In implementing the Just Energy Transition Partnership (JETP), Vietnam has huge potential for change in energy and transportation, the two leading emitters in Vietnam, according to Ms. Luong Phuong Mai, Team Lead, Large Corporates South and Commercial Real Estate, Wholesale Banking, at HSBC Vietnam.

The first JETP, the South Africa JETP, was announced at the 26th UN Climate Change Conference of the Parties (COP26) in Glasgow two years ago. Since then, a few additional countries have taken part in these mechanisms, with Vietnam becoming the third to adopt a JETP with the International Partners Group (IPG), which includes the EU, the UK, the US, France, Germany, Italy, Canada, Japan, Norway, and Denmark.

Under the terms of the Vietnam JETP, the IPG commits an initial $7.75 billion in public capital over a three to five-year period to help Vietnam achieve a number of energy transition targets. In support of these efforts, the Glasgow Financial Alliance for Net Zero (GFANZ) established a Working Group, of which HSBC is a member, to help mobilize and facilitate a matching $7.75 billion in private capital.

In short, the Vietnam JETP involves the mobilization of $15.5 billion of public and private financing to achieve net zero ambitions. Following Vietnam’s bold commitment at CO26, where Prime Minister Pham Minh Chinh said the country requires external support to achieve its net-zero transition, the Vietnam JETP will be helpful for it to drive its climate agenda.

According to Ms. Mai, leapfrogging from coal straight to wind and solar would enable the country to make use of its own natural resources to provide its people with an economically-secure source of energy given its considerable wind and solar potential. Vietnam has exceptional natural endowments, in wind speed and photovoltaic power potential, to generate renewable energy.

However, a key barrier to financing for energy transition is the bankability of power purchase agreements (PPAs), while the barrier to transportation transition is the pace of such transition, which in turn is the result of an absence of any regulatory push and the limited availability of electric vehicle charging infrastructure.

The Vietnam JETP has the potential to represent a turning point in the climate finance agenda. One of the three goals at its core is to mobilize private sector capital to finance decarbonization efforts. Bankability and recovery in case of distress would be the first main aspects to present to lenders if businesses are to explore sustainable finance opportunities. They should be prudent with their business case and better build in buffers in their sensitivity analysis, for instance in curtailment, operational and maintenance costs, hikes in interest rates, volatility in FX, and so on.

Second, lenders like HSBC will pay much attention to greenwashing risk. Indeed, mitigating this risk is wired into its strategy. “When providing green or sustainability-linked facilities, it’s important for us to ‘green-proof’ the investment or the use of proceeds by proper certification, monitoring and audit,” said Ms. Mai. “We typically demand such certification / audit to come from a qualified third-party organization to obtain independent assessments, meeting international standards and maintaining a consistency across markets. Moreover, our green loans must comply with the Green Loan Principles issued by the Loan Market Association and our green bonds must comply with the International Capital Market Association’s Green Bond Principles.”

A key benefit for Vietnam in a JETP is to attract greener FDI and become a champion in clean energy. The Vietnamese Government has been focusing on high quality FDI, which includes green FDI. Like-minded partners attract each other, and so to attract investors who are serious about green development the country need to profile itself accordingly, from green policy and infrastructure to supply chain ecosystems. And the JETP, backed by the G7 governments, is a very strong platform to make such aspirations known to international communities.

“As a bank supporting inbound FDI flows, we saw this with our own eyes,” Ms. Mai explained. “Right after Vietnam announced its net-zero commitment at COP26, Lego announced plans to build the first carbon-neutral factory, in southern Binh Duong province, marking its second investment in Asia. We believe that any member of the JETP and GFANZ will be a champion echoing the ‘Vietnam green effects’ to international investor communities via our own network.”

Finally, experts are looking into the possibility of applying the JETP model in other sectors beyond energy if Vietnam and other countries can prove it is a successful approach for delivering climate finance. Of course, it will take time to see results, but it is nonetheless an opportunity not to be wasted to take a giant leap forward in realizing decarbonization goals.