The thesis has studied on the stage of law andpolicy framework for green finance practices in Vietnamese banking sector, itspractical impact on the economy in general and application in
INTRODUCTION
Introduction
Green finance integrates ecological considerations with financial activities, promoting environmentally sustainable development (Hasen et al., 2017) Unlike traditional finance, the green economy prioritizes environmental protection and emphasizes the growth of green industries (Wang and Zhi, 2016) It aims to boost financial flows from various sectors—banking, micro-credits, insurance, and investments—toward sustainable development goals while better managing environmental and social risks According to the UN Environment Programme, promoting green finance involves regulatory reforms, harmonizing public financial incentives, increasing sectoral green investments, aligning public finance with Sustainable Development Goals, and expanding investments in clean technologies and green natural resource economies Green bonds and green banking are also critical components, with the banking industry playing a vital role in advancing environmentally friendly financial practices.
9 the substantia l use of energy
(lighting, air conditioni ng, computin g), small space, unplanne d building, ignoring in-house greenness considera bly increased the carbon footprint of banks.
Green banking avoids usage of paper as much as possible and relies
According to Chen et al (2018), banking is a crucial sector that can serve as an intermediary between economic development and environmental protection While banks have minimal direct environmental impact through their internal operations, their external influence significantly affects the environment via their customers’ activities As providers of finance, banks play a vital role in shaping sustainable development and promoting environmentally responsible practices.
Banks can play a crucial role in promoting sustainable development by offering lower-interest loans and incentives to businesses adopting green technologies Strict regulations can encourage business initiators to implement environmentally friendly projects and socially responsible investments, ensuring a sustainable environmental future Supporting green initiatives not only benefits the global environment but also fosters long-term economic growth and corporate responsibility.
A 2012 survey by the State Bank of Vietnam involving 54 commercial banks revealed that 91% lack a clear banking policy on green growth, and 35% are unaware of environmental and social issue definitions Furthermore, 89% acknowledge that SBV regulations do not adequately address social and environmental management within the financial industry Overall, Vietnamese banks face challenges due to limited experience with new technologies, leading to difficulties in assessing risks associated with green projects and renewable energy credits.
Currently, Vietnam does not have any banks officially recognized as green banks However, several Vietnamese commercial banks offer green products that support environmentally sustainable investments These green financial products enable investors to participate in eco-friendly projects, promoting sustainability within the country's banking sector Although the concept of a dedicated green bank is not yet established, the availability of green investment options reflects a growing commitment to environmentally responsible banking practices in Vietnam.
The current law and policy framework on green finance in Vietnam, including the National Green Growth Strategy, Vietnam Sustainable Development Strategy (2011-2020), and related action plans, are insufficient in providing clear guidance for banks to implement green banking practices These existing policies lack specific rules and responsibilities essential for effective green finance development, particularly regarding environmental and social (E&S) risk management when granting loans Therefore, further research and the development of detailed regulations and guidelines are crucial to strengthen Vietnam’s green finance framework Providing targeted recommendations can help improve the legal and policy environment, facilitating sustainable banking practices and supporting Vietnam’s green growth objectives.
Literature review
Numerous international studies explore green growth broadly and green finance specifically, highlighting the critical role of sustainable banking in promoting socio-economic development Notably, the research titled “Banking as a vehicle for socio-economic development and change: Case studies of socially responsible and green banks” emphasizes how innovative banking practices can drive environmental sustainability while fostering economic progress This body of work underscores the importance of integrating green finance initiatives into the banking sector to support sustainable development goals and encourage responsible financial practices worldwide.
Katrin Kaeufer's innovative 5-level model of socially responsible and green banking is widely referenced, including in the recent Green Bank Development Scheme (2018) issued by the Governor of the State Bank of Vietnam This model provides a comprehensive framework for evaluating and advancing sustainable banking practices, emphasizing the importance of environmental and social responsibility Its relevance is reinforced by its inclusion in Vietnam's strategic approach to developing a greener financial sector, highlighting Katrin Kaeufer's significant contribution to the field of sustainable banking.
There are also plenty of studies and report published by international financial organizations The first one to be mentioned is “Green Finance – A Bottom-up
Approach to Track Existing Flows” by International Financial Corporation (IFC)
In 2017, a new approach was proposed to assess and monitor green finance across three levels: project, industry, and country, enhancing the understanding of sustainable investments Notably, the International Finance Corporation (IFC) defines green finance simply as "financing of investments that provide environmental benefits" (IFC, 2016), offering one of the most straightforward descriptions worldwide Additionally, the United Nations Environment Programme - Finance Initiative (UNEPFI) released the "Principles for Responsible Banking – Our Future Shaping" in 2018, which outlines best practices developed by 28 leading global banks that can serve as a valuable model for Vietnam's green finance development.
Despite extensive international research on green finance, green credit, and green banks, these topics have received limited attention in Vietnam Professor Dr Tran Thi Thanh Tu has been a dedicated researcher in this field, collaborating with colleagues to publish key works such as “Green Bank: International Experiences and Vietnam Perspectives” (2015), “Tài chính Ngân hàng Kế toán Xanh – Kinh nghiệm quốc tế & Hàm ý cho Việt Nam” (2017), and “Factors Affecting Green Banking Practices: Exploratory Factor Analysis on Vietnamese Banks” (2017).
Recent studies provide a comprehensive overview and analysis of green banking globally, but they do not reflect the latest regulations and developments specific to Vietnam from 2018 to the present.
Objectives of the study
This article aims to analyze the legal and policy framework for green finance practices within Vietnam’s banking sector, highlighting existing limitations and challenges It evaluates how current regulations impact the development and implementation of green banking initiatives in Vietnam The study provides targeted recommendations to enhance the law and policy environment, aiming to promote sustainable and environmentally-friendly banking practices Strengthening the legal framework is essential for fostering green finance growth and supporting Vietnam’s transition toward a more sustainable financial system.
This article aims to evaluate how effectively the legal and policy frameworks have facilitated green finance practices within the Vietnamese banking sector It examines the current state of green finance adoption, with a particular focus on BIDV as a case study, to understand its implementation and impact Additionally, the study seeks to develop a strategic roadmap for advancing green finance in Vietnam by recommending improvements to existing laws and policies, thereby fostering sustainable growth in the banking industry.
Significance of the study
Green finance in Vietnam's banking sector is a relatively new and emerging issue, with limited implementation by state-owned banks offering green products and financing for eco-friendly projects A primary challenge hindering its development is the inadequate legal and policy framework supporting green banking initiatives According to Tran and Tran (2015), there is a lack of in-depth research on green banking in Vietnam, especially concerning the legal and regulatory environment Consequently, this research is crucial for guiding authorities to promote and strengthen green banking practices across the country.
Research methodology
In this study, the researcher coordinated case study method and qualitative approach – in depth interview. a) In-depth interview
This study utilized qualitative research methods, including interviews, observations, and open-ended questionnaires, to gather detailed insights In-depth face-to-face interviews with experts were particularly essential for understanding the legal and regulatory challenges faced by Vietnamese commercial banks in green banking practices These interviews allowed the researcher to identify gaps in law and policy from the perspective of green finance beneficiaries—namely, the borrowers The findings were then presented descriptively, providing a comprehensive overview of the difficulties and shortcomings in the current green finance framework.
The researcher conducted interviews with 08 relationship managers/credit experts of 5 commercial banks including:
- BIDV: Ms Nguyen Thi Phuong, Head of Legal Department, BIDV H.O; Mr Do Van Hai – Head of Trade Finance, SMEs Department, BIDV H.O.
- Sacombank: Ms Nguyen Hai Thanh – Director of Hoan Kiem Transaction Office, Thu
Do Branch; Mr Duong Hung Cuong – Relationship Manager, Hoan Kiem Transaction Office, Thu Do Branch.
- Vietcombank: Mr Tran Huu Nam – Credit Risk Manager, Credit Approval Department, Vietcombank H.O.
- Techcombank: Ms Pham Thi Quynh Mai – In-house lawyer, Legal & Compliance Department, Techcombank H.O.
- Military Bank: Mr Dang The Anh – Head of Corporate and Institution, MB H.O; Ms. Nguyen Thi Thuy Linh – Relationship Manager, MB H.O Privilege Banking,
The same interviews were conducted with 02 experts from renewable energy projects, including:
Mr Hugo Virag, Managing Director of Astris Finance LLC in France, is a seasoned financial adviser specializing in renewable energy projects in Vietnam He provides expert guidance for the Dam Nai Wind Plant Project in Ninh Thuan Province and the Cat Hiep Solar Plant Project in Binh Dinh Province, supporting their successful development and investment strategies.
