The financial sector and its pivotal role in aiding Vietnam’s fulfilment of the Paris Agreement
Globally, climate change awareness and climate risk perception are no longer abstract concepts to governing bodies and regular citizens. It is widely known that climate change will have a profound impact on humans and eco-systems during the coming decades with adverse effects on the economy, cultures and livelihoods. According to the UN Office for Disaster Risk Reduction, losses due to disasters from natural and man-made hazards including floods, storms and the impacts of climate change are costing governments over $300 billion globally each year. The situation is particularly alarming for Vietnam. In the Mekong Delta, saltwater intrusion caused by sea level rise is predicted to take a toll on agriculture, aquaculture and capture fisheries. Sea level rise could also result in the displacement of millions of people throughout the Delta.
Undeterred by such challenges, more than 180 countries gathered in Paris to sign a landmark climate agreement to keep global temperature rise to well below 2 degrees Celsius, reaffirming the world’s commitment to cut greenhouse gas (GHG) emissions. With domestic resources, by 2030 Viet Nam pledged to reduce GHG emissions by 8%. This contribution could be increased to 25% with international support.
The aforementioned goal begs the question on the role of the financial sector in managing climate-related risks and supporting the transition to a low-carbon economy. Their contribution will be instrumental to Vietnam’s accomplishment of commitments to the Paris Agreement as well as the UN’s Sustainable Development Goals
Ms. Naomin Tan, Sustainable Finance Engagement Manager of WWF-Singapore, said: “Climate change affects not only societies or communities, but poses a material risk to financial institutions. Hence it is critical that these institutions factor climate change into decision-making processes and price climate-related risks and opportunities accurately. The financial sector plays a pivotal role in the transition to a low-carbon economy by shifting capital away from unsustainable activities. Particularly in developing countries like Vietnam, financial institutions such as banks hold the key to turbo-charge sustainable development through the adoption of more stringent ESG (Environmental Social and Governance) policies and by allocating capital to sustainable activities.
Sustainable finance is a visible trend across the globe as banks and financial institutions realise their role in facilitating investments or projects that drive forward environmentally-friendly and sustainable initiatives. Just last year the Financial Stability Board launched the Task Force on Climate-related Financial Disclosures (TCFD), a ground-breaking initiative aimed at developing recommendations for consistent, reliable and efficient voluntary climate-related disclosures for financial institutions. Major banks around the world have already adopted TCFD recommendations, with a group of 16 representing over $7 trillion working with UNEPFI to develop a methodology to implement TCFD.
With 25 years implementing sustainable development, including nearly six years delivering the Vietnam Green Growth Strategy (launched in 2012 in accordance with Decision 1393), Vietnam has been taking advantage of an established foundation for low carbon development. During the same period, the financial sector has made great strides in term of policies to measure up to global standards. This was exemplified in the IFC partnership with the State Bank of Vietnam drafting of an environmental and social risk assessment handbook across ten sectors.
“Vietnam has implemented policies for delivering the Sustainable Development Goals. However, lack of policy enforcement remains a key challenge. In the near future, WWF will collaborate with banks, regulators and associations in order to promote sustainable finance in Vietnam though capacity building, development of tools and guidelines.” Ms. Naomin Tan remarked.
The Sustainable Finance Seminar on Climate and Energy served as a platform for leading financial experts to partake in sharing their knowledge and experience in low carbon development, risk assessment for environmental and social projects, and sustainable finance products. The seminar featured discussion on relevant opportunities and challenges associated with sustainable development.
Mr. Nguyen Quang Vinh, Chief Secretariat of VCCI said: “Vietnam and its neighboring countries will find the goals pledged during the ratification of the Paris Agreement unattainable if our financial sector fails to fulfil its duty. It is imperative that banks begin adopting a dismissive attitude towards investment projects posing inherent risk towards the environment and society. Only then, can we start working towards a sustainable economy.”
This high-level seminar was also an opportunity to continue the momentum established in the WWF-Vietnam and Vietnam Sustainable Energy Alliance report “Sustainable Scenario for the Vietnamese Power Sector until 2050”, cementing the support and commitment of leaders and key private sector players for the changes needed in the financial system and energy sector. The report established that 100 percent of Vietnam’s power can be generated by renewable energy technologies by 2050, whilst significantly reducing carbon dioxide emissions linked to climate change. The financial sector can now make the transition towards investing in renewable energy while gradually divesting from unsustainable thermal power plants.