With regard to Vietnam, following the government’s development orientation shown in the introduction of Directive 03/CT-NHNN on promoting green credit growth and managing environmental a
INTRODUCTION
Green credit has emerged as a crucial global trend, significantly contributing to sustainable socio-economic development and supporting countries in achieving their green growth strategies In Vietnam, the government's commitment to this initiative is evident through Directive 03/CT-NHNN, which emphasizes the promotion of green credit growth and the management of environmental and social risks in lending practices As a result, local banks have increasingly prioritized and allocated resources towards green credit initiatives.
In recent years, the Vietnamese government has enhanced support and implemented gradual policy reforms to promote green projects across various sectors Currently, 31 financial institutions in Vietnam are engaged in green credit, providing over $12.4 billion primarily for green agriculture and renewable energy initiatives The issuance of eco-friendly credit and green bonds has gained significant attention, as these financial instruments play a crucial role in fostering a lower-carbon and more resilient economy.
In 2020, the bond value raised for solar power projects surged to $1.3 billion, marking a remarkable 254% increase compared to the previous year Despite this growth, banks in Vietnam are still reluctant to finance green initiatives due to their limited experience and expertise in evaluating such projects (Luu Huong, 2021).
The research team undertook a study titled “Current Status and Recommendations for Green Credit Development of Commercial Banks in Vietnam” to examine the current state of green credit in the country and identify the challenges faced The objectives of the research include establishing a theoretical foundation for green credit, assessing its current situation in Vietnam, and providing actionable recommendations for banks, the Vietnamese government, and borrowers to enhance the growth of green credit.
LITERATURE REVIEW
Green credit definition
Green credit is essential to the Green Finance Ecosystem, as it emphasizes the importance of environmental sustainability alongside economic growth Defined by Omair Awadh, it aims to create a practical framework for a sustainable, eco-friendly economy Banks engaged in green credit prioritize not only revenue generation but also the environmental benefits of their investments The primary objective is to support projects that positively impact the environment while ensuring financial returns for investors.
Article 6 of the Green Credit Guidelines has listed the types of projects that are funded by green credit which include energy conservation, environmental preservation, and sustainable development (GSIA, 2014) The Green Credit Statistics reported by China Banking Regulatory Commission specify major investments in green credit in the upcoming year They are natural resource preservation, ecological restoration, disaster prevention, resource recycling, waste disposal, pollution prevention and treatment, access to clean water, energy- efficient building, etc (UNEP, 2016) Financial institutions that offer green credit may also incentivize their clients to adopt environmentally sustainable practices by offering preferential interest rates, longer loan terms, or other financial benefits The positive effect of interest and loan incentives on the growth of customers investing in green credit has been proven by the result of Chinese’s
“Discounted Green Loans” policy (People’s Bank of China and the UNEP,
All of these green investments will contribute to the future of a holistic, coordinated, and sustainable economy; that will simultaneously bring inclusive growth to society and a healthy, unstained environment.
The importance of green credit
The authors will focus on two large elements of green credit's impact: on the environment and on the economy
Green credit plays a crucial role in promoting environmental sustainability by directing financial resources toward sustainable projects According to Wen's 2016 report, traditional credit models often lead to the emergence of capital and energy-intensive industries that deplete environmental resources and generate significant waste In contrast, green credit supports initiatives in renewable energy, clean technology, sustainable agriculture, and conservation, facilitating a shift toward a more sustainable economy By funding these projects, green credit accelerates the transition to environmentally friendly practices and reduces the negative impact on our planet.
Green credit plays a vital role in decreasing greenhouse gas emissions and lowering CO2 levels in the atmosphere Research by Xiu, Liu, and Zang (2015) demonstrates that green credit effectively reduces CO2 content, subsequently decreasing energy consumption intensity and greenhouse gas emissions By promoting renewable energy sources like wind and solar power and supporting energy efficiency initiatives, green credit contributes to mitigating climate change impacts and reducing the overall carbon footprint of the economy.
Green credit plays a crucial role in promoting sustainable practices and fostering green innovations among companies By offering financial incentives for initiatives like waste reduction, enhanced water efficiency, and sustainable supply chain management, green credit encourages businesses to adopt environmentally friendly practices A study on Chinese A-share listed industrial firms illustrates that the green credit policy not only stimulates corporate innovation but also drives green initiatives by restricting financing options for heavily polluting businesses.