Mr Han The Phong is the CEO of Binh Dinh TTP Energy and High Technology JSC., the company spearheading the development of the Cat Hiep Solar Plant Project in Binh Dinh Province.
The questionnaire (Appendix 2) comprises eight open-ended questions designed to assess interviewees' awareness of green finance, gather their opinions on the current status and challenges of implementing green finance in Vietnam, and collect their recommendations for future improvements.
Interviews with representatives from Vietcombank, Techcombank, and Military Bank revealed limited awareness of green finance concepts In contrast, valuable insights were obtained from experts at BIDV, Sacombank, and project developers, highlighting their greater understanding and active involvement in green finance initiatives These expert comments have been incorporated into Section 4.4 (Assessment) of Chapter 4, providing a comprehensive overview of the current landscape.
5 (Recommendations) of this thesis. b) Case study
The case study method allows researchers to closely examine data within a specific context, often focusing on a small geographical area or a limited number of individuals This approach is valued for providing holistic and in-depth insights into social and behavioral problems, addressing the limitations of quantitative methods According to Zaidah Zainal (2007), the case study method has been widely used across various disciplines, including Sociology, Law, and Medicine, demonstrating its versatility and importance in qualitative research.
This study examines the legal and policy framework surrounding green financing within the Vietnamese banking sector Green banking is a relatively new concept in Vietnam, with BIDV emerging as a pioneering bank by offering green products and financing for environmentally sustainable projects Given these factors, the case study method is particularly appropriate for this research to explore the development and implementation of green banking policies in Vietnam.
Structure of thesis
This thesis includes 6 chapters as following:
Chapter 2: Overview of green finance in banking sector In this chapter, the author will demonstrate the definition of green finance in banking sector, main types of green finance in banking sector and the role of green finance in banking sector for sustainable growth In addition, some perspectives from international institutions about green finance are demonstrated.
Chapter 3: Law and policy on green finance in banking sector in some countries In this chapter, some countries or group of countries are chosen to mention include G20, China, Asian countries, etc After that, some experiences for Vietnam are summarized.
Chapter 4: Law and policy on green finance in Vietnamese banking sector In this Chapter, the author reflects the stage of law and policy framework on green finance in Vietnamese banking sector A case study of BIDV and findings after in- depth interviews are also included in this Chapter.
Chapter 5: Recommendations After analyzing law and policy framework on green finance in Vietnamese banking sector, the author implements the assessment. Some recommendations are proposed to improve law and policy framework on green finance in Vietnam.
OVERVIEW OF GREEN FINANCE IN BANKING
Overview of Green Finance
Green finance emerged as a response to the global shift from traditional “brown” economies to eco-friendly sustainable development models, emphasizing the importance of environmental stability and the use of alternative raw materials (Tran Thi Thanh Tu et al., p.13) This transition requires significant resource mobilization due to the higher costs associated with green technologies and renewable energy, which are essential for long-term economic sustainability Historically, the push towards green finance gained momentum after the energy crisis of the 1970s, amid numerous economic crises and the dissolution of the socialist system, highlighting the need to reform economic models that heavily rely on non-renewable resources (Jin, 2010) Environmental protection became increasingly critical as rapid economic growth often resulted in adverse ecological consequences, underscoring the importance of investing in green economies Consequently, green finance plays a vital role in providing and managing the funds necessary to support sustainable development initiatives worldwide.
Green finance's history is rooted in public expenditure, as private sector investment is often discouraged by long-term horizons and high risks (Joseph, 1995) Initially, countries focus on developing alternative and supplementary products, primarily using state budgets, by allocating funds to university research and implementing state capital re-lending models to engage market stakeholders (Phan Thi Thu Ha, 2005) However, state capital alone is insufficient for comprehensive green economy development due to budget constraints, the long-term low profitability of eco-friendly projects, and high competition for public funds, especially as large portions are allocated for aid to developing countries (Jin, 2010; United Nations).
2014), funding for green economy is mobilized from the private sector due to decreased allocation in State budget.
Green finance in the private sector primarily originates from corporations, businesses, and notably banks, with governments often contracting or conducting green research due to resource limitations (Xavier, 2010) To finance green research initiatives, businesses typically invest their own funds or mobilize from investment sources, which are then quickly listed on the stock market as green economy products When businesses borrow from banks or venture capital funds, these loans become tradable assets in the market, with banks and funds selling portfolios—including securitized green project loans—to address market gaps and generate profits (Chris, 2009; Oseo, 2009) Consequently, commercial banks offer diverse green finance products such as insurance, long-term loans, debt financing, and asset-backed securities, which are further restructured into sophisticated instruments like venture loans, funds, partial risk guarantees, damage reserves, and re-insurance However, this market also faces significant issues, including bank failures following global financial crises due to high-risk investment portfolios driven by confidence in risk appetite under international standards like Basel II (Rudolf, 2010; Edward).
Public-private partnerships (PPPs) offer a vital alternative for green finance, especially as businesses face dual challenges: market risks with unpredictable outcomes and the pressure of debt repayment to banks These partnerships help mitigate financial risks while supporting sustainable development initiatives, making them an effective solution for financing environmentally friendly projects.
Joseph (1995) emphasizes that Public-Private Partnerships (PPPs) play a vital role in a country's economic development by leveraging government funding to support green investment projects To promote green finance for environmental protection or new business ventures, governments need to provide funding and establish mechanisms such as land clearance commitments or post-investment incentives to facilitate business capital development However, in transitioning countries, this green finance avenue faces significant challenges due to regulatory obstacles and mechanisms imposed by governments, hindering effective implementation (Tran Thi Thanh Tu et al., 2018).
The development of green finance is vital for sustainable growth, driven by expanding funding sources and fostering supportive legal frameworks Governments play a crucial role by establishing environmental and investor protection laws that ensure the sustainable development of green finance Additionally, promoting corporate social responsibility enhances support for green investments and facilitates businesses’ access to credit for environmentally sustainable projects Overall, the growth of green finance not only funds eco-friendly initiatives but also promotes a business culture aligned with sustainability.
The development of green finance since 2009 has facilitated the creation of innovative credit tools, including bank guarantees, long-term loans, asset-backed securities, venture loans, and start-up loans, enabling access to new credit management methodologies worldwide These advanced financial instruments empower businesses to grow while simultaneously driving the expansion and efficient operation of financial markets and credit institutions (Edward & Javier, 2010, p.5)
In addition, it is important to understand relevant definitions when analysing green finance development.
2.1.2 Definition of Green Finance, Green Credit, Green Banking and Sustainable Banking
Green growth, as defined by Paul (2000) and supported by UNESCAP (2012), combines economic growth with sustainable environmental protection, aiming to increase GDP while preserving ecosystems and improving living standards This approach emphasizes that economic development can be achieved without damaging the environment, making it a vital strategy for reducing poverty and ensuring sustainability Central to green growth is the integration of environmental protection into economic policies, where green finance plays a crucial role Understanding green finance involves exploring key concepts such as green credit, green banking, and sustainable banking, all of which are gaining increasing importance in countries like Vietnam to promote eco-friendly economic development.
Green finance is a comprehensive concept that encompasses financial investments in eco-friendly projects and sustainable development policies, aiming to promote environmental protection According to Lindenburg (2014), green finance involves both public and private sector funding dedicated to investments in green products and services, such as biodiversity preservation and landscape protection, to reduce environmental and climate change risks Additionally, green finance acts as a financial tool to support public policies that encourage initiatives to mitigate pollution and fund environmentally sustainable projects.
Zadek & Flynn (2013) highlight that green finance is primarily associated with green investment, but in practice, its scope is broader According to their study "South-Originating Green Finance: Exploring the Potential," green finance also covers various expenditures related to green projects, including costs for project preparation and land acquisition, demonstrating its comprehensive role in supporting sustainable development.
Green finance encompasses supporting green businesses and technologies, developing specialized financial products and attracting investors, and incorporating environmental impact assessments into loan evaluations (Jin, 2010) It spans various sectors, including green infrastructure, green industries and businesses, and green capital markets, facilitating investments in environmentally sustainable projects Key components include financing green projects, securities, venture funds, and investments in environmental protection technologies, as emphasized by the World Bank.
Green finance involves the establishment, distribution, and utilization of funds dedicated to environmental protection, climate change mitigation, and reducing toxic chemical emissions Its primary goal is to promote socio-economic sustainable development while ensuring that economic growth does not harm the environment.
