Vietnam’s bold commitment to reaching net-zero emissions by 2050 reflects the strong resolve of the Party and the government to build a green, carbon-neutral economy and actively contribute to global climate action. This commitment is deeply embedded in the National Green Growth Strategy for 2021-2030 and Vision towards 2050. Building a green economy is no longer just a strategic direction or a matter of simple encouragement, it is an inevitable path in today’s global economic landscape. Vietnam must lay out a clear roadmap for greening its economy, with monetary and fiscal policies playing a central role.

Growth driver

Under Decision No. 1658/QD-TTg, issued on October 1, 2021, approving this National Green Growth Strategy, the overarching goal is for green growth to drive economic restructuring while transforming the growth model to achieve economic prosperity, environmental sustainability, and social equity.

The concept of “green growth” has been defined by various international organizations. The United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) describes green growth as a strategy for achieving sustainable development. Meanwhile, the World Bank (WB) defines it as an approach that ensures the efficient use of natural resources, minimizes pollution and environmental impact, enhances resilience to natural disasters, and strengthens environmental governance and natural capital management for disaster prevention.

While the vision and direction for developing a green economy are clear, translating them into concrete policies and effective implementation is crucial. Encouraging all economic actors to take action toward this shared goal is essential. Therefore, greening the economy must encompass three key pillars: (i) greening development policies; (ii) greening business management through sustainable projects and eco-friendly products; and (iii) greening lifestyles and consumption.

By prioritizing green growth and sustainable development in its energy transition, Vietnam can access international green financing pledged by developed nations. Notably, the EU committed $15.5 billion in support of Vietnam’s energy transition for green growth.

In the long term, Vietnam is among the countries most affected by global climate change, losing 1.5 per cent of its GDP annually, according to WB estimates. Successfully implementing green growth and sustainable development strategies will bring substantial benefits to the country. Now is the optimal time to promote a green economy and green growth, fostering new momentum for Vietnam’s economic expansion in the years ahead.

Focus on monetary policy

Establishing policy mechanisms to encourage green economic development is a fundamental pillar, serving both as a guiding force and a decisive factor for sustainable growth. This pillar must be prioritized for greening first.

Monetary policy, along with broader financial and resource mobilization strategies, plays a crucial role in channeling capital, natural resources, and human effort towards green growth. Key policies in this framework include green monetary policy, green fiscal policy, green energy policy, green transport policy, and green construction policy.

Vietnam has already laid the groundwork for this approach, as seen in Decision No. 403/QD-TTg dated March 20, 2014, which assigned specific tasks to various ministries under the National Action Plan for Green Growth for the 2014-2020 period. Among sectoral policies requiring greening, monetary and fiscal policies are the most critical. A structured roadmap and concrete measures are essential to incentivize economic resources for green growth using policy instruments.

For instance, the State Bank of Vietnam (SBV) can support commercial banks that provide medium and long-term green loans or hold highly-rated green bonds by offering refinancing options or discounting these bonds at preferential rates, such as a 0.5 per cent annual reduction. This would improve liquidity for banks while indirectly lowering interest rates on green projects.

Another approach is adjusting reserve requirements. Just as the SBV has previously reduced reserve ratios for banks with significant agricultural loan portfolios, it could introduce similar incentives for banks with a high proportion of green loans. This would encourage banks to allocate more funds to green projects and sustainable production.

A legal framework already exists to support these policies. Article 10 and Article 11 of the 2010 Law on the State Bank of Vietnam, along with Clause 5, Article 149 of the 2020 Law on Environmental Protection, clearly mandate the government to establish green credit policies. Accordingly, the SBV could propose the creation of a Green Refinancing Fund.

Through monetary policy, the government can channel resources into green projects and sustainable production by lowering refinancing rates and extending long-term funding to commercial banks. Additionally, reducing reserve requirements for banks heavily involved in green lending would free up capital for further investment in green growth.

A significant step forward would be establishing a Green Refinancing Fund sourced from foreign exchange reserves. Globally, central banks in Bangladesh, China, and India have implemented similar measures, such as Bangladesh’s $200 million Green Refinancing Fund and mandatory green lending quotas in China and India, starting at 5 per cent and increasing over time.

By adopting similar policies, Vietnam can effectively transmit its green growth agenda from financial institutions to businesses and the broader economy. With foreign exchange reserves exceeding $100 billion, allocating $500 million or more to a Green Refinancing Fund is both financially viable and legally feasible.

Indispensable role

On the journey towards a green economy, the crucial role of fiscal policy cannot be overlooked, alongside other supporting policies.

Vietnam’s experience with fixed electricity prices for solar energy highlights the need for a more market-oriented approach, with careful assessments and implementation roadmaps to prevent misuse.

Public procurement regulations could also promote green businesses. Companies bidding for government projects could receive additional points - at least 10, depending on the evaluation system - to help green manufacturers compete with non-green suppliers. If two bidders receive the same score, priority should be given to the green supplier.

Each ministry and sector should establish targeted policies to guide businesses and consumers towards green economic growth. Vietnamese enterprises, for example, must gradually increase transparency regarding energy sources, without which exports could face carbon taxes, making them less competitive globally.

Moreover, failing to ensure clean energy usage could deter major multinational corporations from investing in Vietnam, as they require sustainable energy sources to support global exports. The EU has already set a three-year timeline for such regulations, while the US and South American countries like those in the Caribbean may enforce them immediately upon legal adoption. This underscores the urgent need for the government to institutionalize sector-specific green policies.

Beyond monetary and fiscal policies, a truly green economy also requires sustainable corporate governance and conscious consumer behavior.

The Ministry of Natural Resources and Environment, now the Ministry of Agriculture and Environment, has drafted new recycling cost regulations aimed at efficiency and environmental protection. This makes it imperative for businesses to adopt circular economy models or sustainable production systems that emphasize clean inputs and eco-friendly outputs.

Beyond green production, sustainable economic development requires adherence to ESG (environmental, social, and governance) principles and alignment with the 17 United Nations Sustainable Development Goals (SDGs) Vietnam has committed to. These commitments should translate into concrete green business practices at the micro level.

To foster green lifestyles and consumption, the government must launch strong awareness campaigns to encourage people to become smart consumers, seeking out certified green products that protect both the environment and personal health. This shift must extend beyond households to government offices and workplaces. Additionally, public awareness should lead to boycotting non-eco-friendly products, including those from companies engaged in “greenwashing”.

 

^(*)Dr. Pham Xuan Hoe is the General Secretary of the Vietnam Leasing Association and former Deputy Director of the Banking Strategy Institute