Removing bottlenecks to develop the green bond market

Potential for the green bond market in Vietnam

Vietnam does not have a specific list of projects or programs on green projects, so the issuance of green bonds is limited. Photo: Internet

Bottlenecks in confirming green project

To achieve green growth goals, Vietnam needs huge resources. According to estimates by the Asian Development Bank (ADB), this resource is about US$368 billion for the entire period to 2040, equivalent to US$20 billion per year.

The Ministry of Finance said that Vietnam issued green bonds worth US$ 1.16 in the period 2019-2023, Vietnam has issued about 1.16 billion USD in green bonds. However, experts said that Vietnam's green bond market has not developed commensurate with its potential and the need to mobilize capital for green transformation. The figure of US$1.16 billion in green bonds issued in the past five years is still low compared to the average capital need of about US$20 billion per year to achieve green transformation goals.

According to economists, one of the biggest bottlenecks in developing the current green bond market is the legal corridor. In Decree No. 08/2022/ND-CP detailing a number of articles of the Law on Environmental Protection, the Government assigns the Ministry of Natural Resources and Environment to preside over and coordinate with ministries and ministerial-level agencies to build the draft decision of the Prime Minister promulgating regulations on environmental criteria and confirmation for projects granted green credit and green bond issuance before December 31, 2022. However, due to differing opinions on some contents, the green list has not been issued, causing difficulties in building and implementing policies to support green transformation as well as green credit and green bonds.

Associate Professor-Dr. Nguyen Dinh Tho, Director of the Institute of Strategy and Policy on Natural Resources and Environment, Ministry of Natural Resources and Environment, said that there are three proposals on the Green Project Certification.

The first option, the certification is implemented by an independent organization that is supported by international organizations, the State Bank and the Ministry of Finance.

The second option, the certification is implemented by the State management agency.

The third option, credit institutions directly confirm during the appraisal process of credit projects.

Mr. Nguyen Dinh Tho said that the determination of authority that is responsible for green certification is the biggest problem, and independent organizations in the world are often in charge of certifying green project. The director also mentioned some concerns and challenges in green certification.

Mr. Nguyen Hai Anh, Deputy General Director, Chief Financial Officer of Shinec Joint Stock Company – the investor of Nam Cau Kien Industrial Park, said that there are three major problems that need to be resolved. Firstly, there need a legal framework to instruct enterprises in transforming into green projects. The second, there need a specific legal basis for implementation of green projects. The third, Nam Cau Kien Industrial Park is transforming into an ecological industrial park to meet green criteria, which costs a lot of money such as trees, land fund, hiring PWC auditors, and ESG consulting, but the company has not been given incentives.

Huge demand for green bonds

Discussing the bottlenecks for the green bond market, Ms. Ha Thu Phuong, the representative of Vietnam Joint Stock Commercial Bank for Industry and Trade (Vietinbank), said that the implementation of green bond faces big challenges. The financial motivation factors have not been specific to participate in green bonds while there are high requirements of information disclosure and the workload. The demand for green bonds in Vietnam is huge, however there have not the supply; interest rates between Vietnam and the world are not favorable, legal consulting costs are large, procedures are relatively long, Ms. Phuong said that there needs to be a private legal corridor for issuing green bonds to the international market.

“Currently, it is required to register the foreign loan limit, send the documents to the State Securities Commission, and then work with potential investors. This process takes 6-9 months. This will miss opportunities for issuers”, Phuong said. If the private legal corridor is issued, it will be a driving force for issuers to catch up with market touchpoints. In addition, the criteria are not clear, so commercial banks hope to have an independent organization with enough reputation to certify green projects,” Phuong proposed.

Dr. Can Van Luc, a financial expert, said that there must be a strong motivation mechanism. Vietnam should refer the implementation of China, for example in the country, if private companies invest in green growth, they will be reduced interest rates; the national green development fund is established to support and encourage; the environmental venture capital fund is also built.

According to Dr. Can Van Luc, about US$ 15.5 billion from international investment funds poured into Vietnam, but the country has not yet had specific list of projects, programs, or localities for them to invest in. This is a content that needs to be fully updated promptly. Regarding appraisal and consulting with the green list, this expert said that independent consultants should be hired along with building a specific appraisal mechanism.

Regarding the development of the green bond market, experts said that green economic development is a vital issue and a challenge for each country, but the role of the State must be determined to turn the State's challenges into opportunities for businesses, policies must be designed to help businesses see their opportunities and benefits. Along with incentives, it is necessary to create an environment for businesses to operate well to contribute better to the economy and green economy.