By promoting sustainable development, green credit can help to ensure that economic growth is balanced with environmental protection and social equity, creating a more resilient and sustainable future for all
The global industry, including Vietnam's financial sector, is transitioning towards green credit to promote innovative and sustainable production practices This shift not only enhances environmental protection but also supports economic development, ultimately improving the living standards of individuals.
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Here is a rewritten paragraph that complies with SEO rules:"Green credit emerges as a vital economic solution, mitigating the adverse effects of daily life and production processes on the environment and society, thereby fostering sustainable economic growth By adopting green credit practices, commercial banks can significantly reduce three key risk factors: credit risk, reputational risk, and legal risk, ultimately contributing to a more resilient and environmentally conscious financial system."
Green credits play a crucial role in mitigating credit risk by reducing bad debts and enhancing the financial stability of commercial banks Research by Cui et al (2008) indicates that green loans are less risky than traditional loans, leading to a decrease in non-performing loan ratios Additionally, Yin et al (2021) found that green lending boosts profitability for non-state-owned banks while lowering their risk exposure Furthermore, the adoption of green principles enhances banks' risk management capabilities, safeguards their funds, and improves their ability to capitalize on opportunities for competitive differentiation (Zhang et al., 2011).
Green credit enhances the reputation of commercial banks by supporting community welfare and demonstrating their commitment to sustainability and social responsibility By investing in eco-friendly projects, banks foster trust among customers and stakeholders, which can lead to improved financial stability and long-term profitability.
Green credit plays a crucial role in minimizing legal disputes related to projects that may harm the social environment With a growing emphasis on environmental protection, the Green Credit Policy has been implemented, requiring all enterprises to secure approval from relevant authorities to ensure compliance with environmental standards Companies failing to meet these technical requirements face the risk of halting operations By investing in environmentally friendly projects, green credits offer a pathway for businesses to offset their negative environmental impacts and contribute to sustainability efforts.
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Developing green credit fosters both pollution control and economic growth, ultimately promoting sustainable development Over time, the effectiveness of green credit increases, particularly when supported by complementary policies that offer substantial incentives.
Current situation of green credit in Vietnam
Current status of green credit growth
On March 24, 2015, the State Bank of Vietnam issued Directive No.03/CT-NHNN to emphasize the significance of green credit, urging commercial banks to actively promote and provide financing for environmentally-focused projects This initiative has led to a notable increase in the adoption of "green credit" within the financial banking sector, fostering a culture of environmental responsibility among businesses.
During the 2015-2019 period, the green credit balance in Vietnam was increasing steadily over the years and had hit 317.600 billion dongs by June 2019 (a 29% increase compared to the end of 2018)
Graph 1: Green credit balance growth 2015-2019
(Source: Credit Department of Economic Sectors, State Bank of Vietnam)
Despite doubling since 2015, the green credit balance remains significantly lower than the total credit balance By 2019, the green credit balance rose to 4.1% of the overall credit balance.
Graph 2: Proportion of green credit balance compared to total credit balance
(Source: Credit Department of Economic Sectors, State Bank of Vietnam)
Green agriculture accounts for 45% of the total green credit balance, making it the leading sector in green credit distribution This is followed by renewable and clean energy, which represents 17%, and stable water control in both urban and rural areas, comprising 11% of the total.
Graph 3: Green credit distribution by field
(Source: State Bank of Vietnam)
Between 2017 and 2022, significant advancements were observed in the growth of green credit, with 39 credit institutions reporting an average outstanding loan growth of 25% per year from 2017 to 2021 By June 30, 2022, outstanding loans for green projects reached over VND 474 trillion, reflecting a 7.08% increase compared to 2021 Notably, renewable and clean energy sectors comprised 47% of the total green credit balance, while green agriculture represented 32%.
