With its long-term vision for sustainable development, coupled with a clear implementation strategy and an effective social and environmental risk management system, VPBank has gradually become a role model of a “green” bank in Vietnam. Such progress has brought sustainable values to the bank itself as well as the community and the whole economy. Mrs. Luu Thi Thao, VPBank’s Standing Deputy CEO, shared with the Asian Business Leadership Forum (ABLF) the bank's efforts in building its Environmental, Social, and Governance (ESG) scheme.

Mrs. Luu Thi Thao, VPBank’s Standing Deputy CEO

In July, Moody's for the first time announced VPBank's ESG sustainability score at 2 out of 5, with 1 being the highest. Is this a testament to VPBank's long-term strategy for sustainability and building up the image of a green bank? What were the factors contributing to such a good result?

With a rating at 2, out of 5 by Moody's for VPBank’s strong foundation, clear strategy and effective management policy system, we are currently on a par with many regional credit institutions in terms of ESG practice. The bank in fact has always paid attention to sustainable growth in its long-term development orientation.

To achieve such significant results, VPBank has diversified its credit portfolio with the goal of gradually reducing the proportion of outstanding loans allocated to carbon-intensive industries, while building a social and environmental risk management system in its lending activities according to international standards and promoting green credit through green funds mobilised from IFC, Proparco, etc.

The bank has also promoted customer support programmes, especially during the COVID-19 pandemic, by means of interest rate reductions, debt restructuring and providing favourable conditions for women-led businesses.

Regarding governance, VPBank has so far completed the development of the ESG Risk Management Policy, the Social Environment Risk Management System in its credit activities, and the Green Credit Policy Framework, which help ensure that the bank is well equipped to address ESG risks and support a sustainable transition process.

The COVID-19 pandemic has caused many businesses to struggle and this has subsequently affected the banking industry. How does the application of ESG help businesses in general and VPBank in particular cope with the crisis??

VPBank has integrated sustainability into its strategy and long-term vision, thus helping the bank stand firm in the recent crisis.

Accordingly, VPBank established the Pandemic Response Steering Committee and activated the Business Continuity Plan according to international standards to proactively minimise negative impacts or unexpected losses on its daily operations. At the same time, we flexibly implemented a work-from-home policy for employees to ensure our business continuity and our staff’s safety in the context of the pandemic.

Customer support policies have always been our top priority during the pandemic, which in turn helped the bank and our customers overcome difficulties arising from the COVID-19 pandemic. These included debt rescheduling, extension, and restructuring for existing loans to ease financial pressure for businesses. We have also made efforts to find financial sources from organisations such as IFC and Proparco to support small and medium enterprises, women-led firms, as well as promote green credit growth. In 2021, VPBank reduced interest payments by more than VND1.2 trillion (over US$53 million) for more than 400,000 customers.

In addition, VPBank has taken the initiative to apply new technologies to improve the flexibility of the bank's services, as well as ensure the safety of our customers. A series of technology applications have been deployed to accommodate a comprehensive ecosystem of digital services including disbursement, overdraft, car loans, account opening via eKYC, etc.

The banking industry plays an important role in leading the economy when providing and co-ordinating capital sources based on a strict risk assessment process. Therefore, banks’ pioneering role in ESG implementation creates a great impetus for corporate customers in setting up new standards for their sustainable development. Can you tell us more about the application of ESG standards at VPBank? How does compliance with this ESG standard affect your product development as well as credit risk management when setting standards for businesses to be able to access your services?

Since 2016, our social environment risk policy has been developed and implemented on the basis of compliance with national laws and IFC's Social and Environmental Performance Standards. It has become an integral part of our credit risk management activities. We believe that the efforts to integrate social and environmental risk management in lending activities are necessary to create momentum to promote business practices that ensure the protection and conservation of nature, as well as create positive social value, while allowing us to tap into the investment opportunities in new products, services and partnerships that come from the transition to a low-carbon economy. In addition, VPBank also monitors customers to maintain their awareness of social and environmental impacts, to ensure that communities and the environment are protected from potential negative impacts.

VPBank has co-operated with international partners to develop and implement the Green Credit Support Programme with capital of up to US$262.5 million to encourage customers to invest more in green projects. This would contribute to the transition to a low-carbon economy in Vietnam, while mitigating the negative impacts of climate change. By the end of 2021, VPBank supported 422 customers with a total balance of VND4.07 trillion as they transformed their business forms and invested in green projects in the fields of renewable energy, green products and technologies, production processes adapted to the circular economy, sustainable water management and wastewater treatment, and sustainable agriculture and forestry.

The VPBank tower on Lang Ha Street in Ha Noi. Photo courtesy of the bank

Do you think that implementing ESG is a factor that helps banks attract foreign capital?

According to a recent PwC survey, nearly 80 per cent of surveyed respondents considered ESG as an important factor when making investment decisions in a company and 49 per cent are willing to withdraw capital from companies that do not implement responsibility for ESG. This shows that investors are more concerned about the ESG risks and opportunities facing the company they invest in and they are willing to act on the ESG criteria.

In addition, applying ESG is one of the plus points that helps a company have the advantage in attracting large investment capital from abroad with preferential interest rates and other terms such as loans from the ADB or issuing green bonds.

For VPBank, the establishment of ESG policies in the operating model will help the bank have a good image in the eyes of international financial institutions, and at the same time, maintain a sustainable growth momentum that creates value for the bank, investors and stakeholders. VPBank is very proud to have been voted for many consecutive years by the Ho Chi Minh City Stock Exchange (HoSE) in the Vietnam Sustainability Index (VNSI), which includes the 20 companies with the highest sustainable development scores listed on the HoSE.

Have government policies created favourable conditions for enterprises to apply ESG in Vietnam?

The Vietnamese Government is promoting the development of economic sectors in the green and circular direction to ensure sustainable economic development. At the recent COP26 event, Prime Minister Pham Minh Chinh announced Vietnam's commitment to "reducing net emissions to zero by 2050", aiming to build green financial components, creating stronger investment conditions for low-carbon technologies.

In the banking sector, the first draft circular guiding the management of environmental and social risks in credit granting activities is expected to be issued by the State Bank of Vietnam (SBV) in 2022, in a bid to meet the requirements of the Law on Environmental Protection, thereby officially upgrading the requirements for environmental risk management in the loan approval process from the incentive stage to the mandatory stage. Earlier in 2015, the central bank set up a strategy to promote green credit and sustainable finance through Directive No. 03/2015/CT-NHNN, which set a goal of credit granting activities focusing on the environment protection issue and improving the efficiency of resources and energy use.

What challenges are Vietnamese businesses facing when applying this international standard? What are your recommendations to facilitate businesses in applying ESG?

Although the Government has a policy of creating favourable conditions for businesses to apply ESG, there is still a lack of co-ordination and information sharing among ministries, sectors and credit institutions on the level of businesses’ compliance and sustainable development. Most Vietnamese enterprises have not yet paid attention to the transparent disclosure of sustainability data, the extent of greenhouse gas reductions and ESG compliance.

For credit institutions, as it is in the drafting stage, the current mandatory sanctions for the development of a social and environmental risk management system in credit extension activities have not been implemented. It is currently at an encouraging level, so it has not created fair competition among credit institutions.

Sustainable finance is recommended as a way to address ESG challenges, reduce investment risks, and support climate change response activities. Businesses in Vietnam need to soon integrate sustainable finance into their core business strategies. Getting started early and building the right sustainability reporting roadmap can add value to their business and help them stay ahead of the standards and expectations of their stakeholders.