Vietnam's Green Economy Shift Pushed by Market, Hindered by Policy Gaps

Green standards are rapidly becoming a prerequisite for access to international markets, customers, and capital, yet many of the foundational elements of Vietnam's green economy remain under construction. As climate-related risks grow and sustainability criteria become more stringent, businesses are compelled to overhaul production models and value chains to maintain their competitive edge, a challenge felt acutely in the agricultural sector. Despite Vietnam’s status as a global agricultural powerhouse, its farmers and agribusinesses are among the most exposed to climate shocks, natural disasters, and market volatility.

Market-Driven Imperative

A defining characteristic of the current green transition is that the primary impetus stems not from government regulation or national net-zero commitments, but from the market itself. Bui Khanh Dung, director of Musa Pacta Company, contends that green production is no longer an option but an “inevitable path of development.”

“If in the past competition was mainly about cost, productivity, or market expansion, today requirements on traceability, carbon emissions, environmental responsibility, and environmental, social, and governance (ESG) standards have become new conditions for participating in supply chains,” Dung said. “These requirements are emerging in developed markets and are spreading across the entire production and trade ecosystem. In other words, businesses are not transitioning because they want to stay ahead of the trend. They are doing so because without change, they will gradually be excluded from the game.”

However, as the pressure to transition intensifies, a critical question emerges: is the market adequately prepared to support businesses through this complex process?

The SME Capital Gap

According to Dr. Mac Quoc Anh, vice chairman and secretary general of the Hanoi Association of Small- and Medium-sized Enterprises (SMEs), this support is lagging. Vietnam is home to more than 1.1 million enterprises, with SMEs constituting approximately 98.5 per cent of the total. This segment faces the most significant transition pressure while possessing the most constrained resources.

“Businesses’ demand today is not simply for loans. What they need is medium- and long-term capital that is stable enough to invest in technology, innovate production processes, meet environmental standards, and gradually upgrade their position in the value chain,” Dr. Anh stated. “In numerous instances, the issue is not interest rates, but access to capital, unsecured lending capacity, and the ability to correctly assess growth potential.”

He proposed accelerating the adoption of value chain-based credit models, increasing the proportion of unsecured lending, and developing financial mechanisms specifically tailored to the characteristics of SMEs. “More broadly, green credit demand actually reflects a much larger requirement: the need to upgrade the competitiveness of Vietnamese enterprises in a rapidly changing business environment,” he added.

Lessons in Taxonomy

For a potential roadmap, some experts point to China's experience. Associate Professor Dr. Pham Manh Hung of the Banking Academy of Vietnam (BAV) said the crucial lesson from China is not the sheer scale of its green credit—which reached $6.6 trillion by the end of 2025, representing about 16.2 per cent of total outstanding loans—but its creation of a unified green taxonomy for the entire financial system.

Dr. Hung noted that before its green capital flows expanded, China invested years in developing a unified green classification system for the whole economy.

“When there is no unified standard, each institution may interpret green differently. This increases due diligence costs, widens information asymmetry, and creates risks of greenwashing projects to access preferential funding,” he explained. “Conversely, when a clear taxonomy exists, banks can assess projects more quickly, investors have a better basis for comparison, and regulators can more effectively monitor policy outcomes.”

He emphasized that China did not treat its green taxonomy as a mere technical addendum to green finance policy. “Instead, it is linked to statistical systems, disclosure mechanisms, bank performance evaluation, refinancing tools, and green industrial policy strategy. This linkage has turned taxonomy from a set of standards into part of the market infrastructure,” said Dr. Hung.

Bridging the Policy Divide

While Vietnamese businesses are being pushed to accelerate their green transition, the market's capacity to support them has not kept pace.

Ngo Anh Nguyet, a lecturer at the Banking Research Institute under BAV, pointed out that although Vietnam has issued a decision on environmental criteria and the certification of green taxonomy projects, several critical components are still being finalized.

“Quantitative technical thresholds for each project type are still missing, the ‘do no significant harm’ principle has not been fully specified, while environmental databases and independent verification mechanisms are still under development,” she said. “These gaps make it difficult to determine whether a project truly delivers environmental value. When criteria are unclear and data is not standardised, due diligence costs tend to rise, making credit institutions more cautious when approaching new transition sectors.”

This policy vacuum exists alongside a growing market for sustainable finance. Hoang Thi Dieu Thuy, a relationship manager in Wholesale Banking at HSBC Vietnam, noted that sustainability requirements are fueling strong growth in instruments like green bonds, green loans, social bonds, and sustainability-linked loans.

"The key difference lies in the funding provided and in linking financial conditions to specific ESG targets," Thuy explained. While green loans and bonds direct capital to projects like renewable energy and emissions reduction, sustainability-linked loans incentivize companies to improve overall ESG performance by offering more favourable financing terms upon achieving measurable targets.

"As Vietnam pursues its net-zero emissions target by 2050, develops renewable energy, builds a carbon market, and promotes green transformation, sustainable finance is expected to become a critical bridge between corporate transition needs and domestic and international capital flows," she added. "Beyond being a funding tool, green finance is gradually becoming a common language of the market in the new development phase."

Experts agree that an ecosystem-level approach is necessary. Dr. Bui Thanh Minh, deputy director of the Private Economic Development Research Board, observed that while businesses, banks, and regulators all have demand for a green transition, "green capital flows have not yet been fully unlocked."

A primary obstacle, he said, is that "the cost of evaluating and certifying green projects remains high, while supporting data for appraisal is incomplete and fragmented." He advocated for a centralised data platform integrating environmental, emissions, and production data to act as a bridge between businesses and financial institutions. "When data is digitised, standardised, and effectively shared, appraisal costs will decline, access to capital will improve, and green credit development will become more transparent," Dr. Minh said.

This sentiment was echoed by Nguyen Quang Ngoc, deputy head of the Credit Policy Department at Agribank, who highlighted green credit's role in attracting new investment, as multinational corporations increasingly scrutinize the sustainability commitments of host countries.

"To broaden green capital flows, existing barriers still need to be removed, from improving the green taxonomy system and standardising data and ESG criteria to enhancing the capacity of enterprises and financial institutions," Ngoc concluded. "More broadly, green credit is no longer simply a banking product. It is becoming one of the key tools supporting economic restructuring and enhancing long-term competitiveness of the economy."