Banking sector’s commitment to green growth

At a workshop entitled “Promoting the Implementation of the Banking Sector’s Action Plan to Implement the National Strategy on Green Growth for the 2021-2030 Period”, jointly held in Hanoi on May 21 by the State Bank of Vietnam (SBV), German Development Cooperation (GIZ), and the International Finance Corporation (IFC), Ms. Pham Thi Thanh Tung, Deputy Director General of the Department of Credit for Economic Sectors at the SBV, revealed that the central bank has laid out a comprehensive action plan featuring a suite of targeted solutions aimed at embedding sustainability across the financial system.

The roadmap includes refining the legal and credit policy framework to support green growth, fostering international partnerships to mobilize resources, and using digital transformation in the banking sector as a path towards sustainable development. Alongside such efforts, the SBV is also working to build a skilled, green-literate workforce, boost public awareness through communication efforts, and establish a unified green finance forum. Public procurement is also in focus, with strategies to promote greener consumption.

Ramping up green finance

In collaboration with the IFC, the SBV has drafted a circular guiding environmental risk assessments for three categories of high-risk projects. It has also proposed a preferential credit mechanism for green sectors such as organic farming and the circular economy, now under review by the government. Among the initiatives already in motion is a large-scale project to cultivate 1 million ha of high-quality, low-emission rice in the Mekong Delta.

Representatives from international organizations attending the workshop praised Vietnam’s steady progress in building a sustainable financial architecture. The country stands out for its focus on green credit, adherence to ESG (environment, social, and governance) standards, and emphasis on environmental and climate risk management.

However, challenges remain. Ms. Tung noted that green finance efforts are currently concentrated within State-owned and a few large joint stock banks, leaving many institutions behind. Despite a 21.2 per cent annual growth rate in green credit, it still represents a relatively small slice of total lending. As of now, only 58 of the 83 credit institutions in the country have reported green loan portfolios.

One of the biggest hurdles, according to the SBV, is the absence of a standardized green taxonomy. Without a consistent classification system, banks lack the legal framework needed to assess and approve green loan applications. Other constraints include limited access to international green financing, as only 20 domestic institutions have tapped into such sources, and a lack of environmental impact data from borrowers, which hampers proper risk assessments. Balancing capital sources is also problematic under existing regulations that limit the use of short-term funds for long-term loans, while high international capital costs also pose a barrier.

Looking ahead, once the national green taxonomy receives official approval, the SBV intends to propose interest rate support mechanisms for green or ESG-aligned projects. The central bank will also seek to ramp up international fundraising and provide targeted training to credit institutions to enhance capacity.

The SBV has urged continued commitment to the green growth action plan, encouraging institutions to regularly review progress and report difficulties to ensure timely policy support, contributing to more effective, system-wide implementation of Vietnam’s green growth agenda.

Associate Professor Nguyen Dinh Tho, Deputy Director of the Institute of Strategy and Policy on Agriculture and Environment at the Ministry of Agriculture and Environment, emphasized that developing a national green taxonomy is a cornerstone for both Vietnam’s banking system and its broader economy as the country shifts towards sustainable development and climate resilience.

Vietnam’s green taxonomy draws from international standards, including those of the EU, the IFC, and the World Bank, and centers on three global challenges: climate change, environmental pollution, and biodiversity loss.

According to Associate Professor Tho, three options were explored during the development of a green certification mechanism.

The first would assign responsibility to State environmental authorities, ensuring legal consistency and risk control. However, this could strain administrative capacity and contradict efforts to streamline bureaucracy.

The second option proposed allowing independent organizations that meet certain qualifications to handle certifications. This aligns with international practice and avoids creating new administrative burdens but raises concerns over legal clarity and quality control.

And the third approach considered allowing credit institutions or bond market regulators to conduct certifications themselves, integrating the process into existing financial reviews and reducing costs. But this route lacks environmental expertise and independent oversight.

Ultimately, the government opted for a pragmatic solution: allowing the beneficiaries of green incentives to be responsible for certifying their compliance with green criteria. They could also engage qualified third-party consultants to do so. The new draft regulation also incorporates international standards and threshold benchmarks to assist credit institutions in their evaluation and lending processes, moving Vietnam’s financial system closer to being transparent, efficient, and truly sustainable.

Lessons from Germany

In an era increasingly defined by globalization and climate change, sustainable finance has become a cornerstone in the development strategies of leading financial institutions, said Mr. Adam Cotter, Senior Vice President and Senior Executive Banking at DZ Bank’s Singapore branch. DZ Bank is the second-largest bank in Germany and has clearly identified sustainable finance not as a fleeting trend but as a long-term strategic imperative.

One notable highlight of its strategy is its proactive approach to assessing the transition potential of clients. Beyond simply offering green financial products, the bank develops supportive tools that empower businesses to build their own sustainable bond frameworks (FrameNow), identify suitable investors (ESG Locate), and evaluate ESG performance using a specialized KPI Library.

The bank also utilizes an internal ESG scoring matrix based on criteria such as greenhouse gas emissions, social impact, and transition readiness. This modern data governance system enables informed credit assessments and responsible investment decisions.

Moreover, DZ Bank continually aligns with international ESG standards from the EU and IFC to ensure its environmental and social evaluation processes stay in sync with global best practices. Importantly, the bank is not only focused on compliance but also plays an active role in shaping national regulatory frameworks.

DZ Bank’s experience underscores the importance of embedding ESG and sustainable finance into the core strategies of financial institutions, not just to meet international standards but to drive responsible and resilient growth.

For financial institutions in Vietnam, including credit organizations, the path forward requires strengthening internal capabilities in sustainable risk assessment, conducting climate stress testing, and disclosing ESG information in line with global norms. These efforts lay the groundwork for developing green financial instruments such as sustainable bonds, loans linked to environmental and social targets, and other products that support the green transition.