USAID Supports Vietnam’s Implementation of Sustainable Finance for a Green Economy
December 21, 2022 (BANGKOK) – The United States Agency for International Development (USAID) Green Invest Asia, along with the USAID and Australia Mekong Safeguard programs, both which cover the Mekong subregion, recently partnered with the Vietnamese Ministry of Planning and Investment to co-host an in-person workshop on sustainable finance in Hanoi, “Fostering green production and businesses to a more resilient economy in Vietnam” on December 8. Experts shared with more than 60 participants, mostly from Vietnam’s banking sector, their experience connecting green businesses with investors, and best practices supporting sustainable business models throughout the region.
The International Finance Corporation (IFC) estimates the potential market size of climate finance opportunities in Vietnam at over $750 billion by 2030. Very little of that has been committed, and the private sector is essential to meet Vietnam’s full climate-financing requirements, said Trevor Hublin, Deputy Director, Office of Governance and Economic Growth with USAID in Vietnam. “Financing the planet’s transition to net zero is creating a growing investment opportunity for banks worldwide and Vietnam is no exception. Vietnamese banks can claim a share of this growing marketplace, while contributing to the halting and reversing of the deadly release of greenhouse gas emissions that threaten global climate change goals… I applaud the government of Vietnam for going beyond recommending green growth or green credit to taking action on it.”
A member of IFC’s Sustainable Banking Network, Vietnam is one of 38 emerging economies worldwide to institute banking reforms to help reduce impacts of climate change. The State Bank of Vietnam approved in 2018 an action plan requiring banks nationwide to assess, manage and report on environmental and social risks in their lending operations, and established market incentives for banks to increase lending to green projects. Vietnam’s prime minister recently approved the “2022-2025 Program on Support for Private Enterprises in Sustainable Business” to protect natural resources and environment, and develop an ecosystem to support for enterprises in sustainable business. The State Bank of Vietnam is finalizing a draft circular on “Implementation of environmental risk management in granting credit activities of credit institutions and foreign bank branches”.
John McGinley with Mekong Strategic Capital and USAID Green Invest Asia’s Strategic Advisor said less than 5 percent of global commercial finance goes to sustainable land use, despite the fact that agriculture, forestry and other land use contribute up to 40 percent of greenhouse gas emissions in Southeast Asia.
McGinley emphasized the key role local banks have in driving finance to projects with positive environmental impacts. “Local banks have a risk appetite, which is stronger for more long-term lending, and even in land use…Ultimately, local banks and their balance sheets will be deployed in much greater quantity than international banks will.”
USAID Green Invest Asia has entered into agreements with four of Vietnam’s largest banks to provide bespoke technical assistance to improve ESG systems, including developing relevant policies, defining lending criteria, and building environmental and social (E&S) risk management/reporting capacity.
Based on its work supporting banks elsewhere in Southeast Asia on sustainable finance, USAID Green Invest Asia has developed a sustainable banking toolkit including exclusion list templates, risk categorization tools, risk-review checklists, and policies linked to climate change, gender and more, that it can adapt to each bank seeking assistance to comply with state sustainable finance decrees.
Trinh Thi Huong, the Deputy Director General of the Ministry of Planning and Investment’s Agency of Enterprise Development told participants that “international trends are clear, and if Vietnam’s business do not access these financing opportunities, they risk falling behind in the marketplace.”
In the period from 2017 – 2021, total green loans granted in Vietnam increased by an average of more than 25 percent annually. As of June 30, 2022, total credit offered for green projects in Vietnam reached more than VND 474 trillion ($20 billion), accounting for some 4 percent of the total outstanding loans, an increase of 7 percent over the previous year, according to local business media and cited by Trinh from the Ministry of Planning and Investment. These more than 1.1 million loans were mainly focused on renewable energy (47 percent), and green agriculture (32 percent).
About the organizers
USAID Green Invest Asia supports sustainable agribusiness, forestry and other companies sourcing from land in Southeast Asia with technical services, business advisory and capital matchmaking, while also helping to drive international investment into these land use businesses. Since 2018, Green Invest Asia has supported nearly $170 million of investments to the region, which is expected to reduce greenhouse gas emissions by 91 million tons over the next 15 years.
Mekong Safeguards is a jointly funded initiative between USAID and the Australian Department of Foreign Affairs and Trade (DFAT) to support the Mekong subregion’s transition to cleaner and more socially inclusive energy, water, and transportation infrastructure. The program encourages banks and developers investing in the Mekong subregion to adopt stronger environmental, social, and corporate governance (ESG) standards.