Green finance in the banking sector refers to financial products and services that incorporate environmental considerations into decision-making processes According to PricewaterhouseCoopers Consultants (PwC, 2013), green finance involves providing funding for environmentally responsible investments, technologies, projects, and industries, with a focus on promoting sustainability It emphasizes environmentally conscious lending decisions, ongoing ex-post monitoring, and risk management to support sustainable development.
Green finance primarily involves funding projects and businesses that protect or minimally harm the environment, ensuring sustainable development It encompasses both public and private sector investments aimed at environmental protection, including initiatives that improve the environment, develop new eco-friendly products, or enhance livelihoods Additionally, green finance supports poverty reduction and the improvement of infrastructure closely linked to environmental sustainability and social security.
Definition of Green Credit and Green Banking
As green credit is a form of credit, it is worth to look at credit definition.
Credit broadly encompasses activities related to debts and future debt payments, including deposits that generate future liabilities for receiving parties (Rose, 2013) However, this broad definition is often refined to mean a loan extended by an organization to another, with an agreement to repay the principal along with interest, aligning with how credit is classified as an asset (Rose, 2013; Casu, 2015) Bank credit specifically refers to loans granted or committed by banks to their clients, contingent upon the clients' repayment obligations, a definition supported by Vietnam’s Law on Credit Institutions (2010).
Overview of Green Finance in banking sector
Green finance in banking sector has been studied in many respects, which are often mentioned under the two main aspects of green banking levels and roles of green finance.
Firstly, green finance can be reflected in green banking levels According to
Kaeufer (2010, p.5), basically, the operation of green banking is expressed through the following levels which also reflect green finance’s roles accordingly.
Most banks operate primarily in level 1, where they utilize their funds to support community initiatives and public programs through concessional loans aimed at environmental protection, public health, education, and assistance for low-income populations At this stage, green banking and green finance are not considered core activities, with the majority of banks currently focusing on these traditional operations.
Many banks are starting to divide their financing activities into two categories: traditional profit-driven financial operations and specialized activities aimed at environmental and social improvements Currently, only a small proportion of banks operate at this level, reflecting a growing trend toward sustainable finance within the banking sector.
Banks at Level 3 integrate the two key trends from Level 2 by aligning their structures and operations with the "green" principle This means that banking procedures and products are increasingly designed to support sustainable, environmentally friendly activities Additionally, financial resources are being strategically shifted toward "green" goals, reflecting a commitment to promote eco-friendly initiatives within the banking sector.
At Level 4, banks strategically expand their green finance initiatives beyond their individual operations to encompass their broader networks, fostering collaboration with other financial institutions They actively engage with communities to promote sustainable development goals, balancing profitability with environmental and social responsibility This stage signifies a comprehensive approach where banks play a pivotal role in advancing sustainable finance through partnership and community interaction.
- Level 5: Active ecosystem balancing initiative, in which banks performs similarly to Level 4 but in a proactive perspective for their own goals, not only for responding to external changes.
Green finance in the banking sector offers numerous benefits by supporting environmental protection and social responsibility It plays a crucial role in promoting sustainable development through financing eco-friendly projects and initiatives Implementing green finance strategies helps banks contribute to reducing carbon emissions and environmental impacts Additionally, green finance enhances a bank's reputation and attractiveness to environmentally conscious customers and investors Overall, integrating green finance into banking practices fosters long-term economic growth while safeguarding the planet.
Creating conditions for economic sectors to save energy and natural resources is essential for sustainable growth Green finance, supported by banks through direct investments or credit operations, promotes the development of environment-friendly and energy-efficient products These initiatives foster long-term economic stability by encouraging responsible resource management and supporting eco-friendly industry development.
Green finance, when effectively funded by banks, fosters interdisciplinary impacts by influencing various industries and promoting technological advancement within the green economy As banks allocate resources to green initiatives, they often modernize their operations through digitalization—reducing paper, ink, and electricity use—and develop innovative solutions like smartphone applications, enhancing access to financial services for tech-savvy consumers Moreover, the mainstream adoption of green finance sets a business culture that emphasizes social responsibility, encouraging other organizations to adopt similar practices This spillover effect not only strengthens community and social responsibility but also leads to broader societal benefits, making green finance a driving force for sustainable development across sectors.
The cross-border effects of banking operations are driven by the need to digitize services, enabling online or electronic trading between banks globally This digitization allows financial products to reach diverse audiences worldwide and facilitates cross-border capital transfers, fostering international financial integration Additionally, these international banking activities support the promotion of green projects and the development of a sustainable green economy in the future.
Green finance in banking sector – perspective from international organizations
The World Bank Group – International Financial Corporation (IFC)
Various financial institutions, international initiatives, standard setters, and regulatory bodies have developed diverse approaches to green finance, reflecting global efforts to promote sustainable investments Building on the foundational work of the G20 Green Finance Study Group, the IFC Climate initiatives aim to enhance the mobilization of capital for environmentally sustainable projects These coordinated efforts are crucial for integrating climate considerations into financial decision-making and fostering a resilient, low-carbon economy worldwide.
The policy team has introduced a new methodology to assess and monitor green finance, with a specific focus on the banking sector This innovative approach aims to evaluate the current landscape of green lending activities and offer recommendations for harmonizing diverse measurement methods By enabling broader analysis, this strategy can inform the development of more effective policies to mobilize additional green finance, supporting sustainable economic growth.
The IFC’s bottom-up methodology defines what qualifies as green at the project level by assessing the intended use of investments in the real economy and estimating the green share of each project These individual project assessments are then aggregated at industry and country levels, enabling a comprehensive view of green finance flows This approach allows for comparison with green finance needs, helping to identify gaps and inform targeted action points to promote sustainable development.
Challenges in green finance include inconsistent definitions, complex data collection, and challenging aggregation across sectors and financial instruments Distinguishing between the total amounts invested and the activities genuinely financed in the real economy is essential Defining “green activities” often requires suitable proxies due to unclear or inconsistent standards Data must be integrated across diverse datasets to provide a comprehensive view Additionally, establishing valid benchmarks, such as the demand for green investments, is crucial to accurately assess and measure green finance levels.
An example about the application of the methodology to the loan market reveals some initial estimates:
- Define: The methodology is applied to a dataset on syndicated loans by Thomson Reuters Green project finance is defined based on the industry of the borrower.
Based on existing research, industry classifications are assigned green project percentages to reflect their environmental impact Clean energy projects are considered 100% green, while oil and gas, petrochemicals, pipelines, and coal power are classified as 0% green Real estate has a green project share of approximately 17%, whereas food and beverages, paper and forest products, and agriculture sectors are estimated at 13% green Infrastructure and transport industries are designated as 10% green, highlighting varying levels of sustainability across sectors.
- Aggregate: The results are aggregated per industry and country of the borrower.
In 2014, 82% of all syndicated loans financed projects incorporating some green activities, highlighting the growing focus on sustainable funding Green financing accounted for nearly 15% of the total US dollar value of all loans that year, demonstrating increased investment in environmentally responsible projects Of these green-share projects, 41% of loans supported green real estate, while 21% were directed toward infrastructure and transport, reflecting industry preferences for project financing The United States led the global green financing landscape, capturing 35% of the total loan amount, followed by the United Kingdom with 8% Among emerging markets, China and India held the largest shares, each accounting for 4%, underscoring their growing role in sustainable project financing.
Several international data providers, including BIS, Bloomberg, Bureau van Dijk, IFC, the International Monetary Fund, and Thomson Reuters, offer comprehensive datasets for the banking sector These datasets include aggregated country-level data such as total loans granted, non-performing loan ratios, outstanding debts, and return on assets, providing valuable insights into banking performance Additionally, bank-specific data covering ownership structures, mergers and acquisitions, and total loan portfolios enable detailed analysis at the individual bank level Access to these datasets is essential for researchers and financial professionals seeking accurate and up-to-date information on the global banking industry.
Project-level information details the financed activities, including financial amounts, timeframes, and specific outputs such as production targets like X tons of steel It also highlights selected impacts such as carbon and water footprints and job creation, providing a comprehensive overview of the project's scope and environmental and social effects.
- Company-level information regarding the creditor and borrower for each loan, including their sector and location.
The diagram illustrates various levels of available datasets, highlighting key financial indicators and data providers involved in green finance It emphasizes the importance of capturing project-level data to accurately measure what is effectively financed in the real economy, enabling a clear distinction between green and conventional finance based on project, sector, and the lender’s or borrower’s country of headquarters This aggregated information can then be integrated into broader datasets at the country level of financial institutions, supporting more comprehensive analysis and informed decision-making in green finance.