Graph 4: Overall green credit growth in Vietnam
With the growth of green credit, it is important to highlight some commercial banks’ notable contributions to the green credit movement
- MB: Funded 34 solar and wind energy projects (70.000 billion VND), helping investors generate 3600 MW of renewable energy
- HDBank: Spent 7000 billion VND on renewable/clean energy projects (including 3000 on solar energy projects by 2018)
- Agribank: Decreased loan interest by 0.5% or up to 1.5% a year for clients participating in green agriculture
- ADB: Lent 45 million USD to the “Provide clean water to and sanitize the central region”
(Source: Financial & Monetary Market Review)
Policies of the government on green credit
Acknowledging the importance of green credit, the Vietnamese government has gradually constructed initial legal corridors and policies related to this field
On September 29, 2012, the Prime Minister approved Decision No 1393/QD-TTg, establishing Vietnam's national green growth strategy for 2011-2020, with a vision extending to 2050 This strategy serves as a vital legal foundation for formulating future policies aimed at promoting a green economy in Vietnam.
On March 24, 2015, the State Bank of Vietnam released Directive No 03/CT-NHNN, aimed at promoting green credit growth and managing environmental and social risks in credit extension This directive encourages banks to provide green credit specifically for projects and business activities that focus on environmental protection and do not adversely impact the environment.
In 2017, the State Bank of Vietnam, in collaboration with the International Finance Corporation (IFC), created a handbook focused on Environmental and Social Risk Assessment tailored for ten economic sectors involved in credit extension activities This handbook serves as a crucial resource for credit institutions, providing guidance on managing environmental and social risks and assisting credit officers in the appraisal of green projects.
In August 2018, the Governor of the State Bank of Vietnam approved Decision No 1604/QD-NHNN, which focuses on advancing green banking in Vietnam This initiative seeks to increase awareness and social responsibility within the banking system regarding environmental protection and climate change It aims to "green" banking operations while encouraging sustainable practices in manufacturing, services, and consumption, ultimately fostering green growth and sustainable development.
On August 8, 2018, the Prime Minister issued Decision No.986/QD-TTg, which approved the strategy for the development of the banking industry in Vietnam to
By 2025, the government aims to enhance the efficiency of credit capital allocation, focusing on increasing the share of bank credit directed towards renewable energy, clean energy, and low-carbon industries Additionally, the government plans to implement credit programs that support sustainable development and address climate change challenges.
On December 23, 2022, the Governor of the State Bank of Vietnam issued Circular 17/2022/TT-NHNN, which outlines guidelines for environmental risk management in credit extension by credit institutions and foreign bank branches This circular mandates that credit institutions prioritize environmental risk assessment when providing loans to projects that could harm the environment.
Over the past ten years, the Vietnamese government has increasingly focused on the development of green credit to foster a sustainable economy Key decisions, circulars, and guidelines from the government and the Governor of the State Bank aim to encourage banks to adopt green credit initiatives while enhancing environmental and social risk assessments As a result of these supportive policies, green credit in Vietnam is gaining significant interest from investors, banks, and foreign capital sources.
Barrier to the implementation of the green credit
Despite the government's and the State Bank of Vietnam's efforts through various decisions and circulars to foster green credit development, significant barriers to the effective implementation of green credit processes persist in Vietnam.
3.1 In terms of legal regulations
The implementation of green credit in Vietnamese banks encounters significant challenges due to the absence of a unified legal framework Currently, there are no standardized definitions or criteria for green portfolios, green fields, or green industries, which hinders commercial banks in appraising and evaluating green projects effectively Each bank relies on its own standards for project assessment, leading to inconsistencies in the evaluation process Additionally, the policy support for businesses investing in green projects remains inadequate, creating uncertainty around what constitutes a green portfolio, the incentives available for businesses, and the overall assessment process for green projects.
3.2 In terms of the banks
The ability of appraisers to evaluate environmental and social risks in projects remains limited, particularly in the complex field of renewable energy, which is characterized by its advanced technology and unique technical features Additionally, the collateral for these projects often consists of assets acquired through loan capital, resulting in low liquidity and making collateral management challenging Many appraisers lack comprehensive training in assessing and managing environmental risks related to credit activities, and smaller banks typically do not have dedicated departments to evaluate large-scale projects like solar and wind energy As a result, the share of green credit remains modest, primarily concentrated within larger banks.
Many small and medium enterprises struggle with limited capital for investing in green projects While advanced technologies can be acquired from developed countries, the adaptation of the workforce to these technological advancements requires time and effort.
The high investment costs associated with sustainable and green energy technologies pose significant challenges for small and medium-sized enterprises (SMEs), which often operate with limited capital and are susceptible to financial difficulties.
