Overcoming financial and technical hurdles, as well as legal considerations, to realize the advantages of green bonds in the financial market.
Lively Lowdown:
Vietnam's green bond market is surging, but it's got some hiccups. Here's the skinny on the challenges and progress:
The Nitty-Gritty:
Regulatory fog:- The market's clouded by unclear, inconsistent regulations for green bonds and green finance. This spooks issuers and investors as compliance requirements and criteria lack specificity.[1][4]- Green energy and renewable projects must navigate lengthy, complex approval processes, posing obstacles for long-term capital-intensive projects like wind and solar power.[5]
Technical shortcomings:- The banking and financial sectors are making green moves, but there's a gap in technical expertise to appropriately assess and execute green finance projects.[1]- Many enterprises — particularly in renewable energy — find the technical and financial requirements for issuing green bonds daunting, making bonds less desirable despite their long-term benefits.[5]
Taxonomy tug-of-war:- The absence of a standardized, national green taxonomy makes it tough to agree on what qualifies as "green." This muddies the waters for market confidence and the scalability of green bonds.[1][4]- The lack of a country-wide classification system for green finance hampers alignment with international standards and regional practices.[1]
On the Horizon:
Tightening the regulatory noose:- Vietnam is grappling with new legislation and guidelines to clear up green bond and green finance eligibility, boost transparency, and reassure investors.[4]- The government's newly launched Emission Trading System (ETS) could boost the green finance ecosystem, potentially providing better regulatory support for green bonds.[2]
Upping the technical ante:- Capacity-building programs and international partnerships are in the works to improve skills in green finance, encompassing risk assessment and impact measurement.[1]- Financial institutions are increasingly adopting green finance criteria and frameworks that align with net-zero objectives, reducing uncertainty for issuers and investors.[1]
From a modest base of VNĐ2.5 trillion in 2023, total green bond issuance surged to nearly VNĐ7 trillion by 2024. - AFP Photo
Creating a unified green taxonomy:- Concerted efforts are underway to develop a national green taxonomy that mirrors local priorities and ASEAN regional standards. This will standardize terms, enhance transparency, and facilitate cross-border green bond investments.[4]- By integrating international best practices and local realities, the taxonomy aims to unite market players, reducing fragmentation in the green finance industry.[1]
In short, Vietnam's green bond market is young, ambitious, and stumbling over regulatory hurdles, expertise gaps, and a messy taxonomy. However, legislative reforms, capacity-building initiatives, and a homegrown green taxonomy are essential steps forward to resolve these limitations and propel Vietnam's green finance sector toward sustainable growth.[1][2][4][5]
- The surge in Vietnam's green bond market is facing challenges due to unclear and inconsistent regulations surrounding green bonds and green finance, which creates uncertainty for issuers and investors.
- The technical expertise gap in assessing and executing green finance projects is a significant obstacle, as many enterprises find the technical and financial requirements for issuing green bonds daunting.
- The absence of a standardized, national green taxonomy complicates matters further, as it's difficult to agree on what qualifies as "green," mudding the waters for market confidence and the scalability of green bonds.
- However, Vietnam is taking steps to address these issues by launching new legislation and guidelines, making efforts to develop a national green taxonomy, and implementing capacity-building programs and international partnerships to improve skills in green finance.
- By resolving these regulatory hurdles, expertise gaps, and clarifying the taxonomy, Vietnam's green bond market can aim for sustainable growth, aligning with international standards and regional practices, and attracting more investments in the green finance sector.
