Bonds denominated in Vietnamese currency. Bonds are not new to domestic issuers, but green bonds are a different story. — VNA/VNS Photo

The first setback involves membership of the International Capital Market Association (ICMA), which is seen as a stamp of approval in the capital market.

In fact, no Vietnamese company has joined the association so far, despite the country's chairmanship in the ASEAN Capital Market Forum in 2022, a major partner of ICMA.

The disassociation has lessened their chance to access a wider pool of potential investors, making it more costly to find willing buyers for their bonds. That's one reason behind the relatively low number of green bond issuers.

It is worth noting that EVNFinance has been the first in Viet Nam to issue green bonds in line with ICMA's international standards. It offered around VND1.7 trillion (US$72.7 million) of the bonds in July 2022 with an annual coupon rate of 6.7 per cent and a duration of 10 years.

Another setback involves the absence of incentives for domestic companies to shift towards green bonds.

Decree No. 08 attempted to offer such an incentive by stipulating that bond issuers and holders are entitled to favourable bond-related service charges should they engage in green finance.

However, stakeholders opine that the stipulation is not much of an incentive as bond-related service charges are insignificant. A favourable cut to the already-low amount would make no difference to their financial portfolios, which would be unlikely to change unless for more financial rewards.

Stakeholders thus call for more aggressive policies to get the issuers and holders to budge on their financial stances The policies should include deep tax cuts and favourable bank loans to the actors in climate finance.

The next setback involves the legal gaps holding back the climate-aligned bonds and such gaps can be found in the Law on Securities.

As such, stakeholders urge lawmakers to add green bonds to the law to plug the gaps. The regulation of the notion would lay the groundwork for green finance and act as a magnet for global investors.

At the same time, stakeholders call for higher authority granted to the Office of Government Inspectorate, the State Audit Office, and independent auditors to safeguard bond investors.

Stakeholders also suggest the establishment of a digital platform for bond exchange to boost market liquidity, improve transparency and facilitate management.

Nguyen Hoang Nam from the ACB Securities believes that Viet Nam could learn from the EU's experience in developing its green bond market.

He says that the EU established the NextGenerationEU Green Bond framework based on ICMA's principles several years ago, confirming its commitment to sustainable finance.

Through its first NextGenerationEU issuance in October 2021, the EC raised €12 billion, making it the world's largest green bond transaction to date.

Under the framework, the proceeds will be used for nine categories of expenditure, including climate change adaptation and clean energy. The process of expenditure selection allocates the money based on the climate expenditure of the Recovery and Resilience Plans (RRP).

These expenditures will be tracked using EU climate coefficients, which assign a percentage score (0 per cent, 40 per cent, or 100 per cent) to each expenditure based on its contribution to the climate.

An expenditure with a score of 0 per cent will be rejected the access to the proceeds whereas one with a score of 40 per cent will be financed by the commission with an amount equivalent to 40 per cent of the RRP climate expenditure, and one with a score of 100 per cent an amount equal to 100 per cent.

The commission uses two types of reporting to show how funds have been spent and what they have achieved. The first allocation report was published at the end of 2022. — VNS