Many businesses hesitate to engage in green projects due to concerns about their lack of experience and the perceived high risks involved Additionally, these projects often face stringent environmental protection requirements and complex loan processes As a result, without substantial interest rate incentives, companies are unlikely to pursue the green credit offerings provided by banks.
CASE STUDY
Introduction to BIDV
BIDV (Bank for Investment and Development of Vietnam) was established in
Established in 1957, BIDV has evolved over 60 years into Vietnam's leading commercial bank by asset size, playing a crucial role in the nation's economic development Originally founded as a state-owned bank, BIDV provides essential financial services to individuals and businesses, supporting the country's growth.
BIDV has significantly broadened its offerings to encompass a diverse array of banking products and services, such as retail, corporate, investment banking, and insurance With a vast network exceeding 1,000 branches and transaction offices nationwide, BIDV stands as one of the largest banking networks in the country.
BIDV, a leading bank in Vietnam, has garnered multiple awards for its exceptional banking services, including the prestigious "Best Personal Loan Product 2021" for its quick loan offering on Smart Banking Demonstrating remarkable performance in retail banking, BIDV has been recognized as the Outstanding Retail Bank for five consecutive years from 2016 to 2020, along with accolades for its outstanding digital transformation in the banking sector.
2020, as chosen by the Vietnam Banks Association (VNBA) and International Data Group (IDG) (BIDV, 2021).
In recent years, BIDV has played a pivotal role in promoting green credit in Vietnam, becoming the first domestic financial institution to partner with the Ministry of Natural Resources and Environment to implement strategic environmental protection and climate change initiatives To support green projects and businesses, BIDV has launched various lending products, including a Green Credit program that offers favorable loans for investments in renewable energy and energy efficiency Additionally, the bank provides advisory services and technical support to help clients enhance energy efficiency and reduce their carbon footprint As of September, BIDV has financed 1,210 green projects, with total credit obligations exceeding 61.7 trillion VND.
As of December 30, 2022, BIDV has emerged as a leader in green finance, with green credit balances accounting for 3.3% of its total outstanding loans, approximately 49 trillion VND An impressive 97% of this green credit is allocated to renewable energy projects, encompassing over 800 initiatives and a total credit amount exceeding 53.2 trillion VND During the 2020-2021 period, BIDV has actively funded numerous renewable energy projects, reinforcing its commitment to sustainable financing.
BIDV has successfully facilitated 25 renewable energy projects, amounting to 23.4 trillion VND (approximately $1 billion), with individual loans exceeding 500 billion VND (BIDV, 2022) This indicates significant progress in green credit initiatives at BIDV The following section will analyze the key factors that have contributed to this success.
Legal basis for green credit in BIDV
The Vietnamese government and state bank have established regulations to promote green finance, while BIDV is actively researching international practices and recommendations, such as the Safeguard Policy Statement and Gender and Development Policy This includes adhering to the environmental and social protection standards set by the IFC (WB) to develop its own Social and Environmental Risk Management Framework, aimed at effectively implementing the State Bank's guidance on social and environmental issues.
BIDV is dedicated to ensuring a strong commitment to social and environmental protection, as well as sustainable development The bank emphasizes the importance of effective environmental and social risk management in all its operations, pledging to finance only projects and business plans that comply with relevant environmental and social protection laws.
To enhance the credit extension process, it is essential to rigorously implement the Environmental and Social (E&S) risk assessment, which involves three key steps: evaluating business plans and projects, classifying E&S risks, and conducting a comprehensive E&S risk assessment to categorize these plans and projects effectively In response to this need, BIDV has introduced a new, user-friendly handbook designed to streamline the implementation process, building upon the Social and Environmental Risk Assessment Handbook released by the State Bank in August.
The bank requires all branches to incorporate environmental and social protection policies into their credit agreements, ensuring customers commit to adhering to Vietnamese laws and international standards Customers must actively mitigate any negative impacts their projects may have on the environment and society within specified timelines They are also obligated to promptly inform BIDV of any incidents that could harm the environment or society, along with a plan to address such incidents Additionally, customers must provide necessary documentation to demonstrate compliance with their social and environmental responsibilities throughout the credit period Failure to meet these obligations will result in penalties.
After the loan approval, BIDV will monitor and report on the client's adherence to environmental and social standards This process enables BIDV to assess the effectiveness of its green credit initiatives, facilitating prompt decision-making and enhancing practical experience in sustainable lending.