Figure 1: Data providers for the loan market, their data levels and indicators
Recent IFC findings indicate that limited data availability hampers comprehensive analysis of green finance flows While definitions and tracking are most advanced in the bond market, other sectors require improved processes; for instance, banking loan tracking needs enhancement and institutional investors should adopt clear decision-making criteria To gain a complete understanding of green finance, it is essential to track sustainability metrics at the project level and to foster cooperation among multinational organizations, national regulators, private financial institutions, data providers, and standard setters.
The OECD’s approach emphasizes the pivotal role of Green Investment Banks (GIBs) in advancing sustainable infrastructure According to the OECD report, “Green Investment Banks: Scaling up Private Investment in Low-carbon, Climate-resilient Infrastructure,” GIBs are essential for mobilizing private sector funding toward low-carbon and climate-resilient projects The report highlights how GIBs can effectively attract private investments, facilitate market development, and accelerate the transition to a sustainable, low-carbon economy This strategy underscores the importance of leveraging innovative financial mechanisms to support climate-resilient infrastructure development globally.
Green investment banks (GIBs) are designed to address market and policy failures, serving as a key tool for governments to achieve ambitious climate goals They signal to the market and international community a commitment to scaling up private, low-carbon investments and are relevant for both developed and emerging economies in meeting emissions, technology deployment, and green infrastructure targets GIBs utilize innovative approaches to mobilize private investment and can work alongside multilateral development banks to de-risk infrastructure projects, attracting private capital Some GIBs aim for financial sustainability or positive financial returns, which can bolster political support for public resources dedicated to climate mitigation, adaptation, and resilience efforts.
The United Nations Environment Programme Inquiry
The United Nations Environment Programme (UNEP) launched the Inquiry into the Design of a Sustainable Financial System in early 2014 to explore ways to align the global financial system with sustainable development goals This initiative emphasizes integrating environmental considerations into financial decision-making to promote long-term ecological resilience By focusing on sustainable finance, UNEP aims to foster a more sustainable economy that supports environmental conservation and climate change mitigation The inquiry highlights the importance of transforming financial systems to better align with sustainability principles, ensuring a resilient and environmentally responsible future.
UNEP's 2015 Inquiry report outlines five key approaches to aligning the financial system with sustainable development, including green banking initiatives These strategies focus on enhancing market practices to promote responsible investing, integrating environmental risks into financial decision-making, developing innovative financial products that support sustainability, strengthening regulatory frameworks to incentivize green finance, and fostering transparency and stakeholder engagement By implementing these approaches, financial institutions can better support the transition to a more sustainable and environmentally responsible economy.
Policymakers are focusing on harnessing the public balance sheet and strengthening governance to direct finance effectively through policy Improving the function of capital markets is a strategic priority to facilitate the mobilization of capital, particularly for the green economy Enhancing capital market efficiency is key to unlocking funding needed for sustainable development and environmental initiatives This approach aims to align financial systems with long-term green growth objectives, ensuring capital flows support a sustainable and resilient future.
LAW AND POLICY ON GREEN FINANCE IN
G20 countries
G20 countries are implementing a range of banking policy measures to promote the greening of the banking sector, focusing on facilitating market reforms, enhancing public finance and government-supported institutions, and strengthening banking regulations These strategic initiatives aim to support sustainable finance, encourage investments in green projects, and ensure that banking regulations effectively promote environmental responsibility By advancing these measures, G20 nations are committed to integrating environmental considerations into the financial system to foster long-term sustainable growth.
Market reforms should incorporate regulatory measures that incentivize banks to internalize the environmental externalities of their lending and savings products, ensuring that the costs of unsustainable credit and investments are accurately reflected and society benefits from mitigated negative impacts Additionally, curbing government subsidies that promote excessive natural and energy resource depletion is essential Implementing these reforms creates a robust foundation for banks to develop sustainable business strategies focused on providing optimal levels of green credit and investment, supporting environmental preservation and fostering responsible banking practices.
Several countries support market reforms in green banking by establishing stable, long-term policy frameworks targeting key areas like renewable energy and energy efficiency Switzerland exemplifies this approach by creating policies that enhance business conditions for banks, enabling them to assess environmental and social risks more flexibly and determine their materiality Following a 2014 incident involving Credit Suisse’s involvement in deforestation in Indonesia, Switzerland emphasized the importance of due diligence in sustainability assessments for lending projects Building on this, the Swiss government proposed a comprehensive national energy strategy in 2015, set to span 30 years, which aims to embed sustainability criteria across all economic policies, implement relevant taxes, and phase out subsidies for unsustainable activities.
Public Finance/Government-supported Institutions
In G20 countries, national development banks are crucial for financing large-scale renewable and clean energy infrastructure projects, with Turkey, Mexico, India, and China exemplifying different approaches Turkey and Mexico leverage their development banks to channel savings into green investments, focusing on long-term funding that private markets often overlook India utilizes state-owned banks to support sustainable energy initiatives and promote sustainable agricultural practices China's four largest banks, all state-owned, provide significant credit and funding for large and small sustainable energy projects, fostering green economic activities These institutions use public funds to promote green banking practices and develop new markets for green assets Additionally, publicly owned development banks facilitate private sector investment in sustainability by offering on-lending and credit guarantees Developed nations like the UK and the US have also established dedicated green investment banks to finance renewable energy projects, supporting the global transition to a sustainable economy.
The G20 Leaders Statement (2009) emphasizes that a key goal of banking policies among member states is to fully implement extensive financial sector reforms introduced after the global financial crisis During the 2009 G20 Leaders Summit in Pittsburgh, the core objective of banking regulation was identified as fostering "strong, sustainable, and balanced global growth." Additionally, the Basel Committee revised the Core Principles for Effective Banking Supervision to strengthen regulatory frameworks worldwide.
Since 2012, efforts have been made to enhance the capacity of bank supervisors to monitor individual banking institutions and address risks threatening banking system stability While the Core Principles do not explicitly focus on environmental sustainability risks, they offer a flexible, voluntary framework for regulators to identify and manage potential systemic risks related to sustainability challenges Additionally, in 2016, the Basel Committee published best practices for banks and regulators to promote financial inclusion, particularly for economically and socially disadvantaged groups.
The following areas of banking regulation are relevant for policymakers to consider in addressing environmental sustainability challenges.
Bank risk disclosures are a crucial regulatory tool that promote market discipline by encouraging banks to integrate environmental sustainability considerations into their business strategies By transparently reporting all material financial risks, including those related to environmental factors, banks can better guide investor decision-making and foster capital allocation toward sustainable sectors In G20 countries, listed companies, including banks, are mandated to disclose comprehensive financial risks to investors, ensuring transparency and supporting sustainable economic growth.
Globally, over 400 initiatives and voluntary disclosure frameworks encourage companies and financial institutions to report environmental and social (E&S) risk factors, promoting transparency and accountability G20 countries utilize the Basel III Pillar 3 market discipline regime, which mandates extensive disclosures from banks on capital adequacy, capital allocation, risk exposure, and assessments, integrating both quantitative and qualitative data Additionally, the European Union adopted the Disclosure Directive in 2014, requiring listed companies, banks, and financial groups to disclose non-financial information related to environmental sustainability risks, including data on greenhouse gas emissions, water and land use, air pollution, renewable and non-renewable energy, and hazardous materials, aligning financial disclosures with sustainability goals.
Several countries have established minimum disclosure requirements; however, some nations have expanded these obligations to include entities such as investment firms, large non-listed companies meeting specific size criteria, state-owned enterprises, and pension funds For example, France mandates that all listed companies, including banking institutions, disclose their carbon exposure as part of comprehensive climate change reporting These regulations aim to enhance transparency around climate risks across various sectors, aligning with global sustainability and ESG standards.
Disclosure plays a vital role in informing the market about financial stability risks linked to climate change However, it is equally important to incorporate additional policy measures to effectively evaluate and address broader environmental sustainability challenges Combining transparency with proactive policy instruments can enhance market resilience and support sustainable financial practices.
Most G20 bank supervisors incorporate the Basel III Pillar 2 Internal Capital Adequacy Assessment Process (ICAAP) into their Supervisory Review and Evaluation Process (SREP) to evaluate banks' risk management and governance Under Pillar 2, banks must identify significant risks impacting their stability and detail their risk management strategies to address these risks In Brazil, the Brazilian Banking Association has voluntarily adopted standards based on the Pillar 2 framework to improve environmental risk assessment, leading the Brazilian Central Bank to implement mandatory Resolution 4327 in 2014, which requires banks to integrate socio-economic factors into their risk governance frameworks to promote social and environmental responsibility in financial institutions.
