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Vietnam Today

Risks to address

Released at: 09:48, 24/11/2015

Risks to address

Green credit is making very slow progress in Vietnam despite being a path towards sustainable economic development.

by Minh Tien

Mrs. Tran Thi May and many other poor residents of Ba Ria Vung Tau province’s Xuyen Moc district previously relied on contaminated water taken from nearby wells for their daily needs. Her family and neighbors all suffered various skin, bowel and eye infections as a result, until in 2009 the Vietnam Bank for Social Policies (VBSP) granted them preferential loans to install hydraulic pipes to gain access to the district’s central water supply network. Since then their health has improved dramatically and their healthcare expenditure is much lower.

Preferential loans to businesses with green projects generate substantial value for the sustainable development of Vietnam’s economy and its society by alleviating social and environmental impacts. Given such circumstances and the increasingly pressing matter of global climate change, the government has been passing a range of directives aimed at promoting and applying environmental-friendly measures.

According to Ms. Nguyen Le Hang, Coordinator of the Green Credit Trust Fund (GCTF), prior to 2007 domestic banks gave no priority at all to activities relating to environmental protection. The financial sector was clearly late to respond to the trend but has now emerged as an important driver in all sectors of the economy. 

Around the globe new standards and codes of conduct have been developed within banking sectors to promote corporate accountability and transparency and consideration of environmental and social impacts. A clear example is the Equator Principles, a voluntary set of principles for environmental and social risk management in project finance adopted by an increasing number of leading banks operating in developing countries. 

Vietnam has not been applying the Equator Principles but like many other developing countries has been taking action to turn to commercial banks to address burning environmental and social issues. In particular, the State Bank of Vietnam (SBV) issued Directive No. 03 on March 24, promoting green credit growth and managing environmental and social risks in extending credit. 

In regard to the objectives and overall tasks, the SBV Governor required the banking sector focus on protecting the environment, improving efficiency in the utilization of natural resources and energy, advancing environmental quality and human health, and ensuring sustainable development when providing loans. The Governor also asked credit institutions to review, adjust, and complete institutional frameworks so they are in line with the objective of green growth - to provide funds for environmentally-friendly projects and plans for production and business, supporting enterprises to implement green growth and thereby fulfilling the objectives associated with green growth and sustainable development. There is still some distance, however, between strategy and reality.

Not enough done

A recent study conducted within the framework of the German-Vietnamese Macroeconomic Reforms/Green Growth Program, implemented by GIZ (German Corporation for International Cooperation in English) Vietnam on behalf of Germany’s Federal Ministry of Economic Cooperation and Development (BMZ), showed that awareness among all banks operating in Vietnam when it comes to green credit remains inadequate as State decrees and directives have largely been too vague and imprecise.   

The study showed that 62 per cent of surveyed banks claimed to be more than familiar with regulations on sustainable development and green growth and the commitments Vietnam must make when engaging with international associations regarding green credit, but none could specifically name those commitments when asked. Moreover, 88 per cent said they believe green credit is a sector of potential but only 68 per cent have particular plans to promote activities in this regard in the short and medium terms. Fifty-nine per cent recommended the SBV adopt a more specific framework and directive than Directive No. 03 regarding environmental risk management in financial activities in the medium and long terms.

According to Mr. Pham Hoang Mai, Head of the Department of Science, Education, Natural Resources, and Environment under the Ministry of Planning and Investment (MPI), certified green projects can receive up to 50 per cent of their total capital requirements with remarkably favorable interest rates for the first ten years and a repayment term of up to 40 years. Despite such offers, though, the development of green credit remains in its infancy.

There are only a few donors involved in providing green credit in Vietnam, such as the World Bank, the Asian Development Bank (ADB), and the Japanese International Cooperation Agency (JICA), together with international funds for climate and environmental issues like the Green Climate Fund (GCF) and the Global Environment Facility (GEF), among others. The products offered, however, are viewed by the business community in Vietnam as lacking diversity and current policies are yet to truly create favorable mechanisms for capital to flow into the market for access.

Recent figures from GCTF show that only 80 Vietnames