Some achievements of BIDV
BIDV, a leading Vietnamese bank, is committed to green finance by actively promoting investments in waste management, sustainable agriculture, renewable energy, and green tourism (Kim Lien, 2022) The bank's business strategy for 2021-2025 emphasizes sustainable and green growth, aligning its goals with a vision for 2030 (BIDV, 2022).
BIDV's 2021 annual report highlights its collaboration with the State Bank of Vietnam, GIZ, and CBI to establish a standardized framework for green bond issuance This initiative aims to position BIDV as the first Vietnamese bank to issue green bonds that meet international standards, facilitating financing for environmentally friendly projects at competitive rates The bank's green credit deployment from 2018 to 2022 reflects a significant increase in both scope and proportion.
Graph 5: Green credit growth of BIDV 2018-2022
As of December 31, 2022, BIDV's outstanding green credit reached 63.773 billion VND, marking a 3.8-fold increase since 2018 and an impressive average annual growth rate of 39% Additionally, the Credit Department of Economic Sectors at the State Bank reported that from 2017 to 2021, outstanding loans for green credit grew by over 25% annually.
In 2022, outstanding credit for green projects exceeded 474 trillion VND, representing 4.1% of the total loans in the economy and marking a 7.08% increase from 2021 This growth primarily targeted renewable energy, clean energy, and green agriculture Notably, BIDV's ratio of green credit outstanding loans surpasses the average of the commercial banking system, highlighting the bank's commitment to sustainable financing.
In addition, BIDV also achieved a number of typical green projects in which BIDV plays the role of a wholesale bank, including:
The World Bank has approved a $50 million loan for the Vietnam Energy Efficiency for Industrial Enterprises (VEEIE) program, aimed at funding six projects worth a total of 1,695 billion VND This initiative is designed to promote energy-saving investments among enterprises, aligning with national objectives to enhance energy efficiency and reduce greenhouse gas emissions.
AFD's SUNREF green credit line of $100 million will finance three wind power projects in Gia Lai and Soc Trang provinces, amounting to 4.642 billion VND This initiative supports enterprises in investing in renewable energy, promotes environmental protection, aids climate change adaptation, and fosters green growth, thereby enhancing local socio-economic development and bolstering national energy security.
The World Bank is investing $200 million in the Renewable Energy Development Project (REDP) to construct ten hydropower facilities in the provinces of Lao Cai, Son La, and Hoa Binh This initiative aims to reduce greenhouse gas emissions, promote environmental conservation, decrease dependence on fossil fuels, and enhance national energy security (BIDV, 2021).
Challenges
BIDV, one of Vietnam's largest banks, plays a crucial role in advancing green credit growth in the country Despite its potential, the bank faces several challenges and obstacles in achieving this goal.
BIDV faces a significant challenge due to a lack of technical knowledge in developing and financing green projects To effectively assess and support green initiatives, the bank may need to invest in employee training or hire external consultants to enhance their specialized expertise.
A significant challenge in green finance is the limited resources available, as BIDV's minimal experience and track record in financing green projects may hinder its ability to access essential green finance resources, including foreign funding.
The lack of established standards for green projects is a large part of the difficulty
Vietnam lacks standardized criteria for identifying and assessing green projects, leading to inconsistencies in evaluation processes This absence of clear guidelines complicates BIDV's ability to make informed funding decisions for sustainable initiatives.
Despite the Vietnamese government's efforts to promote green credit through various policies and regulations, BIDV may still face regulatory and policy challenges in financing green projects Key obstacles include the need for established standards for banks to effectively manage environmental risks and the absence of a reliable monetary policy instrument to enhance bank financing for sustainable initiatives.
Recommendations
To overcome the challenges that BIDV may face in developing green credit in Vietnam, here are some recommendations:
BIDV should prioritize investing in training programs or hiring experts to enhance their technical knowledge in evaluating and financing green credits This strategic move will enable the bank to more effectively assess the feasibility of green projects and mitigate associated risks.
BIDV should forge partnerships with international green finance institutions to enhance access to knowledge, resources, and funding for green projects Collaborating with organizations like the International Financial Corporation (IFC) will help address Vietnam's challenges in accessing green finance resources effectively.