Each bank must assess its environmental risk exposure to ensure sustainable lending practices In 2012, the China Banking Regulatory Commission (CBRC) introduced the “Green Credit Guidelines,” encouraging banks to conduct environmental and social (E&S) risk assessments and to increase green loan issuance Similarly, France's 2015 Energy Transition Act mandates financial institutions to integrate environmental sustainability risks into their overall risk management strategies, promoting responsible investment and climate-conscious finance.
In 2014, Indonesia's Financial Services Authority (OJK) launched a Sustainable Finance Roadmap, marking a significant step toward promoting green finance This initiative mandates all financial institutions and banks to develop comprehensive business plans and risk management strategies focused on sustainability The roadmap aims to encourage the growth of green financial products and establish lending guidelines that support environmentally responsible investments By implementing these measures, Indonesia demonstrates its commitment to integrating sustainability into its financial sector.
Enhanced corporate governance mechanisms are essential to mitigate banks' incentives to engage in excessive risk-taking, which can jeopardize financial stability In Russia, Article 69 of the Russian Code of Corporate Governance mandates that the board of directors of joint-stock companies evaluate a range of risks, including environmental, social, ethical, operational, and other non-financial risks, to promote responsible and sustainable business practices.
The EU Disclosure Directive enhances bank governance by boosting transparency for investors about banks' involvement in unsustainable economic activities Institutional investors are increasingly requesting banks to disclose their efforts in integrating sustainability challenges into their business models and strategies This regulation encourages banks to prioritize sustainability, fostering responsible lending and investment practices that support sustainable economic growth.
China
According to UN Environment report (2018, p.14), the development of green finance in China includes the following three stages:
Between 2007 and 2010, a series of green finance policies were introduced, including measures on green credit, green securities, and green insurance, aimed at promoting sustainable development These policies emphasized encouraging green lending practices, conducting environmental reviews for listed companies, and piloting environmental pollution liability insurance to enhance environmental risk management.
Between 2011 and 2014, China entered the Consolidation Stage of green finance development, marked by the pilot of carbon emission allowance trading and the issuance of guidelines and statistical systems for green credit During this period, efforts to promote environmental pollution liability insurance also gained momentum International organizations such as the International Institute for Sustainable Development (IISD) and the Climate Bond Initiative (CBI) played a crucial role in encouraging and coordinating research on green finance with Chinese institutions In July 2014, the Green Finance Task Force, initiated by the People's Bank of China’s Research Bureau and the UN Environment Inquiry, released 14 key recommendations for establishing China’s comprehensive green financial system.
Since 2015, China has made significant progress in implementing its green finance strategy, with proposals from the Green Finance Task Force approved by top authorities and incorporated into the “Integrated Reform Plan for Promoting Ecological Progress,” establishing a comprehensive green finance system The implementation involved seven ministerial agencies, including the People’s Bank of China, executing the world’s first systematic green financial policy framework through the Guidelines for Establishing the Green Financial System The domestic green bonds market experienced rapid growth, alongside innovations in various green financial products The Green Finance Committee of the China Society for Finance and Banking (GFC) was established to promote green finance, leading to advancements in standards, evaluation mechanisms, environmental risk analysis, and capacity-building initiatives Internationally, China prioritized green finance by integrating it into the G20 agenda in 2016 and fostering global cooperation in this field, with Germany continuing the momentum in 2017 Supported by strong top-down policies and proactive market efforts, China successfully integrated green finance across the industry, positioning itself as a global leader in sustainable finance.
According to the G20 Green Finance Synthesis Report 2016, effective green finance development depends on clear policy signals, which China has addressed through comprehensive top-level design China’s strategic approach includes national policies, specialized regulations, and implementation guidelines aimed at encouraging market stakeholders to transition towards a green economy Recent developments highlight the progress and unique features of China’s green financial system, driven by these robust policy frameworks.
- Established strategic framework and policy guidelines for the green financial system:
+ Comprehensive plan for the top-level design: seven ministerial agencies jointly released the Guidelines.
+ Green finance reform and innovation pilot zones: Zhejiang, Jiangxi, Guangdong, Guizhou and Xinjiang.
+ Implementing rules for different sectors: Seven ministerial agencies will release specific implementing rules for different sectors.
- Included the theme of ecological civilization in the 13 th Five-Year plan and clarified green investment and financing needs.
- Publicized green investment and financing concepts extensively in China.
Digital finance has further promoted green finance among the general public.
The Green Finance Committee (GFC) of the China Society of Finance and Banking has been instrumental in advancing green finance in China since its establishment in April 2015 It has successfully attracted major banks, large and medium-sized fund managers, insurance companies, and securities firms, which together manage two-thirds of China's financial assets The GFC plays a vital role in shaping new policies, promoting the concept of green finance, driving product innovation, and enhancing industry capacity-building to support sustainable development.
Green finance pilot zones: Implementation with differentiated local practices
On 14 June 2017, the State Council decided to set up pilot zones for green finance reform and innovation in Zhejiang, Jangxi, Guangdong, Guizhou and Xinjiang, followed by overall plans for each pilot zone jointly released by seven ministerial agencies By establishing these five distinct pilot zones, China aims to explore different development models for the local green financial system against different backgrounds, thus offering diverse practical samples for promoting green finance across the country.
The five pilot zones have achieved initial progress in supporting policies, organizational structures, product and service innovation, market development, and institutional growth Additionally, several provinces and regions have introduced green finance policies, with over 10 provinces and autonomous regions outside the pilot program establishing policy frameworks in response to national green finance initiatives (UN Environment Report, 2018) Local Green Finance Committees (GFCs) have played a vital role in resource integration and coordination, supported by national regulatory authorities, research institutes, and financial institutions These GFCs have facilitated training, knowledge exchange, and the promotion of best practices, exemplifying successful green finance development Notably, Xinjiang, Guangdong, Zhejiang, and Gansu have all established their own local green finance committees to bolster regional efforts.
Local green financial systems face several challenges, including an unclear definition of “green,” which makes it difficult for governments, organizations, and investors to identify and support genuine green projects Additionally, the fragmented development of green finance leads to limited awareness among local financial regulators about the latest industry advancements Furthermore, regional capital-raising efforts are hindered by a shortage of specialized institutions and professionals dedicated to green finance, constraining its growth and effective implementation.
Green credit: Solid foundation and sound development
Credit plays a vital role in the allocation of financial resources within China's financial system, making green credit a fundamental component of the country's green financial framework Currently, China’s green credit has achieved significant progress, supporting sustainable development and environmental initiatives through increased lending to green projects This expansion reflects China's commitment to integrating environmental considerations into its financial practices As a cornerstone of China's green finance, green credit continues to promote environmentally friendly investments and facilitate the transition toward a greener economy.
A comprehensive green credit policy system has been established nationwide, featuring an institutional framework that includes guidelines, statistical tools, and evaluation systems Green credit performance is integrated into the Macro Prudential Assessment (MPA), ensuring effective oversight Additionally, green economy sectors benefit from various incentive policies designed to guide credit investment toward sustainable development At the local level, pilot zones and certain provinces and autonomous regions are utilizing monetary policy instruments such as re-lending and re-discounting to actively promote green credit initiatives.
Since the signing of the Joint Undertaking of the Chinese Banking Industry Regarding Green Credit by 29 major banks in 2014, financial institutions have actively promoted green transformation and product innovation They have developed over 50 green credit products, including services like accepting green assets as collateral and financing energy efficiency, emission reduction, and new-energy projects Additionally, China Industrial Bank and the Bank of Jiangsu adopted the Equator Principles, aligning their green credit practices with international standards.
China has achieved initial progress in green finance but still faces several challenges These include the inadequate utilization of interest discounts, guarantees, and other incentives to address maturity mismatches, as well as underdeveloped capacity to identify and assess environmental risks Additionally, the mechanisms for environmental information disclosure and sharing remain limited Furthermore, there is a discrepancy between green credit definitions and other green standards, highlighting the need for greater standardization and clarity in China's green finance framework.
Establishing a green securities market is a major step in the transition towards a green economy Up to now, China’s green securities market has significant development as the followings:
China has emerged as a major growth driver in the global green bonds market, establishing itself as one of the largest green bonds markets worldwide In 2016, China issued RMB230 billion in green bonds domestically and internationally, representing 39% of global green bond issuance Furthermore, in the first half of 2017, China issued 36 green bonds totaling RMB77.67 billion, highlighting its significant and ongoing commitment to sustainable finance and environmental initiatives.
Third-party verification and rating market grow rapidly with increasing market credibility Third-party verification agencies include accounting firms, credit rate agencies and consulting companies.
