The Green Connection Between Banks and Businesses
First, it’s important to understand what green finance entails. Green finance refers to financial investments in projects and solutions that promote sustainable development. These investments support renewable energy, efficient energy usage, sustainable agriculture, and environmentally friendly projects. Building wind farms or solar power plants are prime examples of green finance in action.
In Vietnam, the government and financial institutions have been actively promoting green finance. Banks play a pivotal role by providing the necessary capital for sustainable projects, assessing the feasibility of green ventures, managing financial risks, and ensuring efficient use of resources. Investing in green projects often involves higher risks due to the innovative and sometimes unproven nature of related technologies. For instance, a bank funding a new biofuel technology must consider the potential for technological failure or market rejection.
Businesses are equally crucial in this equation. They are the ones directly implementing green projects, deploying technologies, and practicing sustainable development. However, businesses often face difficulties securing financial support due to the inherent risks of green ventures. This is where the partnership between banks and businesses becomes essential. For example, a company developing electric vehicle technology may struggle to secure funding without a bank willing to share the risks involved.
The Need for Collaboration Between Banks and Businesses
In the realm of green finance, collaboration and risk-sharing between banks and businesses are indispensable. First, environmental risks pose significant challenges for businesses as climate change continues to escalate. Green projects often require substantial capital investment, long payback periods, and high risks. It is difficult for businesses to sustain such initiatives alone without external support.
Banks, on the other hand, cannot remain passive. By providing loans for green projects, they expose themselves to environmental risks, credit risks, market risks, and legal risks. Currently, many banks and businesses are already on the path to sustainability, with green credit packages that offer tailored loan conditions. For instance, since 2018, HDBank has provided financing for solar energy projects, including wind energy and rooftop solar installations. From 2018 to 2023, HDBank disbursed a total of 18 trillion VND for solar energy projects.
At HDBank, all loans, including those for green projects, undergo an environmental and social risk impact assessment. This evaluation ensures that both the bank and the business identify, share, and manage the risks involved. As a result, businesses can implement necessary action plans to mitigate and manage environmental and social risks effectively.
Bridging the Gaps
However, challenges remain. First, there is a lack of information and data. Many businesses still lack adequate knowledge about green financial support policies. Second, risk management capacity is an issue. Both banks and businesses need to enhance their abilities to assess and manage the risks associated with green projects. Third, the legal framework for green finance is still incomplete. Clear and comprehensive regulations are needed to facilitate the development of green finance effectively.
To address these issues, four key actions must be implemented in a coordinated manner:
1. Enhancing Information and Training: This involves organizing training sessions and workshops to raise awareness and build capacity for both banks and businesses. By increasing understanding of green finance and its potential benefits, stakeholders can better navigate the complexities of sustainable development.
2. Improving the Legal Framework: The government and relevant authorities must introduce clearer regulations to create a more favorable environment for green finance. A well-established legal framework will provide businesses and banks with the guidelines they need to invest confidently in sustainable projects.
3. Encouraging International Participation: Engaging with international organizations like the World Bank, Asian Development Bank (ADB), and International Finance Corporation (IFC) can help access capital and expertise in managing green project loans and risks. These organizations can offer valuable insights and resources to strengthen the implementation of green projects.
4. Proactive Involvement from Banks: Banks must treat green finance as a strategic priority. This means ensuring the availability of financial resources for green projects, developing appropriate policies, and applying specific risk management systems tailored to green ventures. Additionally, fostering stronger connections between banks and businesses will further support the growth of green finance.
The shift towards a green economy is no longer optional; it is a necessity. Both banks and businesses play vital roles in this transformation. Through collaboration, sharing of benefits, and risk management, green finance can flourish, paving the way for sustainable growth.
By closing the information gap, improving regulatory frameworks, encouraging international cooperation, and banks proactively embracing green finance, we can ensure that sustainable projects receive the support they need to succeed. Together, banks and businesses can help shape a future that balances economic growth with environmental responsibility, ensuring a prosperous and green world for generations to come.
