The Vital Role of the Private Sector in Vietnam’s Green Financing

In February 2022, HSBC Bank (Vietnam) Limited (HSBC) signed a Letter of Intent on evaluating and providing sustainable financial solutions with Trung Nam Construction Investment Corporation (Trung Nam Group), one of the largest renewable energy developers in Vietnam. This marked the very first milestone of HSBC Vietnam’s commitment to arranging a 12 billion USD fund for the country’s sustainable development agenda. With its extensive global banking network and long-term presence in Vietnam, HSBC Vietnam is trusted to assist Trung Nam group in designing and executing strategic financial strategies. This strategic partnership further shows the expansion of the private sector’s involvement in Vietnam’s ambitious transition to a green economy.

Government’s agenda to tackle the climate emergency

As one of the fastest-growing economies in Southeast Asia, the growth in Vietnam has been heavily dependent on a carbon-intensive path that has put massive pressure on the environment. On average, energy demands in Vietnam have increased by around 10% every year since 2014. As of 2020, coal and hydropower are the leading sources for power generation in Vietnam, accounting for over two-thirds of the total power production.

According to the World Bank, Vietnam is one the countries whose economy will be most heavily affected by climate change. Without preventative actions, the country’s national income will be diminished by up to 3.5% by 2050.

In an attempt to foster a sustainable carbon-neutral economy in the long term, the Vietnamese government has issued essential strategies and policies. In October 2021, the National Green Growth Strategy for the 2021-2030 period, with a vision stretching to 2050, was ratified, emphasizing economic prosperity, environmental sustainability, and social equality. The country expects to reduce greenhouse gas emissions intensity per unit of GDP by at least 15% by 2030, and at least 30% by 2050, starting from the base year 2014, as well as to raise the share of renewable energy in the total primary energy supply to 15-20% over the next decade.
Amid the pandemic, capital flows into green growth projects have still been quite positive despite the slowing growth rate of foreign direct investment (FDI). In 2021, Vietnam recorded the highest level of investment in the renewable energy sector in the ASEAN region; a total investment of 59 billion USD for renewable energy and an almost 80 billion USD investment opportunity for green buildings was recorded. Vietnam is expected to receive climate investment opportunities worth 753 billion USD for the 2016-2030 period.

The promising future of green financing

In the light of the ongoing pandemic, heightened attention on economic recovery, and national focus on green growth as a socio-economic development strategy, Vietnam’s finance sector has evolved remarkably. The government has put in place several robust domestic guidelines and measures to accelerate green growth and green financing. In December 2018, the government issued Decree No.163/2018/ND-CP19 to support Vietnam’s roadmap for bond market development during 2017-2020. A stronger presence of corporate green bonds has been expected ever since that first legal framework for corporate green bonds in Vietnam. Under the guidance of the Ministry of Finance, Global Green Growth Institute (GGGI), in partnership with Climate Bonds Initiative (CBI), signed the “VN10 Vietnam Green Bond Readiness” program in October 2020. This proposal aims to enhance the regulatory framework and institutional capability, helping to lay the foundation for the development of the green financial markets and open the way for private green financing for renewable energy development.

The commitment of the local banks has given the private sector more confidence to invest. HSBC recently announced its commitment to provide a 12 billion USD fund for sustainable projects and businesses in Vietnam until 2030. The bank will mobilize funds from the local and international financial markets, providing a range of solutions for the government and corporate sector to achieve the climate goals. Another giant in the banking sector, HDBank, is implementing its solar power programs that focus on provincial and national projects. Since 2018, HDBank has been financing green projects to support high-tech agriculture and renewable energy. Its outstanding loans to green projects have reached nearly 593.2 million USD as of August 2021.

In addition, international financial institutions also play a vital role in financing green economic development in Vietnam through domestic credit institutions. In 2021, The French Development Agency (AFD) provided a 100 million USD concessional loan to the Bank of Investment and Development in Vietnam (BDIV), which also marked the first green finance fund AFD has set up in Vietnam. Within the same year, International Finance Corporation (IFC) announced a 100 million USD long-term loan to Vietnam’s local bank Orient Commercial Joint Stock Bank (OCB) to boost financing for small- and medium-sized enterprises. Proparco (the private sector financing branch of AFD) also granted HDBank a 50 million USD loan to support the Vietnamese fast-growing private bank’s move towards international standards in green credit.

All in all, there is high hope for green growth and green financing in Vietnam. With the strong commitment from the government, we can expect the fast-paced emergence of financial instruments that take part in a net-zero carbon economy in the next few years.

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