HSBC Executive: Stricter ESG Regulations Needed to Boost Green Investment.

Lam Thuy Nga, country head of large corporate, wholesale banking at HSBC Vietnam, shares her thoughts from the Vietnam Connect Forum 2024.

Finance emerged as a pivotal topic at the 28th Conference of the Parties of the UNFCCC (COP28). As the UAE hosted the climate summit, it reported that more than $83 billion in climate finance was mobilized during the event’s first five days. This substantial figure is a clear indication of the global commitment to tackle climate challenges.

Yet, despite its encouraging nature, this amount appears to be a mere fraction of the estimated $3 trillion required annually to limit global warming to 2 degrees Celsius, as projected by the Intergovernmental Panel on Climate Change (IPCC). This backdrop underscores finance’s role as a critical enabler in the global struggle against climate change, placing banks at the forefront of mobilizing and channeling the necessary green funding.

The financial sector is stepping up, setting ambitious net-zero targets and pledging trillions to facilitate the transition. HSBC Group, a pioneer in the global sustainability narrative, has declared a commitment to achieve carbon neutrality across its entire customer portfolio by 2050, with an investment plan of $750 billion to $1 trillion to support this initiative. Specifically, HSBC Vietnam is poised to arrange sustainable financing directly and indirectly, aiding the country in fulfilling its net-zero commitment made at COP26.

Accompanying Vietnam in its Net-Zero Transition

As one of the world’s largest financial services institutions, HSBC recognizes its pivotal role in delivering a net-zero global economy, which is a cornerstone of its business strategy. The bank aims for net-zero operations and supply chains by 2030, extending to its financing portfolio by 2050.

Between now and then, HSBC is committed to partnering with clients to help them reduce emissions and leverage low-carbon solutions while simultaneously working to minimize its own greenhouse gas emissions, utility usage, and waste management. This journey towards a net-zero future will take time, as businesses gradually pivot away from high-carbon activities.

The bank aims to have the most significant impact by collaborating with clients, especially those in high-emitting sectors, to foster sustainable growth. Recently, HSBC rolled out its Net Zero Transition Plan, reaffirming the strategic approach and targets to lower financed emissions in carbon-intensive industries. In Vietnam, HSBC’s diverse portfolio of sustainable finance products, including green and social loans, positions it well to meet client needs while promoting the transition.

In a notable achievement, HSBC arranged its first sustainability-linked loan in the textile and garment sector in 2023, enabling a leading company to enhance its operational sustainability. This facility links sustainability performance targets (SPTs) to key areas such as reducing GHG emissions and optimizing water usage. Additionally, HSBC is close to finalizing its first social loan, marking another milestone in its ESG journey.

Aside from providing financing, HSBC offers insights and tools essential for transitioning clients. A key collaboration involved supporting Vingroup in establishing a sustainable finance framework, which garnered a favorable second-party opinion from Sustainalytics, a prominent ESG rating agency. HSBC facilitated the world’s first $425 million exchangeable sustainable bond and a $500 million syndicated green term loan for Vingroup and its subsidiaries, including VinFast.

HSBC maintains strict standards for credit approval on green and sustainable projects, adhering to international principles outlined by the Asia Pacific Loan Market Association. The growing trend among businesses seeking third-party consultants to meet these stringent standards is a promising sign for fostering sustainable practices.

HSBC recognizes the opportunity not only in supporting corporate clients but also in extending solutions to retail customers embarking on their net-zero journeys. This can be facilitated through green loans for installing rooftop solar systems or providing preferential rates on green home loans, fostering a collective effort towards sustainable living.

Innovative products, such as cards made from recycled materials, enhance HSBC’s visibility in sustainability initiatives. In 2022, the bank introduced the market’s first rPVC cards in Vietnam, constructed from 85% recycled plastic sourced from industrial waste, thereby contributing to a reduction of 7 grams of carbon and conserving 3.18 grams of plastic per card.

At a macro level, HSBC actively collaborates with governmental agencies and relevant bodies to provide thought leadership. Notable is the Memorandum of Understanding (MoU) with the Ministry of Natural Resources and Environment, aimed at developing a practical framework to realize Vietnam’s transition targets. As a member of the Glasgow Financial Alliance for Net Zero (GFANZ), HSBC is positioned to mobilize $7.75 billion from the private sector for Vietnam’s Just Energy Transition Partnership (JETP).

Unlocking Green Flows

The journey towards sustainability will undoubtedly face numerous challenges. A significant obstacle to sustainable development and financing is the absence of a comprehensive taxonomy for defining “sustainable” and “green.” While the Vietnamese government is developing its legal framework, the banking sector primarily depends on internal systems supplemented by ongoing monitoring.

Additionally, the lack of clear regulations may create hesitance in pursuing large sustainability projects, which often necessitate complicated financing processes. Data and disclosure also present challenges. ESG reports serve as vital indicators of a company’s overall health and societal impact, yet many firms are lagging in providing robust disclosures.

More than 90% of Vietnamese companies are small and medium enterprises, yet only listed firms are mandated to showcase ESG strategies in their annual reports. Unfortunately, much of the data provided is basic and lacks third-party verification, which raises concerns about its reliability. Consequently, these inadequacies may delay investment decisions.

Furthermore, inconsistencies in the general sustainability standards set for Vietnamese corporates pose financing challenges. As official standards are currently lacking, financial institutions like HSBC often resort to international benchmarks, which could be misaligned with the readiness of local firms, impeding their access to sustainable financing.

To drive green capital flows and bolster sustainable development in Vietnam, it is imperative for the government to enhance transparency, tighten ESG-related regulations, and minimize information asymmetry between investors and corporates. Numerous businesses acknowledge the importance of voluntary ESG disclosures to attract foreign investors and meet stringent export market conditions. However, for large-scale benefits to arise, robust ESG regulations need to be mandated by law.