Environmental information disclosure has steadily advanced, with recent guidelines leading the way The Ministry of Environmental Protection, together with the China Securities Regulatory Commission and other authorities, actively promote transparent reporting by listed companies These efforts include signing official cooperative agreements to enforce mandatory environmental disclosures and integrating green securities into the legal and institutional framework, thereby strengthening sustainable development and responsible investment.
Green enterprises are highly motivated to pursue IPO financing and follow-on offerings, supported by growing policy incentives for environmental company listings In the first half of 2017, China experienced a notable surge in green enterprises engaging in IPO activities, especially within the pollution control sector This trend reflects increased investor interest and government backing for sustainable development initiatives in China.
Singapore
Singapore, a prominent financial hub in Asia, is dedicated to establishing itself as a leading center for green finance, focusing on integrating environmental, social, and governance (ESG) issues into financial institutions The country emphasizes expanding R&D in ESG-related products and increasing the availability and diversity of green finance options to grow the regional asset class The Singapore government actively promotes ESG integration within the financial sector, with the Singapore Exchange (SGX) mandating strict ESG compliance for all listed companies since 2018, reinforcing Singapore’s commitment to sustainable finance development.
The Association of Banks in Singapore (ABS) published the ABS Guidelines on Responsible Financing on October 8, 2015 and revised the guidelines on June 1,
2018 Responding to a call for promoting a low-carbon future following the Nationally Determined Contribution by individual countries to the Paris Agreement
2015, the ABS published the guidelines to support more transparent
“Environmental, Social and Governance (ESG) disclosures” The disclosure adopts a comply or explain basis in reporting.
Responsible financing emphasizes the importance of ESG criteria, focusing on high-risk industries such as agriculture, chemicals, defense, fossil fuel energy, forestry, infrastructure, mining, metals, and waste management The environmental aspect addresses issues like greenhouse gas emissions, deforestation, biodiversity loss, pollution, and resource efficiency The social dimension covers labor standards, community relations, human rights, health and safety, food security, and the needs of local and indigenous communities Governance encompasses corporate ethics, reputation, management effectiveness, risk management, and transparency These high-risk industries require prioritized attention and tailored policies due to their elevated exposure to environmental, social, and governance risks.
Responsible financing is guided by three core principles: first, the disclosure of senior management’s commitment to responsible financing demonstrates leadership and accountability; second, implementing effective governance ensures responsible practices are maintained throughout the organization; and third, capacity building on responsible financing empowers teams with the knowledge and skills needed to uphold sustainable financial practices.
Banks should publicly disclose their management structure and organizational support for responsible financing alongside their strategic commitments They must also publish the Chairman’s or CEO’s commitment to promoting and implementing responsible financing initiatives Additionally, banks are required to share their responsible financing policy framework transparently All this information should be included in their Sustainability or Annual Reports and made accessible on their websites to ensure transparency and accountability.
The second principle of responsible financing governance emphasizes two key rules for banks First, they must allocate resources with clearly defined roles and responsibilities to effectively support responsible financing initiatives Second, banks are required to establish robust governance and internal controls—either through dedicated responsible financing policies and procedures or by integrating responsible financing practices into their existing frameworks—to ensure effective implementation.
The third principle of capacity building in responsible financing emphasizes two key rules: first, banks should enhance staff awareness and management capabilities through training programs that promote an ESG mindset; second, the ABS collaborates with stakeholders such as international organizations, regulators, NGOs, and civil society to conduct seminar sessions, strengthening the management of current issues and trends in responsible financing.
Summary of sustainable finance policies in several other Asian countries can be seen in the Appendix 1.
Experiences for Vietnam
Selected countries demonstrating successful green banking initiatives have achieved early progress primarily due to their clear government strategies, especially in green finance within the banking sector These strategies have led to the development of comprehensive legal and policy frameworks that promote environmentally sustainable banking practices Furthermore, international support has played a crucial role in assisting these governments to formulate and implement effective laws and policies Vietnam can learn valuable lessons from these experiences, particularly the importance of establishing clear strategic directions and leveraging international cooperation to advance its green banking agenda.
- The definition for “green” in law and policy need to be clear to help banks, international organizations and corporations identifying green projects more easily.
- Strategic, collaborative initiatives such as the Green Finance Task Force can be effective.
- Strength in openness to using a range of instruments, including fiscal, legal, regulatory and administrative, as well as soft policy guidance, to encourage market innovation and alignment.
The success of greening the banking system depends on the development level of the financial sector and the broader environmental policies in place Green banking initiatives should be aligned with wider economic, social, and environmental challenges, emphasizing the importance of effective regulations and policies that promote sustainable growth and reduce pollution Conducting comprehensive assessments of the costs and benefits of green banking at the national level is essential for informed decision-making and effective implementation.
- Potential in linking green finance to overall financial market development
Enhancing corporate governance mechanisms in banks is essential for reducing the incentives to engage in excessive risk-taking that could jeopardize financial stability Strengthening these governance frameworks not only safeguards the banking sector but also promotes effective environmental and social (E&S) risk management By implementing robust governance practices, banks can better address E&S risks, ensuring sustainable growth and resilience in the financial industry.
Enhancing banks' disclosure of risks to investors is vital for supporting market discipline, which encourages banks to integrate economically relevant environmental sustainability criteria into their business practices This increased transparency can drive banks to reallocate capital toward more sustainable sectors of the economy, promoting long-term environmental and financial stability.
- SBV need to use Basel III pillar 2 - Internal Capital Adequacy Assessment Process(ICAAP) to assess the risk management and governance of banks including E&S risk.
LAW AND POLICY ON GREEN FINANCE IN VIETNAMESE
Vietnam, having endured multiple invasive wars and environmental damage caused by chemical weapons, recognizes the critical need to balance economic growth with environmental protection This commitment is reflected in the country’s ongoing efforts to develop and refine legal and policy frameworks supporting sustainable development However, it remains unclear whether Vietnamese legal regulations comprehensively address green finance within the banking sector This chapter examines Vietnamese laws and policies on green finance and evaluates the current state of green finance initiatives in Vietnamese banks to determine the effectiveness of regulatory coverage.
Legal framework on green finance in Vietnamese banking sector
The 1992 Earth Summit in Rio de Janeiro resulted in the adoption of Agenda 21, a comprehensive global framework for sustainable development, endorsed by 179 countries This influential plan was reaffirmed and updated by 166 countries during the 2002 World Summit on Sustainable Development in Johannesburg, ensuring it remains relevant for the 21st century Agenda 21 serves as a strategic action plan guiding the United Nations, regional organizations, and governments worldwide in implementing sustainable development initiatives across global, regional, national, and local levels The summits emphasized that each country should tailor and adopt its own version of Agenda 21, based on its unique social, economic, and environmental conditions, to promote sustainable growth effectively.
Vietnam participated in both Summits and issued its own Agenda 21 through Prime Minister Decision No 153/2004/QD-TTg on August 17, 2004 Vietnam’s Agenda 21 assesses the country's recent development, setting long-term goals and policies for sustainable development in the 21st century It focuses on three priority areas, aiming to guide Vietnam toward a sustainable future through targeted measures and strategic orientations. -**Sponsor**Looking to optimize your article for SEO and coherence? Let's focus on the core meaning! Vietnam actively embraces sustainable development with its own Agenda 21 Officially established through Decision No 153/2004/QD-TTg, it outlines strategic orientations for sustainable development This Agenda reviews Vietnam's current situation, setting long-term goals and policies for the 21st century, with a focus on key priority areas For diversifying your investment portfolio, explore [Freedom24 ETF - English](https://pollinations.ai/redirect-nexad/Q1BSJtMT?user_id=983577) and consider investing in ETFs with Freedom24 to potentially benefit from growth sectors.
- To maintain rapid and stable economic growth, while protecting the environment.
- To promote the development of eco-friendly production and consumption model that lessening the use of non-renewable natural resources and minimizing toxic and difficult-to-decay wastes.
- To implement “clean industrialization” which means that industrial development must be planned in the direction of prioritizing eco-friendly industries, actively preventing and treating pollution.
- To develop agriculture and rural areas parallel with conservation and development of the land, water, air and forest resources as well as the biological diversity.
- To implement the regional development strategy that gives priority to key economic regions which are able to develop rapidly and supports for disadvantaged, mountainous, or remote regions.
- To concentrate on poverty reduction, job creation.
- To continuously reduce the population growth rate, lifting the pressure on job creation, healthcare, education and ensuring the ecological environment.
- To reasonably distribute population and labor force in regions, ensuring socio- economic development and environmental protection in both urban centers and rural areas.
- To improve the educational and vocational quality in order to provide a qualified labour force for the country’s development.
- To develop healthcare services, improve working conditions and sanitation.
Area of natural resources, environmental protection and pollution control:
- To effectively use and protect the land resources.
