Green Finance in Vietnam: Pathway to Sustainable Economic Development

In 2022, ASEAN took significant strides in green finance by launching sustainability-linked bond standards and revising the ASEAN Taxonomy, with the third version in late 2024 introducing a comprehensive framework for transition finance. Despite these advancements, the region saw a 32% drop in the green loan market in 2022-23, echoing a global contraction, yet maintaining volumes nearly double those of 2020. Fragmented regulations and the absence of standardised green finance definitions pose challenges, risking inconsistencies and potential greenwashing with high initial costs and economic pressures in emerging markets further complicating the adoption of green finance, as immediate economic needs often overshadow long-term sustainability goals. 

The Regulatory Framework and select challenges for green finance in Vietnam 

Vietnam's regulatory framework for green finance is evolving positively, supported by government commitment and international collaboration, aiming to integrate green credit into the banking sector and promote sustainable economic growth. Key initiatives include the Prime Minister's strategies to increase green credit to 10% of total loans by 2025 and up to 25% by 2030, alongside guidance from the State Securities Commission and the State Bank of Vietnam on green bonds and environmental risk management. 

Despite these efforts, Vietnam faces challenges in defining what "green" truly means within its financial strategies, risking ambiguities in defining “green projects” and this ambiguity not only hampers the effective implementation of green finance initiatives but also undermines investor confidence, which is crucial for attracting necessary capital. The lack of a comprehensive regulatory framework and standardised guidelines for green projects remains a significant barrier. The absence of a clear green taxonomy and inconsistent ESG reporting can lead to greenwashing, undermining the credibility of green finance.

Vietnam's struggle with accessing green finance is further complicated by its ongoing debate over Development for Finance or Finance for Development. On one hand, the country aims to leverage financial tools to accelerate its development goals. On the other hand, there is a pressing need to ensure that financial growth does not come at the expense of environmental degradation. This dichotomy is particularly pronounced given Vietnam's status as a developing nation, where immediate economic needs often overshadow long-term sustainability concerns. 

Limited awareness and technical knowledge among local businesses and financial institutions also hinder the adoption of green finance. Many institutions lack the expertise to assess the environmental impacts of projects or structure green financial products effectively.

The need for clear definitions and strategic prioritisation is crucial to balance economic development with environmental sustainability, especially as Vietnam navigates the tension between immediate economic growth and long-term sustainability goals. To fully capitalise on its green finance potential, Vietnam must enhance institutional capabilities and establish a clear taxonomy for sustainable activities.

Broadly, green finance instruments are divided into two broad categories – Margin-linked and use of proceeds.

The green finance framework mandates that proceeds are used for environmentally beneficial projects, adhering to green loan and bond principles. Meanwhile, the social/sustainability finance framework ensures that proceeds support projects with social or combined social and environmental benefits, aligning with social bond principles and sustainability bond guidelines.

Vietnam employs a variety of financial instruments to support sustainable investments. Green bonds have become a popular tool for funding climate change projects, with both private and public sector participation. Green loans are another growing area, offering preferential rates for businesses with clear environmental benefits. The State Bank of Vietnam's Green Credit Program encourages banks to provide low-interest loans for environmentally friendly projects, focusing on renewable energy, waste management, and energy efficiency.

In Vietnam, as of 31st March 2024, green credit outstanding balance reached nearly 640,000 billion VND, accounting for 4.5 percent of the total outstanding balance of the economy. These funds were primarily concentrated in renewable energy, clean energy (nearly 45%), and green agriculture (over 30%). Outstanding credit loans assessed for environmental and social risks by the credit institution system have grown steadily over the years, now reaching about VND 2.9 quadrillion (US$113.9 billion), making up more than 21 percent of the total outstanding loans of the economy¹. 

Despite the promising volume, the number of green finance products offered in Vietnam is quite limited amongst an overall spectrum of green financial products, mostly including loans to projects under sectors that are widely considered ‘green’, such as renewable energy, circular economy, etc. Compared to other markets, the spectrum of green and sustainable finance products/ services in Vietnam is still at an early stage and use of green financial products such as social bonds, blue bonds, gender bonds, sovereign green bonds, etc. are yet to find a space in Vietnam’s green finance landscape.

Source: ¹ State Bank of Vietnam (SBV)

Vietcombank, one of Vietnam's leading commercial banks, issued its first green bond in 2020, raising VND 3,000 billion (~USD 130 million) to finance projects in renewable energy and sustainable agriculture. As the country grapples with the impacts of climate change, such as rising sea levels and extreme weather events, green finance has become a crucial tool in supporting Vietnam's transition to a low-carbon, climate-resilient economy.

Several notable projects highlight Vietnam's progress in green finance. The Trung Nam Solar Power Project in Ninh Thuan Province, one of Southeast Asia's largest solar farms, exemplifies the potential of green finance in supporting large-scale renewable energy projects. The project, with a total installed capacity of 204 MW, received funding through a combination of equity and green loans, supported by the Vietnam Development Bank and the Green Climate Fund.

