Clean & green products are trending that has been the top concern of many manufacturing enterprises, and is also the long-term and sustainable development target of all domestic enterprises today. Not only the enterprises in the industrial production but also the financial sector (banks) pay special attention to sustainable green product. Recently, we often see or hear the phrase “green finance” or “green credit” product. So what is “green finance” and how is its status in Vietnam?

What is Green Finance?

“Green finance” in the banking sector, often referred to as “Green Credit” was born and has received more and more attention from enterprises. For ENERTEAM, a technical consultant in energy and resource efficiency field in more than 20 years, the most practical definition of “Green Finance” is: “Financial support directed to GREEN GROWTH through effective and meaningful REDUCING OF GREENHOUSE GAS EMISSION and ENVIRONMENTAL POLLUTION”.

Therefore, the domestic and international projects implemented by ENERTEAM in recent years are related to the measures of “Energy and resource efficiency”. Up to now, there is no unified concept of “Green Finance”, however, basically, perhaps the above definition can help us to understand in the simplest way and easily visualize the concept of “green finance”.

How is the status of “green finance” and

“green investment” in Vietnam?

The legal framework on green finance in Vietnam has also been paid attention and developed in recent times; specifically as:

The Prime Minister issued Decision No. 403/QĐ-TTg (March 20th, 2014) approving the national action plan on green growth during 2014 – 2020;
The Ministry of Finance issued Decision No. 2183/QĐ-BTC dated October 20th, 2015 on the action plan of the financial sector to implement the National Strategy on Green Growth until 2020.
The State Bank has also issued the green banking development policies, with green credit products also becoming a trend in the financial area in Vietnam recently.

In particular, the supports and preferences for green credits are often “preferences for interest rate or for some projects that ENERTEAM has participated in implementing, there are some good and useful mothod, such as “loan guarantee” or “reward payment” based on energy savings/efficiency from energy efficiency technologies invested by enterprises for production activities, etc.”. Therefore, small and medium enterprises will have more opportunities to access “green credit” sources with many preferential programs and support from banks in the near future.

However, not many banks have their own appraisal process as well as responsible staff for “green credit”. This is also one of the important barriers that affecting the ability to evaluate the feasibility as well as the successful loans of the “green credit” profile from potential enterprises of the banking sector.

In particular, for some specific projects on investment in technology/equipment energy efficient production, ENERTEAM has participated in supporting a number of banks at the technical evaluation/appraisal stage (evaluate the feasibility of energy efficiency) for documents of sponsored/loaning project in the form of “green credit”.

Mr. Ma Khai Hien – Director of ENERTEAM (second from right) – participates in the economic discussion on “Green finance – Capital measures for businesses for the environment” organized by VnExpress and Nam A Comercial Joint Stock Bank

Figure: VnExpress

Currently, Vietnam is increasingly focusing on financial investment for the development of green economy. Therefore, the development of green financial models in the world (especially in developed countries such as the US, UK, Europe (Germany), etc.) is a practical lesson as well as useful suggestions/proposals for Vietnam in the process of developing a green financial system in the coming period, at the same time helping to develop strategies, create markets and facilitate the development of a more appropriate and sustainable green economy.

Challenges when deploying and investing in green finance

Besides the opportunities, small and medium enterprises as well as banks have to face many challenges when accessing green investments in Vietnam.

According to the survey results on green investment awareness and sustainable development of Vietnamese enterprises, the factors affecting green investment of enterprises include:

Infrastructure for green investment;
Difficulties in accessing the sponsored capital for green investment activities;
Preferential access to capital as well as special preferences for green investment;
Awareness and understanding of green investment;
Support from banks regarding access to capital for green investment;
Which capital can create favorable conditions for businesses to easily access green investment;
Etc.

Most of the surveyed enterprises do not really know well about green investment funds or green capital such as green bond issuance, green credit and other green debt mobilization tools in the financial sector nowadays.

In addition, when implementing green credit, the most obvious challenge is the barrier of large capital, long investment time, and low financial efficiency. For example, current solar power system investment projects are on average about 11-15 years, the implementation time and the payback period are relatively long, the investment capital is large, etc. Therefore, considering whether to invest or not is also a great pressure for enterprises when making decisions.

Especially, small and medium-sized enterprises. (SMEs), due to limited capital, do not have the ability to access appropriate green finance,” Mr. Ma Khai Hien said, IPC Sustainable Energy Expert, Director of ENERTEAM, when discussed the challenges of green finance in Vietnam nowadays at the Economic Seminar “Green finance – Enterprises’s capital measures for the environment” organized by VnExpress and Nam A Bank. There are not much enterprises understand the importance of green investment, especially SMEs – which account for the majority but have less capital and are easily “vulnerable” to finance, especially in the context of the Covid-19 pandemic. Meanwhile, the investment cost of sustainable and green energy technology products is quite high.

Particularly from the perspective of the Technical Consultant for green projects, ENERTEAM would like to share some practical comments when participating in the implementation of these projects; Those are the technical issues of green projects, experience in green project appraisal is also a big limitation for commercial banks in Vietnam. Because of new technology and projects, the experience of investors and banks is not much, so there can be high risks. From the bank’s side, appraisal department for the green credit project need to learn some relevant basic technical knowledge enough to evaluate the effectiveness of the investment loan project.

For example, the investment project for the system “energy efficient drip irrigation for agriculture” at Facility A, how many years is the payback period last for the scale at this Facility A, what is the potential or risk in the operation of the system, etc.”

Proposing measures to raise awareness and promote green investment options

First, there should be many “Green Credit” products with good interest rates for all enterprises of different sizes and fields (especially SMEs) to help produce “Green credit” are widely popularized in domestic banking systems as well as promoting enterprises to use “green credit” products more and more.
The product “green credit” needs to become friendly, easy to understand and create favorable opportunities and conditions to help enterprises easily access preferential capital than before.
The banks need to improve the ability of the responsible staff (such as adding the most basic knowledge related to rapid assessment (early stage) of energy efficiency/saving potential and the feasibility of the project during the appraisal and approval of loan documents related to “green credit” support packages for investment in energy/resource efficient technology.

etc.

ENERTEAM

Green Investment

THE STATUS OF GREEN FINANCE AND GREEN INVESTMENT IN VIETNAM