What is key in fighting climate change?

For me, a good day starts with a cup of coffee, a hot latte to be specific. And I’m not alone. From home to popular coffeehouses, coffee lovers across the globe consume over 400bn cups of coffee every year. Nearly 10bn tonnes of coffee is produced annually now. Global demand for coffee is likely to triple its production by 2050.

Unfortunately, this popular drink could be at risk. Rising temperature and changing rainfall patterns pose several threats to coffee plantation. Coffee plants are particularly sensitive to temperature changes, risking reduced yields and bean quality. Warmer temperatures also create a more favourable environment for pests and diseases that can ravage coffee plants. It reminds us again that the climate change is happening right here, right now and its impacts are felt by more people.

The urgency for climate action

The UN estimates that temperatures will be 3°C warmer by the end of the century because the reduction in emissions are not keeping pace with what is required to achieve the net zero commitments which have been made around the world.

This year’s Intergovernmental Panel on Climate Change (IPCC) report estimates that almost half the global population live in areas with high vulnerability to climate change. The World Bank’s estimate is even higher. According to its November 2023 Policy Research Paper, 4.5 billion people are being exposed to extreme weather events, such as floods, droughts, cyclones, or heatwaves.

Business will play a pivotal role in collective efforts to address this crisis.

How are we going to fight in this battle against climate change?

In the past 2 years, we've seen milestones in Vietnam's climate transition journey, from the country's net zero commitment made at COP26 to its National Climate Change Strategy. However, the focus of this journey remains the same.

First, collaboration is key. Climate change is something that none of us can fight alone, instead, it requires unprecedented collaboration among us all. Collaboration among individuals, businesses, organisations, sectors, and governments is crucial for achieving ambitious climate targets.

Second, the energy transition is fundamental. 80% of the global primary energy supply comes from coal, oil, and gas, and their extraction, transportation, and end use account for three-quarters of world carbon emissions. Like many other countries, Vietnam’s transition depends on moving to clean energy, at scale. Coal provides around three-fifths of our electricity generation. The recent increase in coal use reflects higher demand resulting from continued economic recovery and an uptick in air-conditioning. So net zero requires a thoughtful approach to the responsible early retirement of coal plants, while increasing electricity supply to meet growing demand, through new, clean renewable sources.

At COP28 last year, I was struck by the political consensus for tripling renewables by 2030 and transitioning away from fossil fuels. Renewables’ role is also emphasised in Vietnam's Power Development Plan VIII, with renewables expected to account for more than 30% of the energy mix.

The good news is Vietnam's renewable energy potential is huge given its conducive conditions and Government's pledge to achieve net zero by 2050. The country's natural resources offer potential to attract more investments into the growing renewable energy sector, but Vietnam should significantly step up engagement from the private sector.

The critical role of the finance sector

Banks like HSBC can support Vietnam’s continued growth, through an orderly transition to clean energy, building long-term resilience, while supporting jobs and communities along the way. As a global bank, we have a special role to play in the net zero transition. This is because of our ability to facilitate finance, connect investors to key projects around the world, and provide our clients with relevant first-hand expertise. To walk the talk, we have been proactively engaging with our clients to support their ambitions and develop transition plans. We offer a range of ESG and sustainable finance products that help align our clients’ sustainability objectives with their financial goals.

There are two ways for a bank like HSBC to do deliver our net zero ambition. Most important, it is supporting our customers to transition – this is the biggest impact we can have. Second, we want to channel capital to where it is needed. This means we partner for systemic change – with governments, philanthropies, and civil society.

Specifically in 2022, HSBC signed an MOU with Vietnam’s Ministry of Natural Resources and Environment, assisting them to build a practical approach in realising its strategy in alignment with Vietnam’s net zero emissions targets and to unlock international financing to support these goals. The latest initiative under this MOU was the workshop series “Strengthen Capacity and Popularise Legal Regulations About Climate Change & Energy Transition Solutions” organised in Hanoi, Can Tho and Nha Trang. 450 local corporates have been updated on key regulations on environment, energy transition trends and solutions, which are critical for their net zero transition.

