Seek capital for green transformation

Green credit is not cheap, but it will open up opportunities for businesses to exploit many great benefits of the green growth trend.

International capital for green growth

More than 10 years ago, Vietnam approved the National Green Growth Strategy, but recently, interest in this issue began to increase. Many large companies and corporations have begun to produce green, environmentally friendly products to show their commitment to sustainable development.

However, these are all large enterprises and corporations with strong financial potential. While most enterprises in Vietnam are small and medium-sized with a series of limit  ations in both financial and administrative capacity

Tran Trong Kien, Chairman of Thien Minh Group, a member of the Research and Development Board of the private economy, said that many businesses have understood the importance of transitioning to greener, friendlier and more sustainable production. But to make green products, the cost is a big challenge with an increase of about 20-40% depending on the industry.

“With this increase, one is no customers, the other is it takes time to train in order to make customers accept our products.”

Ha Dang Son, Director of the Center for Energy Research and Green Growth at USAID, pointed out that it is currently very difficult for businesses to access capital for green projects.

“We often say why businesses don't do it? That's because they don't have access to longer capital flows but can only borrow from banks with a term of 4-5 years," said Son.

In this regard, Luong Phuong Mai, Large Corporates South and Commercial Real Estate at HSBC Bank (Vietnam), said that according to the current law of Vietnam, all loans must be paid off during the loan process because there is no refinancing market. The lending appetite of commercial banks is currently about 10 years.

Meanwhile, commercial real estate or many other assets need a longer repayment period, at 15-20 years, which domestic capital cannot meet. At that time, enterprises can consider capital from abroad because these capital sources can be refinanced very simply.

According to the representative of HSBC, global banks like HSBC all have goals related to helping to bring net emissions to zero. In which, HSBC globally has committed to arrange US$750 – US$1 trillion to finance "zero-carbon". In Vietnam alone, the commitment is US$12 billion by 2030.

Mai also clarified that "green credit" is a general term to refer to the financing of sustainable development projects, but the bank's product lines for sustainable development are very diverse. For example, in addition to green credit to directly finance green projects, there are sustainable linked credits. That is, businesses can be multi-industry and not all industries are equally green, but businesses with a vision and roadmap to go green, banks will have more flexible products.

In particular, enterprises can choose 2-3 typical standards for green transition and have a mechanism to measure that shift, the fluctuation of bank interest rates with that loan will be anchored according to whether the customer has fulfilled the set targets or not.

“When the green target is achieved in line with the proposed roadmap, the bank interest rate can be reduced by a level according to the previous agreement, and if not, the interest rate may increase as agreed. This will create an incentive for businesses to have a gradual transition period, but cannot immediately switch from brown to green," Mai said.

In addition, because each enterprise is at a different level in the green transition process, the bank's approach to each enterprise is also different. According to Mai, for businesses just starting to form their intentions for green transformation, HSBC will have dialogues to share green development experiences in other countries that the bank has supported, thereby, changing awareness and nurturing the desire for green development for businesses.

"We are looking forward to hearing green development ideas from the business community, including new ideas, but it is not necessary until businesses have a green project to find a bank," said Mai. As for businesses with a higher level of readiness, HSBC will give advice on whether the development of a set of criteria for sustainable development is appropriate or not enough to make a change.

Need a farsighted look

Discussing more about the trend of green transformation in the economy, Mai said that there are many industries that will face the risks of this shift, namely businesses that choose to stay out of this trend.

For example, enterprises that cause emissions may have to bear higher costs due to pressure from consumers and policies or will have to spend money to buy carbon certificates from other enterprises to offset the greenhouse gas emissions that they release into the environment. However, when viewed broadly, this will be both a risk and an opportunity, the problem lies in the choice of enterprises.

Mai also affirmed that green credit is not cheap, but when accessing this credit, businesses need to look at the broader picture because the benefits do not lie in how much lower the interest rate will be. For example, a green building with EDGE and LEED certificates will increase costs, but in the process of operation, businesses will save energy. And in the long term, operating costs will have a positive impact on the cash flow of businesses, but if you only look at it for 4-5 years, the benefits won't be significant.

Son also acknowledged that businesses should not look at the bank's interest rates as the main benefit of green transformation, but profits will come from production and business activities themselves through investment activities for cost reduction, and sustainable development. Besides, the green brand element is also very beneficial for sales and attracting other financial sources.

Regarding the mobilization of international capital, a representative of HSBC said that the credit taste of foreign investors and foreign funds would be greatly improved if the enterprise has green and sustainable elements.

“In many cases, businesses participate in the capital market, the first time there is no green target, the taste of investors and banks will only get 50%, but the next time there is a green target, it will immediately open a much larger level of liquidity," said Mai.

That shows the benefits of green transformation come not only from the cost of bank loans but also from the liquidity of the market, capital and cash flow in the long term that businesses can save during operations.