BIDV should establish standardized criteria for green projects by collaborating with other banks and the government This collaboration will lead to a unified approach for identifying and assessing green initiatives, thereby reducing the risks associated with financing non-green projects and ensuring a more consistent review process.
BIDV should advocate for supportive laws and regulations to enhance green credit growth in Vietnam By collaborating with the government and relevant stakeholders, BIDV can help eliminate regulatory barriers and policy challenges that hinder financing for green initiatives.
RECOMMENDATIONS
Government
Green credits offer significant advantages for key stakeholders, yet their widespread adoption faces ongoing challenges that necessitate governmental intervention through practical measures To enhance the utilization of green credits, governments can implement several strategic actions aimed at promoting their benefits and addressing existing barriers.
Governments must create a regulatory framework mandating companies to acquire green credits to offset carbon emissions, similar to the successful European Union Emissions Trading System (EU ETS) Implementing a tailored emissions trading system in Vietnam could significantly reduce greenhouse gas emissions To ensure compliance, these regulations should include penalties for non-compliance.
Green credit activities must operate within legal regulations, yet current legal documents often lack specific guidance for banks Vietnam should draw inspiration from Korea and China to establish clear regulations for green credit It is essential for credit institutions to recognize and promote green economic development, including sustainable production and consumption When developing legal frameworks, the unique characteristics of each institution should be considered to maximize participation To improve credit quality in green financing, banks should effectively manage bad debts, learning from China's practices This involves quickly and legally handling collateral for outstanding debts to boost revenue Addressing overdue debts requires identifying responsibilities and strengthening the debt settlement board's commitment If necessary, legal action should be pursued against customers who deliberately evade repayment, while adhering to legal regulations and respecting customer rights.
Establishing standards for the certification and verification of green credits is crucial, alongside implementing a robust system for monitoring and reporting carbon emissions A fair and equitable regulatory framework is essential, which may involve offering exemptions or reduced requirements for small and medium-sized enterprises Additionally, it is important to create support mechanisms for companies facing challenges in meeting compliance with these regulations.
Establishing standards for the certification and verification of green credits is crucial, alongside a robust system for monitoring and reporting carbon emissions A fair and equitable regulatory framework should be prioritized, incorporating exemptions or reduced requirements for small and medium-sized enterprises Additionally, mechanisms must be created to assist companies facing challenges in meeting compliance with these regulations.
Financial incentives, such as grants, subsidies, and rebates, play a crucial role in encouraging the purchase of green credits For instance, governments could provide subsidies for each ton of carbon emissions offset by companies through these credits Additionally, implementing a cap-and-trade system, akin to the EU ETS, can further motivate companies to reduce emissions In this system, the government establishes a cap on total carbon emissions and issues tradable permits, allowing companies that emit less than their allocated amount to sell excess permits to those that exceed their limits This creates a financial incentive for businesses to lower their carbon footprint.
To effectively implement green credit trading incentives, a robust infrastructure is essential, including a centralized trading platform and standardized contracts and reporting requirements Transparency and alignment with broader policy objectives are crucial in their design Targeting financial incentives towards high carbon-emitting sectors or fostering the development of innovative renewable energy technologies can enhance their impact.
Developing carbon offset projects in Vietnam presents a valuable opportunity to generate green credits and enhance sustainability These initiatives not only tackle local environmental issues but also deliver social, economic, and environmental advantages to the communities involved.
To ensure that these projects generate high-quality green credits, it is important for Vietnam's government to establish clear standards for carbon offset projects
To ensure the credibility of carbon credits, standards must encompass requirements for additionality, permanence, and verifiability, along with clear guidelines for project selection and implementation Implementing certification and verification processes, including third-party audits, is essential for confirming that projects adhere to international standards.
Next, partnering with the private sector and promoting international cooperation are both critical steps in promoting the use of green credits and reducing carbon emissions
Collaborating with the private sector can significantly enhance innovation and investment in sustainable practices while boosting participation in the carbon credit market By partnering with companies, governments can develop and implement effective carbon offset projects, offer technical support, and facilitate access to green credit markets This cooperation between the public and private sectors fosters the creation of impactful sustainability programs.
The Vietnamese government can enhance global sustainability efforts by promoting green credit programs and establishing international standards for carbon offset projects, ensuring transparency and effectiveness in reducing greenhouse gas emissions Collaborating with organizations like the World Bank's Carbon Finance Unit can also offer essential technical support and funding for sustainability initiatives in developing nations.
