Banks are considered as a low-emission and environmental friendly businesses. As the provider of capital through credit operations, banks play an vital, even decisive role in the implementation of development projects, in which many types of them such as: hydropower, mining or industrial plantations may have negative impacts on the environment and society. Thus, banks can indirectly cause environmental pollution, deforestation, biodiversity degradation, and even social instability through their financing activities. In the face of increasing demand for environmental protection, banks may face a number of risks when projects can be terminated, suspended or delayed for the reasons that they do not meet the requirements of safety or due to environmental and social conflict, resulting in the investor’inability to repay.
In an effort to restructure the economy in a more efficient and cleaner way, in 2012 the Vietnam Government issued the National Strategy for Green Growth in the period 2011 to 2020 and vision to 2050, and the National Plan of Action on Green Growth 2014-2020. Within this strategy, the State Bank of Vietnam is tasked to improve policies and strengthen the financial ability and credit performance of commercial banks for green growth. In order to implement the strategy, the State Bank of Vietnam (SBV) has issued a Directive on promoting green credit growth and encouraging credit institutions (CIs) in assessing credit risks in credit activities in March 2015. Accordingly, the SBV encourages CIs to take the initiative in developing policies for managing social and environmental risks as well as implementing solutions to promote the green credit growth of banks. Vietnam currently has 118 credit institutions including seven state-owned commercial banks. Among them only 3 banks have been developing internal policies on social – environmental risk management while appraising loans for projects. This shows that the system of CIs in Vietnam has not been aware of the need to apply policies to ensure social and environmental safety in credit activities. Meanwhile, green credit has been applied in Vietnam, but the requirements to expand and promote green credit for economic growth and green growth are facing many obstacles as follows:
Firstly, Vietnam is still in the development model of resources dependence, so ensuring a balance between growth and environmental protection is always a difficult proposition, especially in the energy sector (thermal, hydropower) or mining. Secondly, in the field of banking operations, Vietnam Government has issued a number of documents on promoting green credit, however these regulations are orienting and encouraging but not mandatory. Therefore, for the purpose of profitability, banks are still willing to approve loans for investors without regarding to the negative environmental social impacts. Thirdly, the policies on ensuring environmental safety have not been applied in a compulsory and synchronous manner to the banking system. When a bank has more environmental requirements, it will reduce its competitiveness compared to other because customers tend to go to banks with simpler credit procedures and less environmental safety barriers. Fourthly, due to information deficiency, bank staff mainly refer to decisions of the competent agencies on planning rather than assessing environmental impact when they are considering to grant finance to customers. However, in practice, these decisions are not reliable, many of the proposed projects are subsequently excluded, not to be allowed to be constructed. Fifthly, the practical implementation and compliance of environmental policies and regulations in Vietnam are rather weak. Many polluters are still active and even licensed to expand production, therefore there is a lack of motivation for both banks and project owners to adopt better environmental safety mechanisms. Finally, despite the issuance of the Green Credit Directive, the State Bank of Vietnam has not yet issued specific guidelines for implementation, specific financial mechanism for friendly environmental projects.
Banks play an important role in directing investment flows into green production for sustainable development. However, this task can only be successfully achieved if there is a comprehensive and substantive reform program. This study illustrates different viewpoints and principles of green credit activities, the experiences of several countries in the world and propose solutions to promote green credit activities in Vietnambase on the the results of the research
