June 03, 2024 | 09:30 GMT+7

Industrial parks in green transition

Ngoc Lan -

Green and eco-industrial parks are expected to add to Vietnam’s FDI attraction efforts.

Economic models are changing development goals around the world and Vietnam has also entered into a new stage of development. Building green industrial parks (IPs) and eco-IPs, and converting existing IPs into eco-IPs, have recently become more pressing as the country adapts to new circumstances.

Taking shape

According to real estate consultants Cushman & Wakefield, among the 400 IPs licensed in Vietnam are about 290 currently in operation, but only about 1-2 per cent of those are implementing steps to become green or eco-IPs. The figure is, however, on the rise.

The Ministry of Planning and Investment (MPI) has coordinated with the United Nations Industrial Development Organization (UNIDO) to implement the Eco-Industrial Park Intervention in Vietnam (GEIPP-Vietnam) project, with a total budget of $1.82 million, which was piloted from 2020 to 2024 in five localities: Ho Chi Minh City, Can Tho, Dong Nai, Da Nang, and Hai Phong. Among IPs selected for project intervention were the Amata Industrial Park, the Deep C Industrial Park, and the Hiep Phuoc Industrial Park. Technical support was also provided to IPs involved in a previous UNIDO project: the Tra Noc 1&2 Industrial Parks and the Hoa Khanh Industrial Park.

“The transformation from conventional IPs into eco-IPs does not stop at IPs within the framework of cooperation between the MPI and international donors, but has been spread to other IPs with self-funding,” Mr. Le Thanh Quan, Director General of the Department of Economic Zones Management at MPI was quoted as saying.

DEEP C was selected to participate in the GEIPP-Vietnam project, and in the first phase, with support from UNIDO, it managed to engage 15 tenants in the Resource Efficiency and Cleaner Production (RECP) project. Some 131 solutions were proposed, 84 of which were implemented, resulting in a reduction of 30 million kWh of power, 56,000 cu m of water, and 29,500 tons of greenhouse gas (GHG) emissions a year. DEEP C is encouraging more clients to participate in the RECP project to cut more resources consumption and lessen the carbon footprint.

“Vietnam is at a crucial stage of its development,” Mr. Bruno Jaspaert, CEO of the DEEP C Industrial Park, told VET. “For a green future that promotes sustainable and long-term growth, I believe that the initiative to set up eco IPs is a very good start.”

In 2023, VSIP - a joint venture between Becamex IDC from Vietnam and a coalition of Singaporean investors led by Sembcorp Development - announced the development of five green, smart, and sustainable IPs in Vietnam over the following three years, with total investment of approximately $1 billion. Also last year, the Amata Group from Thailand invested in building the Long Thanh High-Tech IP with total capital of $282 million, which aims to attract modern manufacturing industries and is expected to create additional tech-based value while contributing to local socio-economic development.

An MPI report summarizing 30 years of IP and economic zone (EZ) development states that, by 2030, 40-50 per cent of localities are to convert existing IP into eco-IPs and 8-10 per cent of localities will build new eco-IPs. “In Vietnam, the trend towards developing green or eco-IPs and promoting cleaner production is gaining momentum,” said Ms. Trang Bui, Country Head of Cushman & Wakefield Vietnam. “The move towards eco-IPs and cleaner production aligns with global sustainability goals and positions Vietnam as a responsible and forward-thinking player in industrial development.”

Attracting high-quality capital

Despite the gloomy outlook surrounding the global economy, FDI continues to flow strongly into Vietnam. More than $6.17 billion was registered in the first quarter of this year, an increase of 13.4 per cent over the same period of 2023, according to MPI, and FDI attraction reached a record $36.6 billion in 2023. Large international investors now have high requirements on environmental and technological criteria in their investment processes, and many US and EU investors have expressed a desire to invest in IPs that not only meet conditions in geographical location and scale but also green and smart criteria.

A KPMG survey of 200 FDI enterprises shows that, in addition to priorities such as location, human resources, and logistics infrastructure, trends in green IPs are also factors these enterprises prioritize when selecting investment locations. There are currently four IP models attracting foreign investors. Of most interest is eco-IPs, which are a global trend, followed by urban service IPs, where workers have a place to live and work, then smart IPs, with management, electrical systems, and wastewater treatment linked to smart systems, and IPs integrating logistics, warehouses, and ports.

