Banks' leadership in the green transformation

Challenges faced by businesses

According to the results of a survey conducted by the Private Economic Development Research Committee (Committee IV) and the Economic Advisory Team for the Prime Minister in August 2022 on business awareness and readiness for green transformation, businesses have relatively low awareness and readiness.

Ms. Pham Thi Ngoc Thuy, Director of Committee IV, stated that companies highlighted three major issues. First, firms have relatively little information on green transformation and emission reduction. Second, from the standpoint of company owners, there is a shortage of information for decision-making. Despite different solution providers, more than 80% of firms claimed that they were unaware of the technical measures needed to accomplish the transition. Third, despite having knowledge and technical solutions, more than 60% of organizations felt considerable pressure regarding finance for green transformation.

The essential aspect right now is that we are waiting for a uniform language between banks and businesses, notably the green categorization criterion. As a result, some firms are adopting spontaneous activities, which means they are seeking criteria from a variety of sources, both foreign and local, and attempting to discover their own initiatives for their own change.

The research grouped firms into three categories: Group 1: Very few firms have defined strategies, initiatives, or begun a transformation path that is internationally recognized. Group 2: Some business owners have attempted to discover particular steps within their scope, such as investing in rooftop solar energy or upgrading machinery, but these activities are carried out as discrete acts rather than as part of an overall strategy and management problem. According to Ms. Thuy's assessment, the majority of organizations in Group 3 are anxious, recognizing the problems and potential but not understanding where to begin or where to acquire the money.

Many experts advise starting with the simplest chores rather than racing towards faraway ambitions. Transparency of information regarding current company actions must be implemented in this respect. The Prime Minister's Decision on registering greenhouse gas emissions is a significant legislative document in Vietnam. This regulation presently affects 1,912 enterprises, but it will be expanded to around 4,000 businesses this year. This stage, however, is required not just for firms on the mandatory list, but also for those pursuing reform. This is the first stage in determining the quantity of our emissions, the primary sources of emissions, and, if technology solutions are used, how to prioritize high-emission locations. According to Ms. Thuy, this information is critical for allocating capital and resources.

Guidance from banks

In assessing the green transformation process and ESG management, Mr. Pham Nhu Anh, CEO of Military Commercial Joint Stock Bank (MB), believes that ESG transformation is a long-term process, not a matter of whether or not to do it, but that ESG will become a survival requirement for enterprises at some time.

Many people believe that firms should not undertake transformation during this difficult time. When we face economic challenges, we tend to turn inward and change from within, therefore focusing on transformation now is appropriate to catch up with trends and is also a long-term unavoidable tendency.

According to Mr. Anh, a bank has a major effect on society; for example, MB has around 30 million individual clients and 500,000 corporate customers. As a result, the transformation of MB can have a significant impact on society and capital sources since banks, as financial institutions, can interact with financial institutions all over the world more effectively, bringing financial resources back and extending them to companies.

"I believe that the role of banks in mobilizing societal resources, influencing businesses, and ensuring a continuous and uninterrupted green transition is one of leadership." As a result, banks may take complete control of the ESG transformation process", said Mr. Anh.

Green funding now comes from two sources: domestic banks and foreign financial institutions. However, in order to get green funding, the following steps must be taken: First, grasp your company's governance framework; second, comprehend financial institution norms.

We can temporarily utilize the International Finance Corporation (IFC) reference criteria because we do not yet have a standard language for everyone to look at and compare. Existing enterprises must count greenhouse gas emissions and demonstrate a 20% decrease in emissions; new businesses must demonstrate that their technology can cut emissions by more than 20% relative to the market. Compliance with international obligations in each area of activity, suitable, not infringing conventions, legal laws, etc., is a required requirement, and compliance with international commitments in each field of activity is a sufficient condition.

"Banks would be ready to assist green funding for firms at that time. For example, at MB, interest rates that are 0.5-2% lower than usual will be prioritized. If we can raise green bond capital for lending, interest rates might fall even lower, depending on the circumstances. Thus, acquiring green funding is not difficult; the challenge is that we must first change our own businesses," remarked MB's CEO.