding the green economy and green finance are still developing. Clear and consistent regulations, as well as incentives for green investments, are essential for encouraging financial institutions to actively participate in sustainable financing. Weak governance and a lack of monitoring mechanisms can hinder the implementation of green initiatives. Vietnam’s green taxonomy has not been officially released and still lacks monitoring mechanisms for external review.

Limited financial resources: Transitioning to a green economy and implementing sustainable development initiatives often requires substantial upfront investments in infrastructure, technology, and capacity-building programs. As a developing country, Vietnam needs help allocating sufficient funds from its national budget. There are also market issues that hinder investment. For example, the market is bank-based, and the average corporate bond tenor is 3-5 years, which is very short compared to the infrastructure project cycle, which can span over 30 years. This causes developers to face refinancing risk, volatile interest rates. Recently, institutions with appetite for long-term investments like insurance funds have been prohibited from investing in refinancing bonds.

Lack of green-appraisal expertise: A significant challenge lies in the limited capacity in appraising the “green” aspects of transaction. There is also a need for better understanding of the benefits and mechanisms of green finance and the green economy. Building this capacity through education and training programs remains a challenge.

Limited adoption of green technology: Developing and deploying clean technologies are vital for achieving Vietnam’s climate goals. However, these technologies can be high costs and require a certain level of supporting infrastructure. International collaboration and knowledge transfer, especially in the implementation of green projects, can play a key role in accelerating their adoption.

Dependence on fossil fuels and extractive industries: Vietnam’s economy has been heavily reliant on fossil fuel-based energy sources and extractive industries, such as coal mining and oil exploration. Shifting away from these industries to more sustainable alternatives can face resistance from vested interests and concerns about economic disruption. A just transition is therefore of crucial importance.

Lack of consumer awareness and behavioral change: While efforts have been made to raise awareness about sustainable practices, a significant portion of the population may still need more knowledge or incentives to adopt environmentallyfriendly behavior and lifestyles.

■ How do you view the Vietnamese Government’s support and policies to promote green economic development, sustainable development, and shifting green capital flows?

The Vietnamese Government has demonstrated a strong commitment to promoting green economic development, sustainable development, and shifting green capital flows. However, significant challenges persist, including weak enforcement and implementation of existing environmental regulations, continued reliance on fossil fuels, conflicting priorities with economic growth objectives, fiscal constraints, and limited public awareness.

In our opinion, the government could consider the following solutions for promoting the green economy and attracting green capital resources for development.

First, continue to improve the legal framework on the green economy and finance compatible with international practices and standards to ensure consistency and transparency and adapted to the Vietnamese context. The completion of the legal framework will help facilitate the development of green finance and at the same time promote the development of the financial market in general, especially capital markets. It is necessary to improve both the regulatory framework for green economy sectors in general, and the development of conventional financial markets to create a foundation for green finance. These frameworks may include requirements for businesses to undertake mandatory reporting to selfassess their impact on green criteria.

Second, it is necessary to define specific quantitative targets in line with Vietnam’s international commitments, along with clear incentive mechanisms to create incentives for green finance development. For example, it is necessary to create mechanisms to encourage green credit, such as reducing corporate income tax for financial institutions developing green credit, supporting interest rates for green credit loans.

Third, Vietnam should proactively access international capital sources through bilateral cooperation and international financial institutions to attract preferential capital sources and improve capacity, and accumulate experience in green economic development and green finance, thereby more deeply contributing to the development of the domestic green finance market.

Fourth, the government should accelerate the implementation of carbon certification to develop the domestic carbon market and connect it with international carbon markets. This is an important channel to generate additional revenue for green economic activities, contributing to promoting businesses to transition to green activities faster and on a larger scale.

Finally, the government is also an active participant in the bond market. It can take important pioneering steps when issuing green government bonds, based on a budget expenditure management system for green items. Through this process, the green bond market will become more active and can attract a wider group of investors interested in green financial products. ■