Educating the public about green credits and their advantages is crucial for fostering long-term sustainability This can be achieved through various channels, including public education campaigns, workshops, and webinars The Vietnamese government can look to Australia's GreenPower program as an exemplary model, which effectively promotes renewable energy and incentivizes consumers to buy green energy certificates.
Overall, promoting green credits requires a multi-faceted approach that involves both government and other stakeholders, including commercial banks below.
Commercial banks
Commercial banks encountering challenges due to the absence of a unified legal framework can utilize the four criteria outlined in the Green Loan Principles 2018 (GLP 2018) from the Loan Market Association (LMA) and Asia Pacific Loan Market Association (APLMA) to establish an effective "Green Credit Framework." These criteria encompass the purpose of the loan, the project evaluation and selection process, the management of loan usage, and the reporting of loanable green assets along with their anticipated environmental impact.
Based on the barriers we defined in the previous part and the criteria of Green Loan Principles, we propose 5 recommendations as the following:
- Construct a clear project selection and evaluation process:
The evaluation and selection of green credit projects will be based on a balance between risks and social environment, financial benefits and contribution to environmental goals
To effectively support green credit initiatives, commercial banks must integrate the evaluation and selection of eligible projects into their business and risk management frameworks, ensuring that credit products are offered to project investors who maintain robust environmental and social risk controls Additionally, banks should assist clients in identifying environmentally sustainable project opportunities that align with their funding objectives Furthermore, it is essential for banks to regularly monitor and assess the environmental and social risk management practices associated with the credits extended to their customers.
Effective management of loan utilization is essential for green credit sources It is crucial to implement a dedicated monitoring system that regularly updates the status of the green loan fund and tracks the allocation of loans to ensure capital balance.
Prioritizing green credit is essential for supporting economic sectors that focus on conserving and effectively utilizing natural resources This approach emphasizes the importance of environmentally friendly technologies and equipment, as well as the production of sustainable products By granting green credit to these sectors, we can foster a more sustainable economy and promote environmentally responsible practices.
Investing in staff training and supervision is essential for enhancing environmental and social risk management capabilities By organizing training courses, companies can equip employees with vital knowledge on sustainable development, green growth, green credit, and green banking practices.
To accelerate the development of green credit in Vietnam, it is essential to invest in communication and collaboration This involves utilizing media to raise awareness among individuals, agencies, and organizations about the significance of green growth Additionally, creating engaging media campaigns can help reach a broader audience Furthermore, fostering partnerships with the government and international organizations is crucial to develop green finance products and services that support environmental protection and enhance social responsibility in production, commerce, and business (Le Thi Anh Quyen, 2022).
In short, our recommendations focus on answering the question: “How should commercial banks adjust with the main difficulties which are lack of legal framework and staff capacity?”.
Borrowers
Government policies significantly influence how beneficiaries utilize green credits To navigate this evolving landscape, beneficiaries should continuously research available options and provide constructive feedback to both the government and commercial banks, fostering improvements in the process.
To address the capital shortage for green project investments, small enterprises can collaborate to enhance their financial capabilities and reduce the risks associated with inexperience in managing such projects However, it is crucial for these businesses to thoroughly assess their own resources and working styles, as well as those of potential partners, before finalizing agreements to prevent conflicts that could jeopardize project success.
The application of green credit in Vietnamese banks has demonstrated substantial economic and environmental benefits, highlighting its importance in the global economy This article explores the current status of green credit in Vietnam, identifying key motivations and barriers to its implementation Through case studies, the authors provide actionable recommendations for the government, commercial banks, and borrowers to enhance the growth of green credit in the country.
The authors recommend several solutions for the government to enhance the adoption of green credit, addressing the current challenges faced by key stakeholders Empowering government initiatives is essential to promote the widespread use of green credit effectively.
Commercial banks are encouraged to address the absence of a unified framework by establishing a legal structure for green credit that aligns with the four criteria outlined in the Green Loan Principles 2018 (GLP 2018) These criteria encompass the intended use of loans, the evaluation and selection process for projects, the management of loan utilization, and the reporting of eligible green assets along with their projected environmental impact.
To enhance financial capacity and reduce risks, small enterprises are encouraged to collaborate, enabling them to collectively address the capital shortage for investing in and developing green projects.
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