Another significant development is the issuance of green bonds by Vietnam Electricity (EVN) in 2021, raising USD 500 million to fund renewable energy projects and infrastructure upgrades. This move underscores EVN's commitment to sustainability and sets an example for other state-owned enterprises to explore green finance as a tool for funding low-carbon projects.

On the manufacturing side, one of the notable green finance initiatives in Vietnam is the partnership between HSBC and Duy Tan Plastic Corporation. The initiative aimed to support Duy Tan in its transition toward more sustainable business practices and financing for green projects. In HSBC Vietnam provided green financing to Duy Tan Plastic Corporation as part of a broader push to integrate environmental, social, and governance (ESG) factors into the company’s financial strategy and offered “green loan” meaning it was issued with the clear understanding that the proceeds would be used exclusively for environmental and sustainability projects. 

Making “power surge” a test bed for Vietnam’s green finance revolution

The opportunities for growth in Vietnam's green finance market are vast. Vietnam's energy sector is at a crossroads with current dependency on coal and other non-renewable sources, the country's carbon emissions are a growing concern, however the Power Development Plan 8 aims for a pivotal shift to renewable sources. The country's commitment to reducing carbon emissions and promoting renewable energy, backed by favorable government policies, creates a conducive environment for deployment of green finance.  

Green finance emerges as a pivotal enabler in this energy transition. 

By attracting investments specifically earmarked for environmentally sustainable projects, green finance can facilitate the development of renewable energy infrastructure, such as solar, wind, and hydroelectric power. The deployment of financial products like green bonds, concessional loans, and grants can bridge the funding gap in the energy sector, accelerating Vietnam's shift towards a sustainable energy economy. 

State Owned Enterprises (SOEs) as accelerators for Green Finance

SOEs dominate Vietnam's energy landscape, making them essential players in the country's green transition and more recently having been tasked to drive the mega projects in Vietnam’s Energy Transition in particular offshore wind and other emerging technologies. Herein lies the opportunity for green finance to make a significant impact. By channeling green finance through SOEs, Vietnam can ensure that these enterprises have the resources and incentives to adopt clean technologies and improve energy efficiency.

Green Financial Products to the rescue of SOEs for Energy Transition in Vietnam 

Vietnam and the SOEs in particular need a comprehensive approach to financing the energy transition, leveraging a mix of traditional and innovative financing sources. A careful balance/syndication between multiple sources of financing may be required such as finance from Development Financial Institutions (DFIs), commercial bank loans, climate finance, and corporate bonds in meeting the substantial investment requirements. All of this would require careful consideration of regulatory factors, borrowing limits, and the potential impact of different financing scenarios on transition costs. By exploring a diverse range of financing options, SOEs can effectively navigate the challenges and opportunities associated with their energy transition goals. Key financing sources to explore: 

Overall, by leveraging green finance, particularly through SOEs as accelerators for Green Finance, Vietnam can forge a sustainable path forward. This approach aligns with the country’s economic goals while ensuring that its energy consumption remains environmentally responsible. With the right mix of financial products and strategic focus, combined with a careful evaluation on restrictions under the regulatory framework (such as single borrowing limits, use of proceeds, channelling of ODAs, etc.),  cost of funds and its impact on the end services/service tariffs, and development orientation towards clean greener businesses, the SOEs could possibly accelerate Vietnam’s green finance revolution and set the tone for a brighter, cleaner future. Of course, several other policy actions and reforms would need to be in place for any of this to take-off. 

Vietnam's green finance market, though nascent compared to global markets, shows significant growth potential. The expanding green bond market and the growing traction of green loans in sectors like renewable energy and sustainable agriculture highlight Vietnam's commitment to its climate goals and the transition to a low-carbon economy.

To fully realize the potential of green finance, Vietnam needs to address the core challenges of regulatory gaps, data transparency, and market liquidity. Developing a comprehensive green taxonomy, strengthening ESG data and reporting, and enhancing policy consistency will be crucial steps in this journey.

As Vietnam continues to build its green finance ecosystem, the involvement of international financial institutions and development banks will play a vital role. Their expertise, capital, and commitment to sustainable development can help bridge the funding gap and support Vietnam's ambitious climate targets. While Vietnam's green finance sector is still in its initial stages, the country's strong renewable energy resources, manufacturing capability and government commitment, and rising interest from investors make it an attractive market for green finance. With continued development and international collaboration, Vietnam is well-positioned to become a regional leader in green finance, paving the way for a sustainable future.

A Professional services firms is crucial role in facilitating green financing for the by providing expertise and guidance throughout the process, including assessing current environmental impact and sustainability practices of a business, identifying opportunities / projects for green finance/green loans (energy efficiency, waste reduction etc.), financial structuring and regulatory compliance & reporting. PwC Vietnam is committed to supporting business across sectors in the country’s push towards greener economy and long-term sustainability of interventions undertaken. 

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