Promoting green credit and green bonds for a sustainable future

Vietnam's pursuit of the National Strategy on Green Growth for the period 2021-2030, with a vision to 2050, requires addressing various factors, including crucial financial elements such as green credit and green bonds that support the development of environmentally friendly projects.

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Saigon Investment engaged in a conversation with banking financial expert Nguyen Tri Hieu to discuss these critical issues.

JOURNALIST: - In your perspective, what steps must Vietnam take to realize its set objectives?

Mr. Nguyen Tri Hieu: - There are several models that can improve our living environment. First and foremost, adopting an urbanization model to rehabilitate polluted areas and create a healthy living environment is essential. Simultaneously, embracing the circular economy model in production can minimize the environmental impact by ensuring that the end products of one process become input materials for another process.

Vietnam's distinctive characteristic lies in the fact that 70% of its human resources, natural resources, and land are dedicated to industry and agriculture. However, both sectors encounter significant challenges in waste management. Therefore, strict environmental protection regulations and rigorous compliance are needed, along with the application of the circular economy model to prevent waste from being disposed of in nature.

In reality, small and medium-sized enterprises (SMEs) face financial limit ations and often overlook waste treatment and environmental protection. Thus, the government should provide solutions to support them. Additionally, it is crucial to transition from hydropower to alternative energy sources such as solar and wind energy to generate electricity, mitigating deforestation and its detrimental impact on the environment.

- Green credit and green bonds have gained attention in recent years. How do you view the potential for developing these financial channels to facilitate business transformation and foster a green economy?

- The concept of green credit is relatively new for banks, resulting in a limit ed availability of this capital source, with only a few banks offering it. Similarly, green bonds have only been on the radar for a few years, and the number issued remains minimal. This can be attributed to the fact that investment sources for green bonds are still quite restricted, which has failed to pique the interest of individual investors and businesses.

Furthermore, one of the essential considerations when issuing bonds is clarifying the source of debt repayment. For instance, bonds used to finance solar or wind energy projects typically require a long time to generate income sufficient for debt repayment. Additionally, these projects are inherently risky. Consequently, banks and investors exhibit limit ed interest in acquiring green bonds.

Currently, several credit rating agencies in Vietnam have initiated programs to assess the creditworthiness of green bonds. However, genuine green bonds are still in their early stages. Thus, I have yet to observe any forthcoming green bond initiatives. Therefore, I hope the government will explore ways to bolster green bonds further, particularly for projects involving solar, wind, or green energy, and the production of equipment supporting such energy projects.

- The World Bank, the International Finance Corporation (IFC), the Asian Development Bank (ADB), and many other foreign banks have established funding mechanisms for green credit. In your opinion, what solutions are required to attract more capital and stimulate green credit in the near future?

- Indeed, numerous funds currently support green credit, sponsor green projects, and champion environmental protection. To access this capital, we must initiate economic sector transformations. Energy producers and banks should implement programs for green credit development and financial support for green credit to access global investment sources.

These programs necessitate well-structured plans for bank support, and such large-scale and long-term initiatives often require government backing. Collaboration between the Ministry of Finance, the Ministry of Natural Resources and Environment, the Ministry of Planning and Investment, and international financial institutions can help businesses gain greater access to green investment funds and green credit.

- It's understood that many prominent corporations in Vietnam are keen on adopting environmentally friendly practices, but small and medium-sized enterprises (SMEs) may not share the same enthusiasm. How can SMEs be encouraged to pay more attention to green initiatives?

- Assisting SMEs in transitioning from traditional to green business models is of paramount importance. Beyond advocacy, the government should employ tax measures as a powerful tool. Tax credits for the purchase and sale of machinery, equipment, or materials related to environmental protection can be particularly effective.

For instance, if a business intends to buy a $10,000 solar array for its roof, the government can enable the inclusion of this expenditure in operating costs, allowing businesses to pay taxes only on profits after deducting the amount spent on this equipment. Such tax credits are common in the United States, albeit with varying rates and regulations from state to state. Vietnam could explore implementing similar provisions.

In my opinion, digital technology is the key for SMEs to transition from traditional to green production models. Digital technology can significantly reduce costs and labor requirements, leading to more efficient production with reduced energy consumption and cleaner production methods. Concurrently, businesses should embrace the circular economy model, which can contribute to the creation of a green growth economy.