The banking sector, as a key capital mobilization channel for the economy, is responsible for  “greening” investment capital flows for Vietnam to ensure the sustainable development goals (SDGs).

Overview of the conference. Source: SBV

Vice Governor of the State Bank of Vietnam Pham Thanh Ha made the remarks at a conference themed “Greening the Financial Sector: Accelerating transition to a low-carbon economy in Vietnam” held today [September 21].

According to Ha, Vietnam has historically maintained very low greenhouse gas (GHG) emissions. In absolute terms, Vietnam's GHG emissions reached 364 million tons of carbon dioxide (CO2) in 2018, constituting a mere 0.8% of the world's total emissions.

However, over the past two decades, the country has experienced the fastest growth in emissions globally. This upward emission trend is consistent with Vietnam's remarkable economic growth over the past decade, which is expected to continue in the medium term despite the disruptions caused by the Covid-19 pandemic.

As the economy continues to expand, the energy demand is expected to rise, further exacerbating GHG emissions. Climate change is having an increasing impact on  Vietnam's economy, with costs steadily eroding its growth. Preliminary estimates from the latest Country Environmental Analysis (CEA) indicate that in 2020, Vietnam suffered   $10 billion in losses due to climate change, equivalent to 3.2% of its GDP.

During this process, Ha highlighted the undeniable shift toward green growth and sustainable development, a universal objective pursued by nations worldwide.

Vietnam, in recent times, has been actively engaged in fulfilling international commitments to reduce greenhouse gas emissions and mitigate the effects of climate change. The country is steadfast in its pursuit of sustainable development, as outlined in its roadmap for the implementation of the 2030 Agenda for Sustainable Development Goals. Vietnam is also a signatory to the Paris Agreement on climate change and at the COP26 conference, committed to achieving net-zero emissions by 2050.

According to the reports presented by countries at the COP27 Conference, Vietnam stands out as one of the nations that have promptly and effectively translated their commitments into action. This has been achieved through the establishment of a green growth policy framework, including the adoption of the National Strategy for Green Growth, the National Strategy on Climate Change until 2050, and the implementation plan for the outcomes of the COP26 Conference. Vietnam has also enacted the Law on Environmental Protection in 2020, which provides a solid legal foundation for deploying economic tools in support of green growth.

Video: Hai Yen-Hoang Huy/The Hanoi Times

Ha underscored the vital role and responsibility of the banking industry as a critical financial channel for the economy. He emphasized that the banking sector is committed to "greening" investment capital flows in line with sustainable development goals. Together with the nation, the banking industry has demonstrated a proactive and innovative approach in pursuing the government's objectives outlined in the National Strategy for Green Growth for 2021-2030 and Vision 2050.

Key achievements include the approval of the Green Bank Development Project in Vietnam, the formulation of the Banking Industry Action Program to implement the National Strategy on Green Growth, the development of a Circular on environmental and social risk management in credit activities, and the gradual increase in the share of outstanding green loan portfolios.

Allen Forlemu, IFC regional director for Financial Institutions Group, Asia and Pacific, echoed Ha's sentiments, emphasizing the need to pursue green objectives as a means of addressing  Vietnam's climate change challenge, which has significant economic implications. He noted that the costs associated with climate change are progressively undermining economic growth, resulting in an annual GDP loss of 3.2% for Vietnam. Furthermore, the scale and impact of this issue continue to escalate each year.

Citing World Bank research, Forlemu pointed out that the economic consequences are expected to escalate, eventually accounting for an average of 12-14% of GDP by 2050. In addition to reducing greenhouse gas emissions, he stressed the importance of the financial sector developing comprehensive reporting on climate change-related risks.

This becomes particularly critical given the estimated $368 billion needed from 2022 to 2040 to effectively address climate change in Vietnam. As the budget is only capable of covering $130 billion, the private sector must step up to mobilize an annual amount of $180 billion. This underscores the pivotal role the private sector plays in efforts to promote environmental sustainability in the economy.

In the current economic landscape, banks and financial markets are poised to assume a vital role in introducing innovative financial instruments and suitable investment methodologies to enable Vietnam to effectively tackle climate change and work towards achieving its net-zero emissions goal by 2050, he said.

Laying the foundation for greening financial sector

In explaining the role and responsibility of the banking industry in fostering green growth and sustainable development, Pham Thi Thanh Tung, Deputy Director of the Credit Department for Economic Sectors at the SBV, emphasized that the SBV has recently taken numerous measures to facilitate credit institutions' lending to green projects, thus contributing to the effective implementation of the National Strategy on Green Growth.

The banking sector also demonstrates its commitment to channeling resources to achieve the government's objectives.

To align with the completion of the National Strategy on Green Growth for the period 2021-2030, with a vision for 2050, the Governor of the SBV issued an Action Plan for the banking sector in July 2023. This plan encompasses various key tasks, including raising awareness of the banking industry's role and capacity in lending to green sectors, managing environmental and social risks associated with high-emission industries, and developing banking products and services.

It aims to create favorable conditions for economic sectors to promote green growth and harness the potential of Industry 4.0 to enhance banking operations, improve convenience and customer experiences, and realize sustainable development goals. The plan also emphasizes integrating green credit activities into the transformation strategies of each credit institution and strengthening social and environmental risk management in credit operations.

To accomplish these objectives, the action plan for the sector outlines several pivotal tasks and solutions, such as refining institutional frameworks and policies; enhancing effective regulatory capabilities to support green growth; fostering international cooperation to mobilize resources for green growth; finalizing policies to drive digital transformation for the sustainable development of the banking industry; developing and training human resources within the banking sector to implement the National Strategy on green growth; and conducting information and communication campaigns to highlight the contributions of the banking industry to green growth and climate change mitigation.

Once these measures are in place, Tung expressed confidence that the total loan capital allocated to green projects would be significantly higher than the amount of VND500,000 billion ($20.5 billion), or a mere 4.32% of the overall outstanding debt in the economy, recorded in 2022.