Much has been done to encourage commercial banks to overcome their hesitancy and provide more green credit.
Green growth is defined as a strategy aimed at sustainable development, especially in the context of biodiversity decline and environmental degradation due to climate change and the increasing occurrence of natural disasters. “Climate change is a serious challenge for the development process and growth that requires countries and regions act quickly,” said Ms. Rachel Kyte, World Bank Group Vice President and Special Envoy for Climate Change. “Vietnam’s leadership has been active in responding to climate change and building the capacity for green growth.”
To support the government’s green growth policy, earlier this year the State Bank of Vietnam (SBV) issued Directive No. 03/CT-NHNN, dated March 24, on promoting green credit growth and environmental and social risk management when granting credit. Under the Directive commercial banks are encouraged to fund projects, production, and business activities that promote green growth.
SBV Governor Nguyen Van Binh has requested credit departments in the banking sector develop and implement measures to promote green credit growth in order to stimulate business activities that are environmentally and socially friendly. At the same time he also asked SBV branches to advise the central office on effectively implementing the National Action Plan on Green Growth in the 2014 to 2020 Period.
With credit institutions, the Governor asked them to research and develop green credit products and credit programs that offer incentives for projects, production, and businesses that are green growth oriented.
In the last four or five years some international financial institutions in Vietnam such as World Bank (WB), the International Finance Corporation (IFC), and the Asian Development Bank (ADB) have set environmental and social standards that businesses and projects must follow to obtain lending. After expanding the scope of activities and enhancing networks, a number of domestic commercial banks became involved in implementing the standards, such as Sacombank, Techcombank, VietinBank, VIB, and ACB.
Through the Green Credit Trust Fund (GCTF) established by the Swiss Government in Vietnam, these banks effectively lend to green and environmentally-friendly projects. Support comes in two forms: less collateral required (50 per cent guarantees) at commercial banks including Techcombank, ACB and VIB, and a partial reimbursement (15 or 25 per cent) of the invested capital, based on the environmental impact resulting from the investment.
According to the Control Operator of the GCTF, Ms. Nguyen Le Hang, more than 80 enterprises in Vietnam have sought to participate in the green credit support program. Forty of these were technically approved, 13 were completed, and 12 are in progress. The GCTF has implemented a number of successful projects, such as the development of a plastic compression machine using a servo motor with lower CO2 emissions and energy savings of 50 per cent, and the implementation of Dissolved Air Flotation to reuse water and pulp in the paper industry to reduce the amount of clean water needed in production by up to 70 per cent. Both types of technological change received 25 per cent in compensation.
The National Institute for Finance (NIF) said that in addition to the GCTF Fund there are other funds operating quite effectively, such as the Vietnam Environmental Protection Fund and the Vietnam Revolving Fund. As at the end of 2014 the Vietnam Environmental Protection Fund had lent more than VND566 billion ($25.2 million) to a total of 113 projects. The Revolving Fund for industrial pollution control in Ho Chi Minh City’s enterprises has also lent to some 100 projects at an interest rate of 4 per cent per annum.
In the manufacturing industry, clean production plays an important role because it helps enterprises operate their business more effectively, increasing profits and ensuring the health of their workers and the surrounding community and environment. Clean production also ensures reserves of natural resources, minimizes the use of toxic materials, and reduces waste and emissions.
According to NIF, green industry has become a mandatory requirement, especially in the context of integration. Clean production not only reduces environmental pollution but also help businesses reduce production costs, save on waste disposal, and reduce their legal liabilities.
In certain industries cleaner production has led to significant economic and environmental results. For example, in the metal processing industry, the steel pieces, aluminum sludge, and oil can be recycled. In the paper industry, waste can be used for other products to earn revenue. In food processing, waste can be recovered and used as animal feed while wastewater, after treatment, can produce methane gas to generate electricity and heat.
The GCTF has provided credit to notable projects with highly-effective implementation, such as the Bien Hoa Packaging JSC, with energy savings of nearly 12 per cent and energy cost savings of over 9 per cent, the Tung Kuang Industry JSC with energy savings of 16.5 per cent and cost savings of over 17 per cent, Vietnam Meiwa with 6.5 per cent energy savings and energy cost savings of over 15 per cent, the Building and Furnishing No. 7 Company with 17 per cent less energy consumption and nearly 27 per cent less energy costs, and the Phi Dung Company with 32 per cent energy savings and a 32 per cent reduction in energy costs.
“As financial intermediaries promoting economic growth, the banking sector has made an important contribution to the sustainable development of the economy and society,” said Ms. Nguyen Thi Kim Thanh, head of the SBV’s Banking Strategy Institute. “The green credit policy is therefore an important solution for the country’s economy and the green growth goals and strategy approved by the government.” Ms. Thanh also highlighted that green credit brings huge benefits for economic growth and improves people’s living conditions and environmental protection.
More incentives and support
According to NIF, $30 billion is needed to reduce waste by 8 to 10 per cent per year by 2020. Thirty per cent will come from the State budget while 70 per cent will come from the private sector. Annual expenditure on climate change and green growth also accounts for over 10 per cent of the total expenditure of the government. Therefore, to achieve green growth objectives, the role of the banking sector is particularly important.
NIF has highlighted that if banks continue to offer regular loan products it will be very difficult to increase green credit because these projects do not always bring in high profits in the short term. If the banking sector wants to support green growth it needs to create different products, with special priority and procedures and incentive interest rate to encourage businesses to become involved in green growth.
Ms. Hang added that although banks have begun to pay greater attention to investment projects that are beneficial to the environment, most green credit still comes from projects sponsored by international funds. Banks, she said, remain concerned about the credit risk of green projects.
The legal framework needed to support green credit and green banking, she went on, is absent or inconsistent, so implementation has many obstacles and difficulties to address.
- green credit