- To protect the water environment and sustainably use of water resources.
- To reasonably exploit and thriftily use of mineral resources.
- To protect marine, coastal and island environments and develop marine resources.
- To protect and develop forests.
- To reduce air pollution in urban centers and industrial parks.
- To effectively manage solid and hazardous wastes.
- To mitigate climate change and limit adversely impacts of climate change, contributing to natural disaster prevention.
By mentioning “Using financial tools for sustainable development”,
Agenda 21 plays a pivotal role in Vietnam's sustainable development efforts by encouraging financial organizations to provide essential financial assistance, thereby promoting green finance As the first legal document on sustainable development in Vietnam, it marks a significant milestone in integrating environmentally conscious practices into the country's financial sector This initiative underscores the importance of mobilizing financial resources to support national sustainable development goals, fostering a greener and more sustainable future for Vietnam.
Since the 2002 Summit, multiple meetings have focused on implementing Agenda 21, culminating in the 2015 Sustainable Development Summit in New York, which adopted Agenda 2030 with 17 new goals alongside previous commitments In 2017, Vietnam emphasized its commitment by issuing Decision No 662/QD-TTg, establishing the National Action Plan to implement Agenda 2030 This plan includes Goal 9.3, which tasks the State Bank of Vietnam with enhancing banks’ capacity to offer green credit and banking services to promote sustainable economic growth.
Article 36 of the 1980 Constitution marked the milestone that environmental protection was first recognized in the highest legal document of Vietnam – the Constitution The 1992 Constitution also had one Article reaffirming the responsibility of all components of the economic system, State agencies, army, organizations and individuals to protect the environment The newest Constitution passed in 2013 provides more than one Article about environment, by which everyone has not only the obligation to protect the environment but also the right to live in a clean environment The State encourages all environmental protection and development activities, among them, use of new energy and renewable energy are highlighted in the 2013 Constitution.
Over two decades in pursuit of sustainable development, Vietnam has promulgated many laws related to environmental protection, namely:
- Law on Forestry (its former name is Law on Forest Protection and Development,
- Law on Economical and Efficient Use of Energy (2010, amended 2017)
- Law on Natural Resources and Environment of Sea and Islands (2015)
This article highlights the key environmental protection regulations that investors must adhere to and that banks use as guidelines when financing related projects The focus is on the Law on Environmental Protection, which serves as the most important national legal framework for ensuring environmental sustainability.
The Law on Environmental Protection prioritizes the enhancement of environmental quality and maintaining ecological balance through sustainable development It emphasizes the promotion of advanced, eco-friendly technologies and scientific innovations, offering financial incentives and land support to environmentally responsible businesses Additionally, investors are required to obtain environmental protection licenses from relevant state authorities, ensuring compliance with legal standards and fostering responsible environmental management.
02 types of environmental protection license:
Environmental Impact Assessment (EIA) approval is mandatory for projects requiring approval from the National Assembly, Government, or Prime Minister, especially those utilizing land in protected areas such as wildlife sanctuaries, national parks, and historical or cultural sites Projects with potential negative environmental impacts are also subject to EIA, with a comprehensive list of 113 project types outlined in Appendix II of Decree 18/2015/ND-CP The responsible authorities for EIA approval vary depending on the project and may include the Ministry of Natural Resources and Environment, Ministry of National Defense, Ministry of Public Security, Department of Natural Resources and Environment, or Provincial People’s Committees.
Environmental protection plans must be registered for projects that are not subject to Environmental Impact Assessment (EIA) or listed among the 12 exempted project types outlined in Appendix IV of Decree 18 Certification of these environmental protection plans is issued by competent authorities, which may include Provincial People's Committees, District-level People's Committees, Sub-District-level People's Committees, as well as local Management Units of Industrial Parks, Export-Processing Zones, and Economic Zones.
Based on provisions of the Law on Environmental Protection, banks can request loan applicants to provide environmental protection license appropriate to their projects.
4.1.4 Government’s Strategies and Action Plan a) Vietnam Sustainable Development Strategy
On April 12th, 2012, the Prime Minister approved Vietnam's Sustainable Development Strategy for 2011-2020 through Decision No 432/QD-TTg The strategy's primary goal is to promote sustainable and effective growth while ensuring social progress, social justice, and environmental protection It emphasizes the importance of safeguarding natural resources and maintaining socio-political stability to achieve long-term development in Vietnam.
The strategy aims to ensure macroeconomic stability while safeguarding food, energy, and financial security It emphasizes implementing green growth and low-carbon economic development step by step, promoting the efficient use of resources, and minimizing environmental impacts The strategy also focuses on preventing and controlling pollution, improving environmental quality, and protecting and developing forests to conserve biodiversity.
The Strategy establishes key indicators to monitor and evaluate Vietnam’s sustainable development from 2011 to 2020 It includes three general indicators: Green GDP, Human Development Index (HDI), and Environmental Sustainability Index (ESI), to assess overall sustainability progress Additionally, ten economic indicators such as the Incremental Capital Output Ratio (ICOR), Consumer Price Index (CPI), social labor productivity, and fiscal metrics like the state budget deficit and sovereign debt are used to evaluate economic stability and growth The strategy also incorporates ten social indicators, including poverty rate, unemployment rate, and the percentage of trained labor, to measure social development and workforce capacity Furthermore, seven environmental and natural resource indicators are set, such as forest cover rate, degraded land area, and waste treatment rates in urban and industrial zones, ensuring environmental protection aligns with standards.
In order to achieve the above objectives, the Strategy offers 8 groups of solutions including:
1 Continue to improve the institutional system for sustainable development; improve the quality of national governance for sustainable development of the country;
2 Strengthen financial resources to implement sustainable development;
3 Propagate, educate and raise people’s awareness for sustainable development;
4 Strengthen management capacity and implement sustainable development;
5 Enhance the role, responsibility and participation of enterprises, socio- political organizations, social-professional organizations, non-governmental organizations and communities in implementation of sustainable development;
6 Develop human resource for implementation of sustainable development;
7 Strengthen the role and impact of science and technology; promote technological innovation in implementation of sustainable development;
The second solution group involves the State allocating its budget and mobilizing official development assistance (ODA), along with funds from domestic and international organizations and individuals, to support sustainable development initiatives Additionally, the strategy emphasizes developing policies and mechanisms to incentivize financial institutions, enterprises across all economic sectors, and individuals to invest financially in achieving sustainable development goals This approach underscores a comprehensive effort to promote green growth and ensure long-term environmental and economic sustainability.
On September 25th, 2012, the Prime Minister issued Decision No 1393/QD- TTg approving the National Green Growth Strategy for the period 2011-2020 with the vision to 2050.
The strategy aims to restructure and enhance economic institutions by greening existing industries and promoting high-value, resource-efficient sectors It emphasizes the research and application of advanced technologies to improve natural resource utilization and reduce greenhouse gas emissions, supporting effective climate change mitigation Additionally, the strategy focuses on improving people's lives and fostering environmentally friendly lifestyles to promote sustainable development.
In order to achieve these three goals, the National Green Growth Strategy presents 17 implementation solutions, including:
1 Propagating and raising people’s awareness of green growth; giving technical support for expanding the models of saving, safe, nature-friendly production and consumption; encouraging and supporting communities to develop the models of ecological urban center, green countryside, green house, and waste sorting at source by the method of reducing - recycling – re-using (3R);
2 Improving the efficiency and effectiveness of energy use, reducing energy consumption in production, transport and trade activities;
3 Changing fuel structure in industry and transportation by reducing energy from fossil fuel and encouraging the use of new and renewable energy with less greenhouse gas emission;
4 Boosting effective exploitation of new and renewable energy resources and increasing the proportion of such resources in national energy production and consumption;
5 Reducing greenhouse gas emissions through sustainable organic agriculture development, improving the competitiveness of agricultural production;
6 Reviewing and adjusting the planning of production industries, gradually limiting economic sectors that generate large wastes, causing environmental pollution and degradation, and creating conditions for developing new green industries;
Current situation of green finance in Vietnamese banking sector
Effective implementation of green finance regulations in commercial banks hinges on three key aspects: enhancing bank managers' awareness and understanding of green banking principles, expanding green finance services available in Vietnam, and promoting the growth of green credit within the Vietnamese banking sector.
Awareness and understanding of bank managers on green finance
A 2013 survey by the State Bank of Vietnam revealed that approximately 91% of commercial banks lacked a green growth policy, highlighting limited engagement with sustainable practices Additionally, about 35% of these banks were unaware of the concepts related to social and environmental issues, indicating a significant knowledge gap in sustainability awareness within the banking sector.