The ability of banks to participate can be enhanced through partnerships – bringing the necessary stakeholders together to overcome challenges. Just Energy Transition Partnerships (or JETPs) are a leading example. JETPs are multilateral financial agreements, bringing together G7 countries with financial institutions and national governments, to accelerate the phase-out of coal, in a way that addresses social consequences.  

In 2022, Vietnam signed a JETP agreement with the International Partners Group which consists of developed countries who will provide half of the amount on offer at US$7.75 billion for the country to transition to green energy. Private sector finance, led by the Glasgow Financial Alliance for Net Zero (GFANZ), of which HSBC is a member, has pledged to mobilise at least that amount. This will help bridge the investment gap and put billions behind Vietnam’s transition.

However, more work is required to get the model right between the public and private sector partners. In any country where these models are to be successful, national policies must also support a coal phaseout and the scaling of renewables, including supportive infrastructure such as power grids and smart energy management systems. HSBC is committed to supporting this to progress from concept to transactions to ensure investment can be swiftly channelled towards sustainable projects.

The challenges

First, the challenge is decoupling economic growth from emissions. Economic growth has been closely linked to increased CO2 emissions and energy consumption, so if that historic model of growth were to simply continue it would have negative impacts on the natural environment and climate. But the good news is that link has already broken in developed economies: USA GDP doubled since 1990, CO2 emissions fell.  

That link has weakened everywhere: China grown fourteen-fold since 1990, but CO2 emissions 5x. In India, GDP growth has outpaced CO2 emissions growth by over 50%. China and India’s growth is far more energy efficient than Europe’s was historically, benefitting from new technologies. So Vietnam can similarly maintain its fast growth rate while transitioning to net zero. Since 1990, its GDP has been 66 times bigger, while CO2 emissions have increased 12 times. Banks like HSBC can finance both sides of that equation: economic growth and decarbonisation.  

Second, sustainable infrastructure investment is often held back by a lack of projects that are sufficiently attractive to investors. The first challenge is the limit ed supply of bankable projects that meet the risk-return requirements of investors. We can better mobilise private capital at scale through developing pipelines of bankable projects, and replicable models of blended finance. Besides, the lack of harmonisation among taxonomies makes financing decisions harder. Interoperability and consistency around transition and sustainable finance would boost investor confidence. Third, more corporate transition plans and comparable emissions data would help banks assess and finance our clients’ transitions. 

Blended finance vehicles such as Pentagreen, a joint venture between HSBC and Temasek, could be one possible solution to overcome those bankability issues, combining public and private capital towards sustainable infrastructure. This debt financing platform aims to deploy blended finance at scale to unlock and crowd in commercial capital for marginally bankable projects to accelerating the development of sustainable infrastructure in Asia, with an initial focus on Southeast Asia.

The primary sector focus is renewable energy and energy storage, clean transport, and the water and waste management sectors. Transactions in other areas such as climate adaptation, agriculture, land use, and technology-led solutions are likely to be considered in the future.

Most recently, Pentagreen and Clifford Capital, an infrastructure financing platform, announced a joint green loan collaboration of US$30 million with BE C&I Solutions to catalyse the construction of distributed sustainable bioenergy projects across Southeast Asia and India.

We believe that more can be done to de-risk deals with concessionary capital. For example, national policy measures could better enable banks to participate by identifying a pipeline of bankable projects. Moreover, establishing national contract structures for wind, solar, and other renewables would benefit financial institutions seeking to participate, providing consistency and comparable projects to help evaluate risk. Most blended finance is deployed at a transaction level, in a way that reduces replicability.

Tackling climate change is an urgent and complex challenge. It demands more collaboration, more funds, and more collective action.