It is no coincidence that Denmark’s Lego Group chose the VSIP III Green Industrial Park in southern Binh Duong to build the world’s first carbon neutral factory, costing $1 billion. VSIP’s green IP model uses clean materials, reducing carbon emissions into the environment and meeting the requirements of many manufacturers.

According to Deep C’s observations, tenants in green IPs are interested in environment, social, governance (ESG)-driven solutions for their own ESG reporting, as many stock-listed companies are now obliged to report on such achievements. They are also keen on renewable energy and renewable energy certificates (RECs) from solar, wind, and biomass. Synergy between investors and green IPs is also sought, which allows for circular economy practices and reduces waste.

Research by Cushman & Wakefield also noted that the adoption of cleaner production technologies and practices at IPs has led to significant benefits. For instance, the GEIPP-Vietnam pilot project in Can Tho and Da Nang has achieved myriad results. Enterprises at pilot IPs have saved over $6.5 million a year by implementing the RECP, and clean technologies have helped optimize raw materials, energy, and water usage. The total reduced annual demand includes over 22,000 MWh of electricity and over 600,000 cu m of fresh water. The project has also contributed to a decline of 32 kt of carbon dioxide emissions annually, while companies have ensured the proper handling of chemicals and waste disposal.

“An ecological IP model helps developers attract a new wave of high-quality investment as companies seeking sustainable locations are drawn to eco-friendly environments,” Ms. Trang Bui noted.

Mr. Jaspaert believes that developing green IPs allows Vietnam to begin evaluating investors under different standards, because investors coming to Vietnam will not only bring profits and jobs but must also bring higher values to Vietnam’s people and environment.

Future prospects

Green IPs hold certain advantages in Vietnam compared to traditional IPs. Ms. Trang Bui pointed out that, under Decree No. 35/2022/ND-CP from the government, IPs and ecological enterprises are given priority in support regarding information, science and technology, export conditions, brand promotions, and participating in value chains. They also gain priority access to preferential loans from banks and financial institutions as well as various other investment incentives.

Specifically, investors implementing investment projects building and operating infrastructure at eco-IPs and eco-enterprises are given priority in preferential loans from the Vietnam Environmental Protection Fund and the Vietnam Development Bank, the Small and Medium Enterprise Development Fund, and other domestic and international funds and donors, are granted green credit at credit institutions and foreign bank branches in Vietnam under the provisions of the Law on Environmental Protection and other relevant laws, and can issue green bonds in accordance with the Law on Bond Issuance and laws on environmental protection to build technical infrastructure at eco-IPs, implement cleaner production measures, and ensure the more efficient use of resources and industrial synergy.

Similarly, with Vietnam’s ambitious net-zero emissions target Prime Minister Pham Minh Chinh announced at COP26, the country and the government at all levels are paying greater attention to sustainable development, according to Mr. Jaspaert. To reach this goal, it will be mandatory for IPs to adhere to new standards in eco-IPs stated in Decree No. 32.

There will also be many challenges, needless to say. Ms. Trang Bui said there remains a lack of uniformity between regulations, including absent and inconsistent guiding documents, typically in those regarding water and waste reuse at IPs, which will create difficulties for businesses.

For example, IPs with circular economies are required to plan solid waste treatment areas, but this is not regulated in the Law on Planning. If developers want to do so, they must apply to conduct planning once more, and this takes a lot of time and effort. In addition, many regulations and standards guiding waste recycling and reuse are unclear and inconsistent, making implementation problematic.

She added that the cost of implementing conversion solutions or building new eco-IPs requires major investment and advanced technical solutions, while resources may be limited.

Mr. Jaspaert agrees that Vietnam still struggles to get the right legal framework in place for sustainable development, but the law is not ready yet so needs to be changed. “I believe that building a new legal framework is something that needs to be done,” he added. “There is a need to create a level playing field for all players that try to develop growth in a sustainable way.”

Cushman & Wakefield has forecast that the development of green IPs is likely to attract tenants from various fields and industries due to the benefits associated with sustainable practices such as renewable energy and clean technology, including manufacturing and processing, agri-businesses and food processing, logistics and transportation, research and innovation, textiles and fashion, pharmaceuticals and biotechnology, tourism, and hospitality.

“In general, green IPs attract tenants across diverse sectors by offering a collaborative ecosystem, cost efficiencies, and a commitment to environmental stewardship,” Ms. Trang Bui said. “These IPs foster innovation, knowledge sharing, and sustainable growth.”

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