Potential for the green bond market in Vietnam

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Demand for investment in green bonds increases towards green and sustainable economic development. Photo: Internet

Demand for investment in green bonds increased

According to the State Securities Commission (SSC), green bonds, social bonds and sustainable bonds are means of mobilising capital from the private sector for projects with environmental and social benefits, innovative finance to support the sustainable development goals and the Paris Climate Agreement 2015. In recent years, the development of a market for labelled bonds, especially green bonds, has attracted a large number of international investors. The institutional investor community with a large portfolio, including those with sustainability related functions, is increasingly looking for green and low-carbon investment opportunities. As a member of the ASEAN Capital Market Forum, the SSC has participated in promoting the ASEAN green bond standards, the ASEAN social bonds and ASEAN sustainable bond standards to create a kind of sustainable asset in Vietnam.

As of October 2020, Vietnam had four green debt issues with a total value of nearly US$284 million, issued by a Government guaranteed organisation (US$23.4 million in 2016), a city government (US$3.6 million in 2016) and two green loans (respectively US$71 million and US$186 million in 2020). Most of the proceeds from bond issues (57%) are used for renewable energy - the main industry of Vietnam's interest, along with the waste and agriculture sector.

Kyle Kelhofer, Country Director of IFC (International Finance Corporation) in Vietnam, Cambodia and Laos, said that IFC has successfully participated in a number of green bond transactions in Southeast Asia and is looking for opportunities to participate in the potential green bond market in Vietnam in the future.

“We believe green bonds will open up a new capital mobilisation channel for long-term investment projects in the infrastructure and renewable energy sectors that the current financial institutions cannot fully satisfy with traditional financial products. This will contribute to expanding capital sources to support the process towards green and sustainable growth in Vietnam,” said Kelhofer.

Many prospects

Regarding the prospects for green bonds in Vietnam, the SSC has also pointed out a number of industries with the potential to attract investment such as renewable energy, waste management, green agriculture, low-carbon transport and water management, in whichthe renewable energy sectordata shows that Vietnam's renewable energy sources currently account for only 2.1% of the total electricity output produced in 2019. The Government aims to increase the share of renewable energy production to 7% by the end of 2020 and 10% by 2030, while cutting the use of imported coal power.

According to the IFC Climate Investment Opportunities Report, from 2016 to 2030, Vietnam could attract about US$753 billion of investment in climate, with the majority (about US$571 billion) investment for the needs of transport infrastructure construction. Investment in renewable energy could attract US$59 billion, of which more than half (US$31 billion) is in solar projects and US$19 billion in small hydro projects. About US$80 billion will be invested in the green building sector.

However, according to the SSC, despite many opportunities to expand, the issuance of green bonds has been slow. Recently, the State Securities Commission of Vietnam worked with the IFC to issue a manual for this type of bond issuance, which provides guidance on how to issue and manage cash flows, as well as capital sources for green projects, especially publish information about the environment and society of firms in a transparent way to attract investment in green bonds. Projects towards "green" goals like energy, waste management and pollution businesses in the financial and tourism sector can issue green bonds. This will be an important capital attraction channel for investors interested in sustainable development factors, creating conditions to attract large sources of capital from society to realise green and sustainable growth.

According to Pham Hong Son, Vice Chairman, SSC, this guide will help market members understand regional and international practices and the region on how to issue and manage funds for green projects and disclose information on the environment and society of businesses.

"This is an important step, helping to develop businesses towards a more solid direction, contributing to building a more sustainable stock market through the development of green products in the market,” said Pham Hong Son.

Vietnam's capital market may be in the beginning, but green bonds have started to appear domestically, attracting domestic and international investors to support investment projects with a positive environmental impact on the economy. The SSC recommends using this toolkit to assist issuers in how to issue green bonds based on international best practices to generate new capital while ensuring a reliable Vietnamese green bond market in the long term.