Green capital for the circular economy

IFC signed a contract to provide $70 million to HDBank to finance  renewable energy projects in Vietnam.

Climate finance refers to the financial channel that developed economies use to invest in or partially finance sustainable development projects in emerging economies to encourage the neutralization of carbon dioxide.

The premise of climate finance

Previously, climate finance was not much mentioned in Vietnam. However, within the past decade, especially since 2012, when the Prime Minister issued Decision No. 1393/QD-TTg (2012) on approving the National Strategy on Green Growth for the 2011-2020 period, with a vision to 2050, green projects have been encouraged to develop. In 2015 and 2017, the State Bank of Vietnam issued regulations to encourage banks to further promote green credit, with specific criteria for selecting projects. Accordingly, green credit has been promoted by Vietnam's commercial banks from 2015 up to now.

2021 is a new climate fiscal year that really builds up to a boom, along with the excitement of renewable energy projects. Climate finance would be promoted further when Vietnam pledged to participate in combating climate change at the United Nations Conference on Climate Change 2021 (COP26) held in early November 2021. Here, Prime Minister Pham Minh Chinh stated Vietnam's commitment to implement mechanisms under the Paris Agreement to reach net zero emissions by 2050. Therefore, Vietnam is expected to raise green funds from the financial packages committed by various countries to the amount of 100 billion USD per year for developing green economies, circular economies, and renewable energy.

Opportunity to attract billions of U.S. dollars

According to the above commitment by Vietnam, many international and Vietnamese institutions immediately had action plans. Through funding and cooperation agreements with Vietnam's credit institutions, millions of USD in green finance supported Vietnam’s fight against climate change.

At the end of December 2021, the International Finance Corporation (IFC) of the World Bank (WB) signed a contract to provide $70 million to HDBank to finance  renewable energy projects in Vietnam. Accordingly, HDBank will expand its climate finance to $800 million by 2025, contributing to reducing emissions of more than 54,000 tons of carbon dioxide per year for the 2021–2025 period and beyond.

IFC, together with ADB, AFD, and WB, has also provided climate finance for many other Vietnamese commercial banks. For example, at OCB, CEO Nguyen Dinh Tung said that OCB has begun to promote green credit from 2018 until now with the funding of ADB and IFC. In 2021, these two organizations increased the funding limit  for OCB: ADB provided a 25 million USD loan and a trade finance limit  of 100 million USD; IFC granted a 100 million USD loan and a 60 million USD trade finance limit , all for green credit programs.

Some other banks have also joined the race to provide green credit. TPBank signed a long-term loan contract with the Global Climate Cooperation Fund for 20 million USD over three years; this Fund also signed a green credit program with Nam A Bank to fund CO2 reduction projects and projects that save at least 20% of energy demand.

"Greening" financial inclusion

However, over the past few years, the effectiveness of green credit in general and climate finance in particular has still not been high. According to the State Bank of Vietnam, as of the first quarter of 2021, there were 67 credit institutions funding green projects, accounting for 3.6% of the total outstanding loans of the whole economy, up 0.46% compared to 2020. This proportion is clearly small compared to the total outstanding loans of millions of billions of VND, with a steady growth rate of over 12% in the past few years.

In addition, one of the main reasons why green capital has not been poured into the economy is because the strategy for green finance has not really been implemented. According to Dr. Can Van Luc and his colleagues from the BIDV Research and Training Institute, such a strategy must cover all the constituent parts of the financial system: green financial intermediaries, green financial markets, and the trend of sustainable investment (via ESG funds) worldwide.

It can be seen that a comprehensive financial greening strategy still requires a comprehensive change and does not just "expect" climate financial support from a few sides. Climate finance will only change when there is a change in the thinking of the participants.

An expert said that this should be applied according to the principle: where there is demand, there will be supply. Once businesses have a clear awareness of the green economy and the circular economy, they will need to learn about green credit, including loan conditions, procedures, and relationships with credit institutions to access green credit.