Closing the $20 Billion Annual Investment Gap in Vietnam’s Green Transition
Harini Gopalakrishnan, Director for Southeast Asia and Australia at Alvarez and Marsal
Vietnam is currently navigating a critical juncture in its journey toward sustainable development. The nation’s primary challenge isn’t a lack of ambition but rather a credibility gap that has left potential investors and trade partners skeptical. They are searching for concrete evidence that Vietnamese projects and companies are genuinely aligning with climate goals. Until this gap is bridged, much-needed capital will remain on the sidelines, putting Vietnamese exporters at risk of penalties from emerging carbon tariffs and stricter supply chain traceability regulations.
The Legal Landscape
The Vietnamese government has laid a robust legal foundation through its green taxonomy, encompassing 45 green sectors. However, rules alone are insufficient to mobilize the billions needed for effective transition. Addressing the investment gap requires a multi-faceted approach that includes advancing disclosure standards, mitigating risks for investors, and fostering a vibrant financial ecosystem.
Insufficient Sustainability Disclosures
Currently, sustainability disclosures mandated in the annual reports of listed companies tend to be more qualitative than quantitative. These reports focus on corporate social responsibility activities and compliance statements, offering little in the way of concrete, evaluable data that investors need. This lack of rigor not only has financial repercussions but also impacts trade relationships. Investors hesitate to back projects that lack standardized Environmental, Social, and Governance (ESG) metrics, while new regulations in export markets are tightening the screws.
For example, the EU’s Carbon Border Adjustment Mechanism mandates that exporters in sectors like steel, cement, and aluminum report their emissions. Those failing to provide credible data will face tariffs, making it imperative for Vietnamese companies to adopt stringent reporting practices.
Moving Toward Verifiable Indicators
For Vietnam to advance, it must transition from mere narratives to concrete, quantifiable indicators—such as carbon intensity per ton of product, renewable energy usage ratios, and water efficiency metrics. Aligning these disclosures with global frameworks will enhance their credibility and comparability on the international stage. A phased implementation that starts with large, listed companies would balance feasibility and urgency, drawing lessons from examples set by countries like Singapore and India.
Utilizing digital ESG platforms could streamline this process, providing small and medium-sized enterprises with the tools needed to standardize and verify their disclosures. Such measures would not only foster investor confidence but also protect Vietnam’s export competitiveness.
Addressing Investor Risk Perceptions
Despite establishing a legal framework and clarity in sustainability disclosures, Vietnam remains behind its regional counterparts in green bond issuance, with around $1.5 billion by 2024. In comparison, Indonesia and Singapore have issued over $14 billion and $12 billion, respectively. To attract more investment, Vietnam must address the concerns that surround investor risk.
Creating a Dynamic Financial Ecosystem
Meeting annual investment requirements of billions necessitates stronger risk-sharing mechanisms. Implementing blended finance options and public guarantees could absorb first-loss risks, making projects more attractive to private investors. For instance, India’s solar energy program offers a compelling case study of how structured financing can catalyze green initiatives.
Furthermore, developing a central repository of investment-ready projects—complete with feasibility studies aligned with the green taxonomy—could expedite capital allocation. Collaborating with multilateral development banks, such as the World Bank, can also introduce concessional finance and technical expertise, facilitating the structuring of effective investment deals.
Innovating Financial Instruments
Beyond traditional financing methods like bonds and loans, Vietnam must innovate. Diversified financial instruments such as sustainability-linked loans and transition bonds are crucial for channeling domestic capital towards both green leaders and high-emission sectors that are evolving toward cleaner technologies.
Vietnam can also draw inspiration from Singapore’s Green FinTech Grant, which supports startups focused on building ESG scoring tools, digital credit platforms, and verification systems. This support could significantly decrease costs for smaller businesses, enabling them to participate actively in the green transition.
Cultivating Human Capital
Human capital development is key in this multifaceted strategy. Training regulators, bankers, and corporate leaders in essential areas like carbon accounting, climate risk assessment, and project finance will deepen market expertise and strengthen execution capacities.
Vietnam has all the elements in place: ambition, a legal framework, and an increasingly eager private sector. The next steps involve executing these plans, embedding standardized ESG metrics, lowering risks for investors, and encouraging financial innovation. With an estimated cumulative need of $368 billion for climate investments by 2040 and over $2 billion in annual exports at risk from upcoming carbon border measures, acting now is not just beneficial—it’s imperative.