Climate Bank Needed for Green and Just Transitions

Vietnam’s landmark commitment to net-zero carbon emissions by 2050 is bold and visionary. In making this public commitment, the Government recognized that the conversion from fossil fuels can deliver tangible economic benefits. There is now evidence that the transition to renewable energy will create more jobs than it destroys.

However, the scale of the challenge facing Vietnam and other countries embarking on the journey to net-zero carbon emissions should not be underestimated. Reducing dependence on fossil fuels will affect every sector of the economy, from power generation to agriculture, construction, manufacturing, and transportation.

Estimates of the costs vary depending on the assumptions used in making these calculations. Nevertheless, conservative estimates suggest that Vietnam mobilize an additional US$15 billion to US$30 billion per year - that is, investment over and above normal levels of investment - to achieve the net-zero target and sustain rapid economic growth.

According to UNDP Resident Representative Ramla Khalidi, for an economy like Vietnam, international financing will at most provide a supplemental source of capital. Most of the investment requirements will have to be met by domestic sources. As such, increasing the capacity of domestic financial institutions to mobilize long-term capital is at the core of climate transition.

Although Vietnam’s financial system is becoming more developed and diverse, the absence of deep and liquid secondary markets constrains the availability of long-term financing. As recent events in the bond market have shown, governance, corporate disclosure and accountability are key constraints on the development of active secondary markets. Therefore, proactive policies are needed to remove these and other obstacles to increasing the supply of long-term domestic financing for the energy transition and other uses.

Ms. Nguyen Thi Hoang Yen, Deputy Director of the Department of Science, Education, Natural Resources and Environment under the Ministry of Planning and Investment, said Vietnam is currently included in the list of “priorities for energy cooperation” and is in discussions with countries around the world on various international climate finance mechanisms in support of the energy transition. However, the fund that countries donate to Vietnam will only be a small part of the path of economic growth and energy transition. We need to strengthen domestic financial institutions to ensure financing for businesses, investing in socioeconomic development projects, and investing in projects for the energy transition in the medium and long term.

The Joint Program to assist Vietnam in developing an Integrated National Financing Framework (INFF) has the overarching goal of supporting Vietnam in its efforts to reform the mobilization, usage and management of development finance, in order to realize the sustainable development goals (SDGs) until 2030. Under the framework of this Program, the United Nations Development Program (UNDP) collaborated with the Department of Science, Education, Natural Resources and Environment in conducting studies on “Development Banking in Vietnam: Issues and Prospects” and “Review of bottlenecks and recommendations for the development of domestic capital markets in Vietnam.”

These are initial studies to provide recommendations and policy discussions to develop capital markets for private enterprises, ensuring that public financial resources effectively contribute to the achievement of development goals. Most important are recommendations on how to mobilize resources and use investments effectively, thus bringing in sustainable development results.

Researchers from the Integrated National Financing Framework (INFF) program, economists from UNCTAD and SOAS, University of London; and experts with extensive experience in climate finance in different development settings shared global precedents, and the potential contribution of development banking to Vietnam’s energy transition. They proposed that a Vietnam Climate Bank be created to contribute to long-term energy financing by providing guarantees for commercial bank loans, organizing structured finance for slow-gestating projects, and even taking equity stakes in projects that deliver important social benefits.

Mr. Thomas Marois, Political Economist and Author of Public Banks, SOAS University of London, made the case for establishing a new Vietnam Climate Bank to drive a green and just transition. There is a need to get the mandate right - a green and just mandate with a public purpose. To be credible and effective, a Vietnam Climate Bank needs a representative Board of Governors.

By Quynh Chi, Vietnam Business Forum