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Circular economy

Green credit development contributes to promoting circular economy in Vietnam

17/09/2021

Circular economy is an inevitable trend and has been identified as the goal that Vietnam aims for. Implementing the circular economy demonstrates Vietnam's international responsibility in environmental protection, climate change adaptation, helping businesses reduce risks of over-product crisis, resource scarcity, creating motivation to invest and innovate technology.
Many mechanisms and policies have been promulgated by Vietnam to promote the circular economy, including the development of green credit. The article assesses the current situation of green credit development in Vietnam and proposes some solutions and recommendations to develop green credit, contributing to promoting the circular economy in Vietnam.
Green credit for the promotion of circular economy
Green credit (GC) is one of the green financial tools to sponsor green and environmentally friendly programs, projects and initiatives, to encourage consumers and businesses to optimize and regenerate energy resources, concern about environmental issues.
 
In particular, GC funds often finance initiatives and projects that are expected to have a clear and positive impact on the environment, so they often have preferential interest rates and longer payment terms compared to other ordinary loans that have similar characteristics.
Thus, GC is a form of finance for the sustainable development of the whole society (Mehta, 2017). With this view, GC has the following characteristics: (i) Associated with the sustainable development goal of society is the goal of developing an economy with low carbon emissions – a green growth economy, ( ii) Contribute to reducing risks, improving the feasibility and efficiency of economic projects on green development at different stages of the process of implementing green growth goals with different needs ( Dawson, 2015).
Current status of green credit development to promote circular economy (CE) in Vietnam
The CE has been identified as one of Vietnam's orientations in the 2021-2030 period in order to achieve dual benefits in terms of economic value and environmental protection. Vietnam's transition from a traditional economy to a CE is expected to focus on the pillars of design, prolonging the life of materials, reducing waste and emissions, and restoring ecosystems. Currently, Vietnam is developing and perfecting policies to support, mobilize and exploit resources towards a CE, prioritizing financial resources to support enterprises to transform production methods, access advanced technology. The policy of GC is an important solution to realize the goal of the CE. Environmentally friendly projects and business plans will create opportunities for businesses to effectively access GC capital.

Green credit growth in Vietnam in 2015 - 2020 period (%). Photo: SBV
These achievements
Regarding the legal framework for GC: The State Bank of Vietnam (SBV) has developed solutions and credit programs to create conditions for organizations and individuals in project implementation to contribute to environmental protection and support and green growth and the development of the CE. Many policies to promote GC have been introduced such as: Directive No. 03/CT-NHNN dated March 24, 2015 on promoting GC growth and managing environmental and social risks in credit extension activities, Decision No. 1552/QD-NHNN dated August 6, 2015 on the action plan of the banking sector to implement the National Green Growth Strategy until 2020 and Decision No. 1604/QD-NHNN dated August 7, 2018 approved the Green Banking Development Project in Vietnam. The green banking development project aims at the following three objectives: (i) Gradually increasing the proportion of credit for green sectors and fields, (ii) Promoting technology application along with building friendly environmental habits for customers and (iii) Striving to 2025, 100% of banks carry out environmental and social risk assessment in credit granting activities and 60% of banks have access to green capital and deploy GC. The Development Strategy of Vietnam Banking Sector to 2025 with a vision to 2030 also encourages commercial banks to focus their resources on TDX, granting credit to projects and production and business plans that are environmentally and socially friendly.
Deploying TDX at credit institutions: According to the report of the Credit Department of Economic Sectors (SBV) on the implementation of green banking development until 2020, GC at commercial banks is implemented in many forms. Most banks (approximately 80% of reporting credit institutions) integrate regulations and guiding documents in banking operations. About 50% of the total reported banks have studied and developed regulations to guide environmental and social risk assessment. However, the number of banks that set up a specialized department for green banking, GC, has its own appraisal process for credit grants and has very limited support and incentives for GC. only about 10 banks, accounting for about 10% of the total number of credit institutions reporting (Anh Tuyet, 2021).
Some existing weakness
Firstly, the legal framework on GC is still limited due to the lack of regulations on appraisal criteria, growth and risk assessment for green projects. Moreover, specific regulations, concepts and standards on the lists of green sectors and fields applied nationwide are still in missing, leading to difficulties for credit institutions when selecting, appraising and monitoring when granting GC.GC 
Secondly, one of the difficulties of implementing GC is that projects on clean energy, renewable energy... often require large capital sources, maintain for a long time, require banks to have a large and long term amount of capital.
Third, the number of businesses accessing GC is still small. In Vietnam, CE has only been implemented in a few large, foreign-invested enterprises and multinational corporations. Small and micro enterprises have limited financial resources and lack of investment in recycling technology.
Solutions to develop green credit, promote circular economy in Vietnam
For the governing body

Completing the legal framework on GC , introducing GC standards, providing a list of green industries and fields for organizations to apply; finalize specific guidelines on the assessment of environmental and social risks in credit granting activities of credit institutions.
In addition, there should be a support mechanism for businesses and people to easily access GC such as support for interest rates, taxes, fees, land, technology, market... Besides, reforms are needed for administrative procedures, creating a stable and transparent investment environment for businesses.
For commercial banks
Credit institutions and commercial banks need to diversify capital sources for GC through cooperation between banks in credit complexes, green bond market or medium and long-term capital sources for GC from financial institutions, international governments such as World Bank, IFC, ADB...
Commercial banks should actively research and develop GC policies, diversify GC products in line with banking activities, national strategies and meet international requirements.
For Businesses
Enterprises need to be aware of the concept of CE, and focus on investing in research and application of environmental protection technology. Besides greening, businesses also need to learn about GC, loan conditions and procedures, develop relationships with credit institutions to access capital for green investment opportunities.
Ha Tran