Fragmented legalities impede green bonds

Fragmented legalities impede green bonds

The issuance of a standardised green taxonomy, expected this year, is anticipated to unlock the market by clarifying green criteria for issuers and investors, and helping Vietnamese firms meet stricter global standards.

New regulations are being called for to avoid greenwashing risks, Photo: Shutterstock

According to data released by FiinRatings on May 29, Vietnam’s green bond market has made significant strides, reaching a total issuance value of nearly $1.34 billion and experiencing a resurgence in 2024. However, a major barrier remains the absence of a standardised green taxonomy.

Vu Chi Dung, general director of the International Cooperation Department at State Securities Commission of Vietnam (SSC), stated that the most significant current obstacle to the development of green bonds in Vietnam is the lack of a consistent legal framework.

“Green bonds are still novel, the supporting ecosystem is incomplete, and the market lacks standardisation and specific sector criteria to define what constitutes a truly green investment,” he said. “The SSC is adjusting the domestic standard framework to align with, and even integrate into, regional standards such as the ASEAN Green Bond Standards. This is not merely a technical issue, but a strategic orientation aimed at expanding Vietnamese enterprises’ access to cross-border capital.”

Dung emphasised that transparency is a key factor in building investor trust. Therefore, the SSC has issued detailed regulations and guidelines on environmental, social, and governance (ESG) information disclosure.

“These guidelines assist enterprises in identifying essential information for disclosure, correctly targeting investors, and selecting appropriate frameworks,” Dung said. “This is particularly important given the existence of various green classification systems worldwide, each with different standards and thresholds.”

Bui Quang Duy, deputy director of Global Investment, Climate Finance Department at ResponsAbility Investments AG Fund in Switzerland, also noted that a current challenge is defining ‘green’ and measuring the actual impact of activities considered green. This is hindering international capital flows into sustainable projects in Vietnam.

“Vietnam is a key market, currently ranking second in our global investment portfolio,” Duy stated. “Developing a green taxonomy or green bond framework is essential and beneficial, helping enterprises know where to start and identify which activities can be considered environmentally friendly.”

Bertrand Jabouley, head of Sustainable Finance for Asia-Pacific at S&P Global Ratings, recommended that regulatory agencies strengthen regulations to promote transparency and binding commitments, ensuring the integrity of the sustainable bond market, especially in ESG information disclosure.

“Regulatory authorities should simultaneously provide support and enforce binding regulations to avoid the risks of greenwashing, where companies label themselves as green without substantive actions. Conversely, if regulations are tightened excessively, companies may hesitate to participate due to high compliance costs,” he noted. “Incentive policies are necessary but must go hand in hand with binding regulations to ensure transparency and promote sustainable market development.”

Alongside legal improvements, Bertrand also recommended that the Vietnamese government proactively issue sustainable bonds to develop the market’s scale by learning from Singapore and Hong Kong, where authorities support ESG assessment costs, propose carbon taxes, or provide subsidies to balance profits between forest conservation and palm oil cultivation.

“In the past year, government agencies in Asia-Pacific countries issued bonds accounting for about 20 per cent of the total sustainable bond issuance, demonstrating the public sector’s role in market promotion,” he added. “Developed markets often have high diversity, focusing on green bonds as well as social bonds. This is an area where Vietnam can learn, as an emerging economy with the potential to attract significant capital flows from social themes alongside environmental sectors.”

Assoc. Prof. Dr. Nguyen Dinh Tho, vice president of the Institute of Strategy and Policy on Agriculture and Environment under the Ministry of Agriculture and Environment, said domestic enterprises are eagerly awaiting a green taxonomy system because it would mitigate risks from the EU’s stringent regulations.

“Key sectors for Vietnam, such as cement, steel, fertilisers, chemicals, and aluminium, are under pressure from policies like the EU’s Carbon Border Adjustment Mechanism and deforestation regulations. With the green taxonomy system, Vietnam’s supply chains will have a basis to adjust and integrate into global supply chains,” said Tho.

VIR