Vietnam’s Green Banking Revolution: A Commitment to Environmental Sustainability
Illustrative image (Photo: VNA)
In recent years, the Vietnamese banking sector has positioned itself as a vital partner in the nation’s journey toward sustainability. This initiative aligns with the goals outlined in Vietnam’s National Green Growth Strategy, compelling financial institutions to transform their operational frameworks while simultaneously addressing climate change.
Surge in Green Financing
Since 2017, Vietnam has witnessed a remarkable increase in credit institutions embracing green financing. The number of these institutions skyrocketed from 15 to 50, resulting in an outstanding balance of green credit surpassing 665 trillion VND (approximately 26 billion USD). This growth reflects a 7.11% annual increase, with a striking average annual growth rate of 22% from 2017 to 2024. Currently, environmentally and socially risk-assessed loans make up about 23% of the total outstanding loans in the economy.
Commitment to ESG Practices
The State Bank of Vietnam (SBV) reported that 80-90% of banks have integrated Environmental, Social, and Governance (ESG) practices into their operations. Nearly half of these banks have even set up risk management units focused specifically on environmental protection lending. This widespread adaptation underscores the sector’s dedication to adhering to the Prime Minister’s directives, which aim to fulfill the national strategy’s objectives.
The SBV takes proactive steps to achieve goals outlined in the National Green Growth Strategy (Photo: VNA)
At the fifth session of the National Steering Committee for the Delivery of Vietnam’s commitments from the COP26, Prime Minister Pham Minh Chinh called for accelerated green finance initiatives. He urged the SBV to augment green credit sources to meet evolving environmental objectives.
“Green transition, energy transformation, and greenhouse gas emission reduction are inevitable trends that Vietnam must follow. Therefore, we must make even greater efforts and have stronger determination toward those goals,” stated Prime Minister Chinh.
Green Credit Initiatives
In alignment with the PM’s call, the SBV has launched several measures to enhance green credit activities, including the Vietnam Green Banking Development Project. This framework aims to facilitate eco-friendly initiatives compatible with both national and international goals.
The legal landscape within the banking sector is evolving to support these initiatives. Enhanced regulations now allow commercial banks to introduce unique financing arrangements specifically targeting green projects. This not only fosters economic growth but also positions Vietnam favorably on global environmental platforms.
The ESG and Green Transition Centre made its debut in Hanoi on November 12, 2024 (Photo: VNA)
The SBV recognizes the critical role of bank credit in steering the nation toward sustainable production practices. By collaborating with international organizations, it has created a guidebook to encourage ESG-compliant lending while actively participating in global financial forums.
“Credit institutions are actively and proactively embarking on green credit and green banking, viewing it as both a challenge and an opportunity to meet the commitments made internationally,” emphasized SBV Deputy Governor Dao Minh Tu.
Real-World Impact
From a business perspective, the increasing availability of green financing is encouraging enterprises to seek environmentally friendly funding. For instance, HSBC Vietnam recently granted a green commercial loan to Vinh Hoan JSC, aimed at promoting sustainable seafood production.
Workers process tra fish at Vinh Hoan JSC (Photo: CafeF)
CEOs like Nguyen Ngo Vi Tam of Vinh Hoan JSC attribute their success in securing green loans to years of commitment to the circular economy and international certifications.
The Dai Dung Corporation recently announced a collaboration with the Bank for Investment and Development of Vietnam (BIDV) for a green loan aimed at construction that meets LEED Gold certification standards.
Perspective view of the Nghi Son hi-tech mechanical factory in Thanh Hoa (Photo: Dai Dung Corporation)
Green Bonds in the Market
The capital market is also evolving, with non-financial entities issuing green bonds. BIDV has taken significant steps by being the first bank to issue 3 trillion VND in green bonds adhering to the International Capital Market Association (ICMA) green standards.
BIDV is the first bank to successfully issue 3 trillion VND in green bonds voluntarily adhering to the ICMA green standards (Photo: VNA)
While international foundations often set high thresholds for green financing, local businesses are striving to meet these rigorous standards despite challenges.
In mid-November 2024, Vietcombank announced the issuance of its Green Bond Framework (Photo: VNA)
Regulatory Challenges
Despite the progress, challenges persist. The absence of comprehensive legal regulations complicates the classification of green criteria, often deterring investors. Observations from FiinRatings indicate that while strides toward creating a classified framework for green bonds and credits are underway, skepticism surrounding the perceived risks of climate projects remains a significant hurdle.
In summary, Vietnam’s banking sector is embarking on a crucial transformation, integrating sustainability into its core strategies. The proactive measures by financial institutions herald a new age where economic development and environmental consciousness go hand in hand, further solidifying Vietnam’s commitment to combatting climate change and promoting sustainable growth.