Collaboration and energy transition remain as the focus of climate transition journey

Vietnam has had milestones in climate transition journey in the past two years, from the country's Net Zero commitment made at COP26 to its National Climate Change Strategy, of which collaboration and energy transition remain as the focus of this journey, Mr. Tim Evans, CEO of HSBC Vietnam shared at Summit: 3P Green Impact held on August 2.

According to Mr. Evans, collaboration is key. Climate change is something that none of us can fight alone, instead, it requires unprecedented collaboration among us all. Collaboration among individuals, businesses, organisations, sectors and governments is crucial for achieving ambitious climate targets.

Second, energy transition is fundamental. Like many other countries, Vietnam’s transition depends on moving to clean energy, at scale. Coal provides around three-fifths of our electricity generation. The recent increase in coal use reflects higher demand resulting from continued economic recovery and an uptick in air-conditioning. So net zero requires a thoughtful approach to the responsible early retirement of coal-fired power plants, while increasing electricity supply to meet growing demand, through new clean renewable sources.

"At COP28 last year, I was struck by the political consensus for tripling renewables by 2030 and transitioning away from fossil fuels," said Mr. Evans. "Renewables’ role is also emphasised in Vietnam's Power Development Plan VIII (PDP8), with renewables expected to account for more than 30% of the energy mix. The good news is Vietnam's renewable energy potential is huge given its conducive conditions and Government's pledge to achieve net zero by 2050. The country's natural resources offer potential to attract more investments into the growing renewable energy sector, but Vietnam should significantly step up engagement from the private sector."

The challenges exist

First, the challenge is decoupling economic growth from emissions, according to Mr. Evans. Economic growth has been closely linked to increased CO2 emissions and energy consumption, so if that historic model of growth were to simply continue it would have negative impacts on the natural environment and climate. But the good news is that link has already broken in developed economies: US GDP doubled since 1990, CO2 emissions fell.  

That link has weakened everywhere: China grown fourteen-fold since 1990, but CO2 emissions have increased five-fold. In India, GDP growth has outpaced CO2 emissions growth by over 50 per cent. China and India’s growth is far more energy efficient than Europe’s was historically, benefitting from new technologies. So Vietnam can similarly maintain its fast growth rate while transitioning to net zero. Since 1990, its GDP has been 66 times bigger while CO2 emissions increased 12 times. Banks can finance both sides of that equation: economic growth and decarbonisation.  

Second, sustainable infrastructure investment is often held back by a lack of projects that are sufficiently attractive to investors. The challenge is the limited supply of bankable projects that meet the risk-return requirements of investors. Besides, it is the lack of harmonisation among taxonomies that makes financing decisions harder. Interoperability and consistency around transition and sustainable finance would boost investor confidence. 

Third, more corporate transition plans and comparable emissions data would help banks to assess and finance clients’ transition. 

Need the support of finance sector

Banks can support Vietnam’s continued growth, through an orderly transition to clean energy, building long-term resilience, while supporting jobs and communities along the way. 

There are two ways for a bank to do to deliver Net Zero ambition. Most important, it is supporting customers to transition. Second is to transfer capital to where it is needed. This means partnership for systemic change – with governments, philanthropies, and civil society.

The ability of banks to participate can be enhanced through partnerships – bringing the necessary stakeholders together to overcome challenges. Just Energy Transition Partnerships (or JETPs) are a leading example. JETPs are multilateral financial agreements, bringing together G7 countries with financial institutions and national governments, to accelerate the phase-out of coal, in a way that addresses social consequences.  

In 2022, Vietnam signed a JETP agreement with the International Partners Group which consists of developed countries who will provide half of the amount on offer at $7.75 billion for the country to transition to green energy. Private sector finance, led by the Glasgow Financial Alliance for Net Zero (GFANZ), has pledged to mobilise at least that amount. This will help bridge the investment gap and put billions behind Vietnam’s transition.

"However, more work is required to get the model right between the public and private sector partners," Mr. Evans said. "In any country where these models are to be successful, national policies must also support a coal phaseout and the scaling of renewables, including supportive infrastructure such as power grids and smart energy management systems."

Blended finance vehicles such as Pentagreen, a joint venture between HSBC and Temasek, could be one possible solution to overcome those bankability issues, combining public and private capital towards sustainable infrastructure. This debt financing platform aims to deploy blended finance at scale to unlock and crowd in commercial capital for marginally bankable projects to accelerating the development of sustainable infrastructure in Asia, with an initial focus on Southeast Asia.

The primary sector focus is renewable energy and energy storage, clean transport, and the water and waste management sectors. Transactions in other areas such as climate adaptation, agriculture and land use, and technology-led solutions are likely to be considered in the future.

Most recently, Pentagreen and Clifford Capital, an infrastructure financing platform, announced a joint green loan collaboration of $30 million with BE C&I Solutions to catalyse the construction of distributed sustainable bioenergy projects across Southeast Asia and India.

"We believe that more can be done to de-risk deals with concessionary capital," Mr. Evans noted. He pointed out that for example, national policy measures could better enable banks to participate through identifying a pipeline of bankable projects. Moreover, establishing national contract structures for wind, solar, and other renewables would benefit financial institutions seeking to participate, providing consistency and comparable projects to help evaluate risk. Most blended finance is deployed at a transaction level, in a way which reduces replicability.

"Tackling climate change is an urgent and complex challenge," Mr. Evans affirmed. "It demands more collaboration, more funds, and more collective action now."