26 August 2005 — On August 24 in Hanoi and today in Hochiminh City, more than 100 top executives in Vietnam’s commercial finance industry met in two full-day seminars to discuss new business opportunities in sustainable finance. This seminar were organized jointly by the International Finance Corporation’s Mekong Private Sector Development Facility (IFC-MPDF), IFC’s Sustainable Financial Markets Facility, and Vietnam’s Bank Training Center (BTC).
In his speech at the beginning of yesterday’s seminar, IFC-MPDF’s General Manager, Adam Sack, defined sustainable finance as systematically applying environmental and social criteria when making decisions about lending, investment and other financial services.
“There are a number of reasons for financial institutions to commit themselves to sustainable finance. The first is that of reducing financial, legal and reputational risk. If a borrower pollutes the environment, and has to pay the costs of clean-up and/or suffers from a damaged reputation as a result of pollution, mistreating employees, etc., this could reduce a company’s profits and thus ability to repay your loan. And in some countries banks are even held legally liable if they finance a damaging project.
A second reason for including sustainability criteria in loan and investment assessments is that of enhancing your corporate image, which in turn can help attract customers.
A third reason for committing to sustainable finance is the potential to profit from loans to companies that are required to upgrade to cleaner technology or make other improvements to satisfy government regulations or the demands of consumers. As you know, consumers worldwide are increasingly insisting that they want to buy products from companies that have good labor standards, don’t pollute the environment, and so on. Entrepreneurs may also be looking for financing to start businesses that sell clean technology or support sustainability in some other way.”
Mr. Sack also noted that financial institutions that understand the importance of sustainability now and commit to it, can achieve competitive advantage by offering clients the financial products and services they need to adopt good environmental and social practices. They can also finance businesses that support sustainability.
In his speech, H.E. Dang Thanh Binh, Deputy Governor of the State Bank of Vietnam reminded the audience that the Government of Vietnam is strongly committed to sustainable development. “Towards this, a Decree concerning environmental protection and improvement is being drafted now and will become effective from 2006. Under this legislation, the government plans to allocate 1% of its annual budget to protecting and improving the environment."
His Excellency went on to stress the importance of finance institutions committing themselves to sustainable finance. “Decision 493 requires banks to set up a system of asset classification and provisions. Although Decision 493 does not specifically stipulate assessing environmental and social risks as part of assessing borrowers, I feel the timing is right and conditions are ideal for us to consider doing so. I recommend that all financial institutions incorporate environmental and social dimensions into their borrower appraisal system when complying with Decision 493. Additionally, I see the adoption of sustainable finance practices as another factor that will support Vietnam’s accession to WTO next year.
"To sum up, the time is right for the Vietnamese financial sector to play a catalytic role in promoting good environmental and social practices in Vietnamese companies of all sizes from small and medium-sized enterprises to larger ones. This will not only benefit individual companies, but also help Vietnam become recognized as a regional leader in promoting sustainability."
