Finalization of green taxonomy 'a matter of urgency'
Vietnam's Ministry of Natural Resources and Environment (MoNRE) has tasked its Institute of Strategy and Policy on Natural Resources and Environment to draft a green taxonomy. The Investor talked with Assoc. Prof. Dr. Nguyen Dinh Tho, head of the institute, to take a deep dive into green finance development in Vietnam and the green taxonomy.

Assoc. Prof. Dr. Nguyen Dinh Tho, general director of the Institute of Strategy and Policy on Natural Resources and Environment. Photo by The Investor/Trong Hieu
First, how do you assess green finance’s role in supporting green transition?
The world is currently facing three global crises, namely environmental pollution, climate change, and biodiversity decline. There are different approaches to addressing each issue. For climate change, the approach is net zero. For environmental pollution, they are net-zero emissions, reduced landfills, and sewage treatment; and for biodiversity, it is the protection of forests, wetlands, and conservation areas.
Therefore, during “green taxonomy” development, it is necessary to simultaneously address all three global crises. Vietnam’s green taxonomy is a part of the global green taxonomy.
Regarding green finance, there are various approaches globally and in Vietnam. They can be understood in two forms. One is climate finance, which is quite common in both international and domestic financial sources lent to green projects.
The second is green finance in line with the taxonomy mandated by the prime minister. The primary goal is to issue green bonds and credits with state support to promote green projects such as offshore wind power and energy transition.
To analyze in more detail, the first type of green finance is a comprehensive issue and depends on each project according to the process of financial institutions such as the IFC, WB, and CBI. Each organization will have different criteria, and in practice, each project will have its own characteristics and different processes.
Recently, the WB has supported the REDD+ project for Vietnam to sell its first carbon credits worth $51.5 million.
The WB is also helping Vietnam to grow one million hectares of low-emission rice to sell at $100 a ton of carbon. It is estimated that farmers will receive about VND16 trillion ($638.72 million).
Green finance is quite diverse, and each project follows a different process. Mobilizing finance through carbon credits is not only different from financial support from international multilateral institutions such as the WB and IFC but also from bilateral agreements between countries.
In recent times, some banks have issued green bonds for green projects. These designs are based on the green taxonomy of the Climate Bonds Initiative – a leading organization in green bonds and credit.
The second type is green finance with state support. Since 2017, ministries and agencies, especially the MoNRE, have received support from the WB in developing a green taxonomy compatible with all green index sets that international organizations are adopting. This ensures that if a unit is confirmed green by international organizations, Vietnam also recognizes it.
The Prime Minister has assigned the MoNRE to lead and coordinate with relevant ministries and agencies to draft regulations on environmental criteria and the approval of projects eligible for green credit and bonds, also known as the green taxonomy. Decree 08/2022/ND-CP requires the issuance of the green taxonomy before December 31, 2022, but it has not been enacted yet. Could you please explain why?
The green taxonomy is being built to support green transition with state incentives. For example, if there is an aid package for businesses to go green, the green taxonomy will provide a set of criteria to sort out businesses eligible for state incentives.
The approval of the green taxonomy would be significant for the government to implement green transition support policies and incentives.
Regarding hurdles, we are at the final stage of the process. The issue lies in how to streamline administrative procedures for businesses to mobilize green capital. This relates to the organization certifying businesses or projects eligible for green credit and bonds.
Regarding the accreditation organization, a state agency may step in to do so, but this will increase administrative procedures. Therefore, currently, the MoNRE, Ministry of Finance, and State Bank of Vietnam all want to let auditing firms step in for certification. However, this proposal also faces disagreements. Particularly, if funding comes from the state budget, it is not trustworthy to appoint an auditing firm to make certification. Therefore, the MoNRE has suggested entrusting financial institutions to directly accredit projects based on the green taxonomy.
According to the international practices of organizations such as the WB and IFC, allowing financial institutions to both provide credit and evaluate projects seems appropriate and runs quite smoothly. This helps reduce administrative procedures for businesses, although it also inevitably adds burdens to financial institutions.
What should be done in the near future to promote green transition in Vietnam, with a focus on green finance?
The issue to address at the current time is what businesses need to do to access green and climate finance, and what the government needs to do to support businesses in accessing these kinds of capital.
As each project and organization has its own principles and objectives, respectively, businesses must adhere to their respective goals and requirements to receive funding. This requires government support, in coordination with financial sponsors, to develop guidebooks to help firms access green capital.
Vietnam has secured a commitment of $15.5 billion in financing from G7 countries and other international partners through the Just Energy Transition Partnership (JETP). According to the WB, Vietnam is estimated to need nearly $400 billion to achieve its goal of net-zero emissions. However, businesses are left in limbo over how to identify and access these financial sources.
Besides, the WB and IFC have launched many projects in Vietnam. Moreover, there are bilateral cooperation activities between countries. For example, Vietnam signed agreements with Japan and Australia to seek aid from large financial institutions in developing green economy, projects, and enterprises.
The MoNRE has also signed deals with some large banks at home and abroad to accompany commercial banks in providing financial support to businesses’ green transition.
As for the national green taxonomy, businesses can rest assured that this criteria set will be in harmony with international regulations and follow specific sectors such as energy, technology, agriculture, waste treatment, construction, land use conversion, and forestry.
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