Another survey of the SBV (2017) and Tran Thi Thanh Tu et al (2017, p 117-
A study applying Kaeufer K.’s 5-level green banking development model to 151 bank managers across 32 commercial banks found that approximately 63% of managers recognize green banking primarily as the provision of environmentally friendly services, such as internet, SMS, and mobile banking, along with financing community activities Around 23% of managers view green banking as distinct from traditional banking operations, indicating a separation of green initiatives Only about 4% of respondents identified green banking at the higher levels (Levels 3 to 5) of Kaeufer’s model, reflecting limited awareness of advanced green banking practices.
Approximately 88% of banking groups recognize green finance as a highly promising business opportunity However, only 68% of these banks believe that developing a strategic plan is necessary to expand green finance in medium- and long-term financing activities Despite this acknowledgment, the actual implementation of green finance initiatives remains significantly lower among banks, highlighting a gap between perception and action in sustainable banking practices.
Recent surveys by the SBV indicate that awareness of green finance among bank managers remains limited, suggesting that concepts like green banking, green finance, and green credit are still emerging and not widely understood within the banking sector.
Green financial services provided by commercial banks in Vietnam
According to Tran Thi Thanh Tu et al (2017, p 120), most banks in Vietnam are at Level 1 of green finance, focusing on providing online services to enhance customer convenience and promote natural resource conservation by reducing paper and electricity usage Some banks have advanced to Level 2, indicating incremental progress in their green finance initiatives and environmental sustainability efforts Incorporating digital banking solutions helps these financial institutions minimize environmental impact while improving operational efficiency.
BIDV has led multiple Rural Finance Projects, including Phases 1, 2, and 3 funded by the World Bank, and is currently implementing Rural Finance Project 4 with a total investment of approximately USD 620 million, all designed with strict environmental considerations across wholesale banks, participating banks, and sub-projects Additionally, BIDV has invested around USD 200 million in renewable energy financing programs from 2010 to today and financed a USD 148 million solid waste treatment complex Recognized for its extensive experience in green finance, BIDV stands out as the first Vietnamese bank at Level 3 and above in sustainable banking initiatives, making it a key case study in this research.
Since 2013, Lienviet Post Bank has actively implemented a comprehensive green banking program to enhance both internal and external environments The bank has constructed green offices using eco-friendly materials and adopted energy-saving initiatives to reduce electricity, water, and paper consumption Additionally, it promotes community development by organizing various activities at its own expense In its banking operations, Lienviet Post Bank focuses on offering green banking products, such as e-banking services, and prioritizes funding for businesses with sustainable, green growth objectives.
Most commercial banks in Vietnam have adopted green finance initiatives, including providing loans for high-tech projects that produce eco-friendly materials, supporting rural development programs to reduce poverty, and financing renewable energy projects such as wind and solar power Additionally, recent reports now include environmental impact assessments in credit documentation, reflecting a commitment to sustainable investment These initiatives constitute important foundational steps toward establishing green banks in Vietnam.
Most commercial banks have yet to develop a diverse range of green finance products comparable to their other business services, with green-finance activities representing only a small portion of their total offerings (Tran Thi Thanh Tu et al., 2017) The availability of specialized financial products for green projects or enterprises remains limited, as banks often perceive these initiatives as high-risk investments.
Bank financing for agriculture and rural development remains limited, mainly provided by specialized institutions like Agribank Poor and near-poor households generally lack access to formal banking services, with Vietnam Bank for Social Policies being a notable exception as a non-commercial bank supporting social welfare.
Currently, there is a growing awareness and diversification of green finance products within Vietnam's banking sector, reflecting a positive shift towards sustainable development However, this trend remains limited, indicating the need for further enhancements and broader implementation of green finance initiatives in the near future.
Green credit in Vietnamese banking sector
According to the report of GIZ about green financial sector reform in Vietnam
Vietnamese economy heavily relies on the credit system, with banking credit representing 70% of total external corporate financing In 2015, outstanding credit loans reached 94.7% of GDP, highlighting the sector's significance The State Bank of Vietnam (SBV) manages monetary policy and oversees refinancing for various government credit programs, including initiatives for the Mekong Delta, social housing, and offshore shipbuilding, in coordination with commercial banks to support economic development.
Green credit plays a vital role in supporting environment-friendly projects and aligns with Vietnam's Green Growth Strategy, making it a key focus for credit institutions Despite increased interest, funding for green projects remains limited, as most domestic banks have historically lacked preferential credit policies for energy-saving, emission-reducing, and eco-friendly initiatives However, in recent years, green credit has become an essential component of commercial banks' business models, reflecting a growing commitment to sustainable development.
Since 2015, the State Bank of Vietnam (SBV) has been actively leading green credit initiatives by issuing key directives like Directive No 03/CT-NHNN and other guidance documents, reinforcing its legislative efforts to promote sustainable finance The SBV's leadership in implementing various credit programs aims to foster the growth of green credit, supporting Vietnam's transition to a low-carbon and environmentally sustainable economy These proactive measures underscore the central bank's commitment to integrating green financing into the national financial system.
Case study in BIDV
BIDV has actively participated in green credit programs, primarily utilizing funds from international financial institutions As Vietnam’s largest bank by total assets and recognized as the Best Retail Bank in Vietnam from 2016 to 2018, BIDV has financed numerous green projects, including large-scale solar energy plants, wind farms, and solid waste treatment complexes While this article does not focus on specific financed projects, it emphasizes how BIDV manages and controls social and environmental (S&E) risks associated with green initiatives.
Between 2015 and 2018, the State Bank of Vietnam (SBV) issued key guidance documents to promote sustainable banking practices These regulations mandate that all commercial banks actively manage the environmental and social impacts of their financed projects Additionally, banks are encouraged to develop green credit products and facilitate access to credit for businesses that contribute positively to environmental and social welfare.
To effectively implement the SBV’s guidance, BIDV has rapidly analyzed international best practices, including ADB’s Safeguard Policy Statement and Gender and Development Policy, as well as IFC’s environmental and social protection standards This strategic approach enables BIDV to develop and establish its own comprehensive S&E Risk Management Framework, ensuring compliance and promoting sustainable development.
BIDV’s Board of Directors recognizes that expanding access to green credit offers long-term, sustainable financial benefits for the bank Rising environmental tensions—such as conflicts with clients over environmental issues, water scarcity, and dwindling natural resources—have increased environmental risks and costs for credit institutions like BIDV Addressing environmental and social (E&S) risks in lending enables the bank to select higher-quality investment projects, which can lead to improved financial returns and greater sustainability.
BIDV is a pioneer among Vietnamese banks in developing and implementing an Environmental & Social (E&S) Risk Management Framework, integrated into credit appraisal, approval, and monitoring processes for corporate clients This framework is mandatory for all projects and business plans financed under BIDV’s sustainable development program for SMEs, particularly those utilizing ADB funds or World Bank two-step credit programs and other international financial institutions Additionally, the framework serves as a guideline to classify environmental and social risks for other projects and business plans funded by BIDV’s commercial funds, reinforcing its commitment to sustainable banking practices.
Key highlights in BIDV's above mentioned Framework include:
BIDV is committed to fostering sustainable development by implementing transparent environmental and social protection initiatives The bank continuously enhances its environmental and social management practices across all operations and services Additionally, BIDV pledges to finance only projects and business plans that adhere to rigorous environmental and social protection standards, ensuring responsible and sustainable growth.
To ensure effective management of E&S risks, it is crucial to strictly integrate the risk assessment process with credit extension through three key steps: project/business plan screening, classification of E&S risks, and detailed assessment to categorize projects accordingly Based on the "Handbook on Social and Environmental Risk Assessment" introduced by the SBV in August 2018, BIDV has developed its own comprehensive Handbook to facilitate easier implementation for relationship managers All SME relationship managers are required to adhere to this standardized process to promote responsible lending and sustainable business practices.
The Bank requires its branches to include environmental and social protection provisions in the Credit Agreement or Social and Environmental Protection Agreement, which customers must sign Customers commit to complying with Vietnamese laws and international environmental standards, taking measures to mitigate negative impacts on the environment and society, and promptly reporting any incidents causing serious environmental or social harm They must develop corrective action plans, provide necessary licenses and evidence of compliance, and fully implement these commitments throughout the credit term Penalties are outlined for violations of environmental and social obligations, ensuring accountability and adherence to sustainable banking practices.
Fourthly, after a loan is approved, BIDV will implement reporting and monitoring of the customer’s compliance with environmental and social terms and conditions.
502 Bad GatewayUnable to reach the origin service The service may be down or it may not be responding to traffic from cloudflared