Prime Ministrial Decision No. 21/2025/QD-TTg on environmental criteria and the certification of investment projects under the green classification list formally defines the “standards” for the economy and industries. The decision sets out both qualitative and quantitative environmental criteria for projects to be recognized as “green,” but this clarity also creates a barrier for businesses that have not met such standards.
For example, a steel plant seeking financing to convert outdated blast furnace technology to cleaner electric arc furnace technology falls into a gap. It does not meet the “green” criteria under Decision No. 21 to access concessional loans, while commercial banks and environmental, social, and governance (ESG)-focused investment funds are reluctant to lend because it belongs to a high-emissions group. This leads to a vicious cycle in which “brown” (steel, cement, thermal power, etc.) enterprises are cut off from capital, lack funds to invest in new technology, continue using outdated processes that generate even higher emissions, and face the risk of becoming stranded assets as tariff barriers such as the EU’s Carbon Border Adjustment Mechanism (CBAM) tighten.
Transition finance and regional experience
By definition, transition finance refers to the provision of financial products and services to support high carbon-emitting enterprises shift towards lower-emission business models aligned with long-term net-zero goals. In essence, transition finance does not require companies to become “green” immediately but accepts funding for gradual “clean-up” activities (for example, retrofitting coal plants to co-fire biomass or installing carbon capture technology). Typical financial instruments currently in use include transition bonds and sustainability-linked instruments.
Transition bonds are debt instruments that enable companies in “brown” sectors to raise capital for greener business activities, support technological transformation, mitigate environmental impacts, and reduce greenhouse gas emissions. Unlike green bonds, which finance projects already meeting “green” standards, transition bonds finance projects moving from “brown” to “green.” Buyers typically include ESG investment funds, international financial institutions such as the International Finance Corporation (IFC) and the Asian Development Bank (ADB), pension funds, and insurance funds, all of which require issuers to present clear long-term transition strategies and commitments to specific emission-reduction targets.
Sustainability-linked bonds are instruments whose proceeds may be used for general corporate purposes, including debt repayments, working capital, or investment, but whose financial characteristics vary depending on whether the issuer meets committed sustainability performance targets. If emission-reduction targets are not achieved, the bond’s interest rate increases. Sustainability-linked loans have similar features.
To address the core bottleneck of transition finance, Vietnam should study the ASEAN Taxonomy for Sustainable Finance, first issued in 2021 at COP26 and updated in March 2023 and March 2024. From its second version, the ASEAN Taxonomy introduced the “amber tier,” or transition zone, allowing credit for projects that still emit but have clear, science-based pathways towards the green tier.
Based on the ASEAN Taxonomy, countries such as Singapore, Thailand, and Malaysia have rapidly legalized “amber” provisions for “brown” industries transitioning towards “green,” deploying transition finance instruments to unlock capital flows with significant positive outcomes.
In Singapore, the Monetary Authority of Singapore issued the Singapore-Asia Taxonomy, clearly defining the “amber” category with strict but practical quantitative criteria for coal plants scheduled for early retirement. Financing is allowed for coal plants transitioning to ammonia or hydrogen co-firing, subject to a sunset date requiring the full retirement of old technology by a fixed deadline. Singapore has also piloted transition credits, under which coal plant operators committing to early closure receive carbon credits based on avoided emissions, with proceeds used to service transition loans, attracting major investment funds.
In Thailand, the Thailand Taxonomy issued by the Bank of Thailand clearly defines “green”, “amber”, and “red” categories with criteria and sunset dates aligned with the ASEAN framework. After the Thai Securities and Exchange Commission standardized regulations on green bonds, transition bonds, and sustainability-linked bonds, Thailand’s ESG bond market expanded rapidly, to more than THB800 billion ($23 billion) by the end of 2024.
In Malaysia, alongside building a taxonomy framework aligned with ASEAN standards, State-owned enterprises (SOEs) have played a pioneering role as market makers. In the first half of 2025, SOEs such as Malaysia Rail Link accounted for nearly half of total ESG bond issuance, helping establish benchmark yield curves for private sector issuances.
Recommendations for Vietnam
To avoid falling behind in transition finance and missing the opportunity to mobilize billions of dollars for “brown” sectors, Vietnam should consider the following measures.
First, adopt and localize ASEAN Taxonomy criteria and promptly amend Decision No. 21/2025/QD-TTg to include a transition (“amber”) category with specific qualitative and quantitative criteria for “brown” sectors such as steel, cement, and thermal power. Declining emissions thresholds should be established over time and mandatory transition deadlines (sunset dates) aligned with national and sectoral net-zero roadmaps. Legalizing the “amber” category would provide a basis for domestic and international banks and ESG funds to finance transition projects.
Second, the government and the Ministry of Finance should promptly issue decrees and circulars guiding the issuance of transition bonds and sustainability-linked bonds and develop primary and secondary markets. “Greenwashing” risks should be mitigated by referencing International Capital Market Association (ICMA) standards, requiring clear transition pathways and transparent disclosure of emission-reduction progress in offering documents.
Third, consider allowing major State-owned groups such as the Vietnam Oil and Gas Group (PetroVietnam) and Vietnam Electricity (EVN) to pilot appropriately-sized issuances of transition bonds and sustainability-linked bonds in international markets. These should be combined with concessional capital from the Just Energy Transition Partnership (JETP) as first-loss capital to enhance credit ratings. Successful issuances by PetroVietnam and EVN would establish benchmark yield curves for Vietnam’s transition bonds internationally, serving as models for private “brown” enterprises. However, the government should set early warning thresholds for exchange rates and external debt to automatically suspend or adjust issuance plans, avoiding pressure on public debt and national financial security.
In short, net-zero is the destination but transition is the pathway. A successful financial policy should not only beautify a few wind power projects but must also be capable of “retrofitting” thousands of high-emission industrial plants in operation. Transition finance is not a compromise with pollution but the most practical bridge to move the economy from “brown” to “green” in an orderly manner, avoiding disruptive shocks to traditional industries. By deploying smart financial mechanisms and instruments to resolve capital and technology constraints, net-zero pressure can become a driving force for comprehensive industrial restructuring, ensuring no enterprise is left behind in the new era.
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