Patrick Lenain, senior associate at the Council on Economic Policies

Climate finance is featured prominently in international climate negotiations, and a number of countries have published climate finance strategies outlining investment needs for mitigation and adaptation. Yet a narrow focus on climate finance risks missing the point. Treated in isolation, climate finance tends to be project-based, donor-driven, and politically fragile. It can narrow ambition and weaken policy leverage. For countries facing large-scale structural change, the challenge is not simply to mobilise more climate funding, but to align the financial system with a long-term vision of economic and social development.

Large investments to address climate change are inseparable from broader development objectives. Energy systems, transport infrastructure, industrial capacity and urban development shape productivity, public finances, social inclusion and national security. Decisions taken today on power generation, grids or industrial processes will lock in economic outcomes for decades.

Framing these investments narrowly as “climate projects” understates their importance. They are core components of an economic strategy. They determine future competitiveness, exposure to external shocks, and the resilience of growth.

Vietnam is a case in point. The country has achieved remarkable economic progress over the past decades. Growth has been strong, inflation contained, public debt well managed, and poverty sharply reduced. Vietnam is now deeply integrated into global manufacturing value chains and has become a key production base for regional and global markets.

Constraints and experience

Vietnam does not lack climate ambition or technical solutions. Commitments to reach net-zero emissions by mid-century, rapid deployment of solar and wind power, and updated energy planning frameworks all demonstrate strong intent. The binding constraint lies elsewhere. It is financial.

Investment needs for clean power generation, electricity grids, storage, transport and industrial electrification are large and rising. They far exceed historical investment levels and cannot be met through public budgets alone. State-owned enterprises face balance-sheet constraints. Domestic banks are limited by maturity mismatches and exposure limits.

Climate finance is often discussed in terms of volumes: how many billions are needed, and where they will come from. This framing is misleading. The more fundamental issue is whether the financial system is structured to support long-term, capital-intensive investments with predictable returns and managed risks. Without such alignment, even substantial funding pledges will fail to translate into sustained investment at scale.

Countries that have progressed fastest in their low-carbon transition did not rely primarily on stand-alone climate finance. Instead, they embedded decarbonisation objectives within their development finance institutions and economic strategies.

China mobilised policy banks to finance renewable energy, grids and manufacturing capacity as part of its industrial development model.

Germany used its development bank to provide long-term financing and risk-sharing for energy efficiency and industrial decarbonisation. South Korea supported clean industries as part of its export and competitiveness strategy, using familiar industrial finance tools.

These experiences differ in context and institutions, but they share a common lesson: successful transitions are financed through mainstream development finance mechanisms, not treated as environmental add-ons.

For Vietnam, the implication is clear. The challenge is not access to climate finance per se, but alignment of its financial system with a low-carbon growth path. A credible strategy starts from the premise that climate-related investments are integral to economic policy. This requires coherence across public investment planning, financial sector policy, capital markets and external finance.

Public investment plays a key role. Investments in electricity grids, storage, rail transport and industrial electrification are system assets. They reduce economy-wide risk, anchor private expectations and improve the viability of private projects. These investments should be assessed through standard cost-benefit analysis and integrated into medium-term public investment plans, not treated as exceptional or experimental.

Banking and credit policies must address structural mismatches. Low-carbon assets typically involve high upfront costs and long payback periods. Commercial banks alone cannot absorb these risks. Targeted refinancing facilities, guarantees and carefully calibrated prudential tools can help lengthen loan maturities and reduce costs.

Missing coordination

Vietnam already deploys many relevant instruments. Green bonds have been issued by banks and state-owned enterprises. Financial institutions are encouraged to integrate environmental risks into lending decisions. Development partners provide concessional finance and technical assistance. However, these tools operate largely in isolation. Sectoral plans are developed by line ministries, provinces pursue their own priorities, banks respond to regulatory constraints, and development partners support individual programmes. The result is a fragmented system in which financing decisions are weakly aligned with national priorities.

International experience shows that effective low-carbon finance strategies are anchored in ministries of finance. Vietnam is no exception. The Ministry of Finance oversees budget planning, public investment management, tax policy and public debt issuance. It plays a central role in supervising financial markets and coordinating with state-owned banks and enterprises. This gives it a system-wide view of fiscal space, financial risks and investment trade-offs that no other institution possesses.

Placing coordination within the ministry ensures that climate-related investments are assessed alongside other economic priorities. It integrates climate objectives into core decision-making, rather than treating them as a parallel agenda. It also helps manage macroeconomic risks.

Developing such a national, well-coordinated framework, aligned with international standards but adapted to local circumstances, is essential. Its value lies in practical application: integration into budgeting, public investment appraisal and financial supervision.

Scenario analysis is a key tool to guide low-carbon development finance. For finance ministries, scenarios are not forecasting exercises but instruments for managing uncertainty. Comparing baseline, accelerated and delayed transition pathways can clarify implications for investment needs, fiscal balances, energy prices and financial stability. In Vietnam, such analysis can inform decisions on power system development, grid expansion and coal phase-down options.

Allocation mechanisms also matter. Approaches such as auctions can improve cost-effectiveness, reduce discretion and direct public support to projects that deliver the highest impact.

Public budgets alone will never be sufficient to finance Vietnam’s transition. Mobilising private capital at scale is therefore essential and requires clarity on risk-sharing. Early-stage and policy-related risks often require public support, while private investors can provide capital once projects move ahead, and permitting and revenue frameworks are credible.

A coherent strategy makes these distinctions explicit. It aligns subsidies, guarantees, concessional loans and public co-investment with clear objectives, ensuring that public resources crowd in private finance rather than displace it.