Mai Thanh Dung, vice director of the Institute of Strategy and Policy on Natural Resources and Environment under the Ministry of Natural Resources and Environment (MoNRE), said that in order to promote the government’s role towards green credit and green bonds, one of the important tools currently grabbing attention around the world is a classification system, or green taxonomy, that clarifies activities that are environmentally sustainable.

“Promulgating regulations on environmental criteria for projects granted green credit and issuing green bonds in accordance with the law on environmental protection is very necessary and is an important basis to mobilise, effectively allocate, and use these potential green financial sources”, said Dung.

Dung noted that the green taxonomy is developed for the common purpose of helping financial institutions, investors, state management agencies, policymakers and relevant parties identify which investments can be labelled green, from there stimulating and expanding the implementation of projects and economic activities that are environmentally sustainable and contribute to environmental goals specifically.

“There are differences in specific environmental goals of each green taxonomy by countries to represent national environmental goals and the priority development level of economic sectors that countries aim for,” Dung emphasised.

Expectations great for green taxonomy in Vietnam, illustration photo/ Source: freepik.com

Vietnam’s green credit market has been growing much faster compared to the overall credit growth rate of the economy. Along with that, a number of local government and corporate green bonds were issued on a pilot basis.

In particular, albeit bond issuance for large-scale green projects such as renewable energy, wind power and solar power has been implemented, yet green credit outstanding balance only accounts for about 4.2 per cent of the total outstanding debt of the entire economy.

One of the reasons, as pointed by Nguyen Chi Hieu, director of ESG Consulting at KPMG Vietnam and Cambodia, is that there is still a modest number of banks promulgating internal processes on building a green credit framework and appraisal process for green projects. “In addition, bank staff have not been professionally trained to appraise, evaluate, and manage environmental risks in credit granting activities while green projects always have hidden potential risk, and it is complex to evaluate environmental efficiency for loans and collateral assets,” Hieu said.

In 2017, the MoNRE, the Ministry of Finance, and the State Bank of Vietnam (SBV) embarked on establishing a list of greenfield projects and developed relevant guiding documents to classify green economic activities/projects for green credit statistics and reporting, as well as serve as a basis for green credit granting programmes and pilot issuance of green bonds.

Officials admitted, however, that the list and instructions have not yet been classified based on sector-based economic data, nor have they been classified according to environmental goals and benefits. At the same time, there are no specific screening criteria and environmental indicators according to international practices.

The slow shift of the legal corridor has had a significant impact on the still modest volume of outstanding green credit balances.

Nguyen Xuan Bac, deputy director general of the Credit Department for Economic Sectors at the SBV, said that expediting solutions to promote green credit currently faces some difficulties due to lacking national regulations on criteria and lists of greenfield projects for industries/fields as this is the basis for credit institutions to determine green credit for the forthcoming period.

“Granting green credit requires in-depth technical environmental factors, which will make it difficult for credit officers to appraise and evaluate the effectiveness of the project and the customer’s ability to repay debt, especially in the field of renewable energy due to long time for implementation,” Bac said.

To resolve these difficulties, the government last year issued Decree No.08/2022/ND-CP assigning the MoNRE to preside over and coordinate with relevant ministries and sectors to develop and submit to the prime minister for promulgation of environmental criteria for projects granted green credit and issuing green bonds.

Bank executives recommend that the government, relevant ministries, and departments soon complete the legal framework and overall policies related to the implementation of sustainable finance in general and green credit in particular, and develop orientations for each industry aiming for carbon neutrality by 2050.