Support for pioneering enterprises in a new game

Businesses unable to adapt and meet green standards will face numerous challenges, gradually lose their competitive edge, and ultimately risk being excluded from export markets, in which demands for green and sustainable development are becoming increasingly stringent.

Alarming figure

In Vietnam, the momentum for green transformation is growing stronger with support from the government and international regulations. However, reality shows that many Vietnamese businesses are still unprepared. An alarming statistic reveals that 64% of enterprises have not developed any plans or taken any actions for the green transition.

The report titled "Readiness and Challenges of Enterprises in Green Transformation", which was published by the Private Economic Development Research Board (Board IV under the Prime Minister’s Advisory Council for Administrative Procedure Reform) at the end of September, identified three major challenges facing Vietnamese businesses during the green transformation process, including access to capital, a skilled technical workforce, and technical solutions for implementing the transition.

These challenges highlight the need for decisive and synchronised measures from multiple directions to empower Vietnamese enterprises to proactively penetrate and compete in international markets.

The report was based on a survey of over 2,700 businesses, combined with roundtable discussions involving leaders of nearly 50 industry associations, key enterprises in domestic production and business chains, field surveys at selected factories, and consultations with international organisations, as well as domestic and international experts.

Over 50% of surveyed businesses stated that green transformation is not truly urgent, with 5.1% rating it as "very unnecessary", 12.3% as "unnecessary," and 33.9% as "neutral". Notably, 64% of surveyed businesses have made no preparations for the green transition, despite the approaching deadlines for transition periods under policies in major markets.

According to the latest report from the General Department of Vietnam Customs, the country’s total export turnover in the first half of September 2024 (from September 1 to 15) reached 14 billion USD, a decrease of 6.73 billion USD compared to the latter half of August 2024. Key export sectors that had shown strong growth earlier in the year recorded declines during this period. Specifically, exports of computers, electronic products and components reached only 2.57 billion USD; machinery, equipment, tools and parts totalled nearly 2.2 billion USD; phones and components saw nearly 1.9 billion USD; and textiles and garments achieved 1.21 billion USD.

In August 2024, leather footwear exports grew by over 10%, indicating recovery in several markets. With this recovery momentum, the leather and footwear industry is expected to reach approximately 27 billion USD in 2024. According to Phan Thi Thanh Xuan, Vice Chairwoman and Secretary General of the Vietnam Leather, Footwear and Handbag Association, exports in this sector saw growth of over 10% in the first eight months of 2024. She also noted that while many markets are recovering well, meeting green standards is a long-term process. Businesses are acutely aware that without adapting, they risk losing orders.

Xuan also highlighted that the enterprises maintaining and developing their operations have been those implementing green transformation. Conversely, businesses unable to adapt are gradually being excluded from the market.

In reality, green transformation has become a "global race." Major nations are continuously investing in frameworks and practical measures to accelerate this process. In Vietnam, key markets are actively fulfilling Net-Zero commitments, issuing new policies, and planning others aimed at building technical barriers for sustainable development and greenhouse gas reduction. Despite Vietnam's strong governmental commitments and recognition on the international stage, the readiness of domestic businesses still falls short of high expectations.

The report by Board IV further indicated that the evolving policies in major markets such as Europe and the U.S., as well as Vietnam's domestic legal adaptations, will create significant pressure on unprepared businesses. Once the transitional period ends and compliance becomes mandatory, these pressures will intensify.

The survey results also revealed that businesses face numerous challenges during green transformation, including access to information, funding, and a lack of skilled personnel. Additionally, green transformation involves high capital requirements, posing significant challenges for Vietnamese enterprises.

Funding as the most significant challenge

According to a 2022 estimate by the World Bank, Vietnam requires an additional 368 billion USD between 2022 and 2040 to enhance resilience and reduce greenhouse gas emissions. Of this amount, adaptation efforts account for 4.7% of GDP annually, while decarbonisation makes up 2.1%.

Private sector contributions are expected to provide nearly 50% (184 billion USD), while 130 billion USD will come from public funding, supplemented by external financial aid.

However, access to funding remains a major obstacle. A survey revealed that 50% of businesses are struggling with financing, while only 5.9% reported no financial difficulties.

This issue is particularly concerning as businesses urgently need capital for emissions reduction and green transformation. Despite these needs, green finance in Vietnam remains underdeveloped. After more than a decade of implementation, the green finance market is still small. By the end of 2023, green credit accounted for just 4.5% of total outstanding loans; according to the State Bank of Vietnam, and the issuance of green bonds remains limited.

Green credit is currently concentrated in renewable energy and clean energy (nearly 45%) and green agriculture (nearly 30%). However, further development faces significant obstacles, including the lack of a comprehensive legal framework and policies. Additionally, financial institutions often mobilise short- and medium-term capital, while borrowers require long-term loans with preferential interest rates.

To address these challenges, Board IV recommends immediate action to meet the demands and trends of key markets and trade partners. The government needs to improve institutional and policy frameworks to support businesses in their green transition. This includes reviewing existing legal and policy regulations to align with green transformation trends.

Furthermore, it is essential to establish green classification standards, a list of green projects, and regulations for green credit and bonds. The design of medium and long-term funding channels should also be expedited to facilitate easier access for businesses.

As of December 31, 2023, only 47 financial institutions had implemented green lending, with total outstanding loans nearing 621 trillion VND. While this marks a 24% increase over the same period in 2022, it represents just 4.5% of total loans across the economy.