While financial resources are constrained from the state side, channelling investment into green projects through the issuance of green bonds may be what it takes for the economic development of the ASEAN bloc in general and Vietnam in particular to be greener and more socially and environmentally sustainable.
Great capital demand
According to the United Nations Environment Programme, global capital demand for implementing sustainable development goals is estimated at US$5-7 trillion a year, with a US$2.5 trillion annual financing gap for key infrastructure sectors and related areas in developing markets.
In a bid to shift Vietnam’s economic growth into a sustainable lane from its current carbon-intensive and environmentally-unfriendly expansion, the country would need roughly US$30.7 billion by 2020 and possibly US$21.2 billion for the following 10 years to support its Intended Nationally Determined Contribution (INC), according to the German development agency GIZ.
Some 30% of the credit requirement for green growth would come from the state budget, consisting of central and provincial funds as well as official development assistance (ODA), whilst the remainder will have to be sourced from the private sector, according to Pham Hoang Mai, director general of the Department of Science, Education, Natural Resources and Environment under the Ministry of Planning and Investment (MPI).
Local commitment
With this in mind, the capital market can play a vital role to contribute to the Vietnam Green Growth Strategy (VGGS), approved by the government for the 2011-2020 period. Simply put, it will channel funds specifically for green projects and green companies, create a platform for green products’ derivatives trading, as well as leverage private sector investment by means of issuing green bonds, possibly facilitated by both the corporate and the local government sectors.
Actions taken so far by local capital market regulators include strengthening the environmental and social disclosures through the introduction of guidelines and handbooks for sustainability reporting for listed companies, as well as mandatory environmental and social (E&S) disclosure in the annual reports of listed companies.
On the other hand, the development of green products and services is aided by the use of Sustainability Indexes for portfolio investment references and green bond issuance plans at provincial governments and enterprises.
On an international scale, both local bourses (HSX and HNX) joined the Sustainable Stock Exchange Initiative in 2014, in an effort toward the sustainable development of the global capital market. Moreover, the country also actively contributed toward the ASEAN Capital Markets Forum (ACMF) in promoting sustainable development and green capital markets. The ASEAN Green Bond Standards (AGBS) have been circulated to listed companies as well as central and local agencies across Vietnam.
According to the State Securities Commission (SSC), aside from introducing the standards to market players, the commission is working on specific guidelines for the local securities market in line with AGBS and looking into further cooperation with ACMF members on an ASEAN green asset class.
In addition, training for local participants on green bonds will be provided, with regards to initiating green bond projects and subsequent issuances as well as integrating the environmental, social, and corporate governance risks and impact assessments along the stages of issuance and project implementation. The authority also looks into a regulatory framework for green bonds at a later point in time.
Meanwhile, for issuers of green bond like banks, Kyle Kelhofer, IFC country manager for Vietnam, Cambodia, and Laos, noted that should a commercial bank move forward with a green bond project, it will go ahead of its competitors in terms of “differentiating itself as being more progressive, more sophisticated, and more sensitive to everybody.”
“So I think it is a great opportunity not just for clients in Vietnam but also for finance entities and partners, as they are able to work with a bank that is sophisticated enough to properly classify green assets and issue green bonds. Plus, the issuance of green bonds is one of the checkmark approvals,” said Kelhofer. “Secondly, there are funds out there in the international market that are keen on investing in green instruments.”
In the view of the IFC’s country head, it is definitely possible to have one or two cases of green bond issuance within the next six to twelve months. “It is how Vietnam can leverage another financial tool to lower the cost of capital. We all want to have our loans less costly, not only to attract both foreign and domestic investment.”
Also, it is a good stamp of approval on the sophistication of the Vietnamese economy and its business climate. Vietnam is a very fast emerging market,” Kelhofer added.
Foreign attraction
The issuance of green bonds is expected to attract foreign investors interested in the field of green investments in Vietnam.
In a previous interview with VIR, Thomas Debelic, senior representative of Commerzbank AG’s representative office for Vietnam, Cambodia, and Laos, noted that European companies which bear the characteristics of family-owned small- to medium-sized enterprises and a renewable energy orientation have started exploring access to the Vietnamese market, or are even already preparing their market entry with sustainable products and services in the field of photovoltaic energy, green building or wastewater treatment.
“Commerzbank has already started communication and an exchange of experiences in the field of green banking. Topics like the emission of green bonds were taken up with Vietnamese government institutions. We are confident that the green initiative in Vietnam will meet foreign investors’ interests and prove successful in the coming years,” said Debelic at the time.
The objective of the ASEAN Capital Markets Forum (ACMF) is to promote sustainable growth and link ASEAN markets with one another. Therefore, the capital market is an important source of funding for the economy, contributing to sustainable growth through the allocation of funds to environmentally-friendly projects.
The ASEAN Green Bond Standards (AGBS) were developed and launched in November 2017 to set common standards for the issuance of ASEAN green bonds, to contribute to the common goals of integration and connectivity and towards growth in ASEAN.
Following the launch of AGBS, there have been four issuances of bonds and Islamic bonds (sukuk bonds) that are labelled as ASEAN Green Bonds, carried out by companies in Malaysia, Singapore, and Indonesia. Funds raised from these green bond issuances will be allocated to environment-related projects such as renewable energy, waste management, and green buildings, transportation, and airports, which meet the criteria for sustainability standards.
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