Developing the green credit market (TDX), green bonds (TPX) are a strong trend worldwide, receiving the response of many major financial institutions in the world. It is estimated that in the past 20 years, the green finance market has developed strongly in the world.
In which, green exchanges and bonds are the two largest green financial channels, playing a decisive role in green investment, environmental protection (EIA) and climate change prevention. This financial source is expected to continue to increase strongly in the coming time to meet the increasingly high demand for the goal of achieving net zero emissions by the mid 21st century.
In order to support this potential and meaningful market, many regional and national organizations have developed and issued green classification portfolios (PLX) including projects or investment activities with environmental criteria to help identify the level of requirements, contributing to the operation of a transparent, fair and efficient green financial market.
In Vietnam, the Law on Environmental Protection (Environmental Protection) 2020 has first provided regulations on TDX, green bonds and continues to be concretized in the Government's Decree detailing a number of articles of the Law on Environmental Protection, detailing the roadmap and mechanism of encouragement for TDX and the issuance of green bonds. In particular, in accordance with international experience and recommendations, Decree No. 08/2022/ND-CP has assigned the Ministry of Natural Resources and Environment to formulate and submit to the Prime Minister for promulgation of environmental criteria and the confirmation of the project granted TDX, issuing green bonds called the list of green classification (PLX).
However, e-commerce, green bonds and PLX portfolios are all new issues in the world and in Vietnam, each different country will have differences in institutions, policies, laws, environmental goals, climate change response goals ... leading to different approaches, structures and specific requirements for PLX Portfolios. Based on experience and international practice, the article proposes an approach and roadmap for the PLX List in Vietnam.
Overview of the green classification list
There are currently different viewpoints and approaches to the Classification List such as the sustainability classification portfolio, PLX portfolio, climate classification portfolio, etc. According to the International Capital Market Association (ICMA), the PLX List is a classification system to identify economic and investment activities that help promote a country to achieve environmental protection goals according to the country's specific priorities, for example, reducing net emissions by zero by 2050.
Organizing Climate Bond Initiative (CBI-Climate Bond Initiative, 2012), which is considered a list of climate bonds, this is considered a system of criteria, standards, and technical requirements based on climate science, including the research of the Intergovernmental Commission on climate change and international energy agencies, and the contribution of CBI's technical and industrial working groups. The European Commission issued a list of sustainable financial classification, and the PLX list of more than 30 countries and territories has been officially issued or in the process of drafting sustainable economic activities with the goal of reducing emissions, environmental protection and promoting low carbon economy.
In short, the PLX List is a classification of projects with environmental protection goals or providing environmental benefits that are granted environmental protection funds, issued green bonds associated with specific technical criteria and requirements to ensure environmental protection goals, and respond to climate change. The PLX List is an important pillar of the Sustainable Classification List.
The role and significance of the Green Classification List
The support of international financial institutions for countries, territories or regions issuing the Classification List in general and PLX in particular for the benefits it creates is specifically as follows:
Each country has different institutions, policies, laws, management levels, goals, requirements and regulations on the environment and climate. Therefore, detailing specific PLX Lists will facilitate the application, directly contributing to the environmental and climate goals, requirements and regulations of that country.
All PLX Lists are built with the common purpose of helping financial institutions, investors, state management agencies, policy-making agencies and stakeholders determine which investments can be labeled as "green", thereby helping to make decisions on environmentally friendly investments, encourage and expand the implementation of projects and sustainable economic activities with the environment and contribute to specific environmental protection goals.
Considered a common language or a useful technical tool for investors, issuers, policy makers, and management agencies when participating in the country's green financial market, contributing to building trust for financial investors, contributing to minimizing legal risks, minimizing the risk of "greenwashing" to take advantage of customer trust in green, environmentally friendly products". A clear, easy-to-understand, and easy-to-use PLX List will help investors and issuers and credit institutions save time and costs.
Based on the PLX Lists, organizations and countries continue to form standards or guidelines or principles for green loans (credits, bonds) such as: CBI climate bond standards, ICMA green bond principles, ASEAN green bond standards of the ASEAN Capital Markets Forum (ACMF), TDX principles of the International Credit Market Association...
International practices and experience
To date, there are about 35 types of classification categories that have been published or are being finalized in various forms such as: classification framework, guidance or legal regulations. In which, the portfolios of the EU, China, and ASEAN are considered the most comprehensive.
All PLX Lists are built with the common purpose of helping financial institutions, investors, state management agencies, policy-making agencies and stakeholders determine which investments can be labeled as green, thereby helping to make decisions on environmentally friendly investments, encourage and expand the implementation of projects and sustainable economic activities with the environment and contribute to specific environmental goals. There are differences in the specific environmental goals of each PLX List to demonstrate the national environmental goals and the priority level for the development of economic sectors that countries are aiming for.
Approaches to building a Green Classification List
In general, the most popular PLX portfolios in the world today are still approached mainly based on the following 3 main principles:
Approach according to the principle of "White List": This approach focuses on determining eligible projects or economic activities for each industry or sub-sector. This classification lists technologies that are considered green or sustainable and provides a detailed description of eligibility. This approach has been used by Russia, China and Mongolia in the process of building their PLX List.
Approach based on Technical screening criteria: This approach provides information on screening thresholds and criteria for economic activities and their compliance with specific goals. Accordingly, these categories identify each economic activity as having at least one significant contribution to environmental and climate goals and at the same time ensure that it does not cause significant harm to other environmental goals. This approach is reflected in the PLX portfolios of Korea, the EU and South Africa.
The Principles-based approach (principles-based approach): similar to ICMA's Green Bond Principles, this approach is applied in the Classification List of Malaysia and Japan. This green list of approaches will include core guidelines for assessing which economic activities may be funded.
structure of the Green Classification List
A PLX portfolio often includes key industry groups, sub-sectors, and environmental criteria to identify a project or economic activity in that industry and sub-sector as green, contributing to achieving national environmental protection goals. Sectors/sector groups can originate from existing industry classification such as the United Nations International Economic Sector System (ISIC) or the sub-sector system of each country and region. In particular, applying the country's existing industry classification is a popular trend for PLX portfolio restructuring, some previously issued PLX portfolios also tend to be upgraded according to this structure. In general, Classification Lists are often approached and built into about 6-8 large industry groups and many sub- industry groups.
Environmental criteria in green classification categories
Environmental criteria include screening criteria, thresholds, and environmental indicators for each industry and/or small industry is one of the core contents of the PLX portfolio, in order to support the selection of specific investments in the industries and small sectors. The important criterion to choose a specific project or investment property is how it contributes to meet the national goals and/or standard and/or the threshold is accepted. The level of detail of environmental criteria depends on the construction approach and the database and technical platform of each country. However, the recent PLX categories or recently updated tend to increase the detailed level of environmental criteria, with more specific thresholds and targets, besides the requirements are not significantly harmful.
International practices and recommendations on confirmation
After the PLX portfolio is issued, the question is that "which agency has the function of confirming, ranking or evaluating to determine projects on the PLX list". Most international, regional and national organizations encourage the confirmation of green bonds and TDX programs through independent evaluation organization. According to incomplete European statistics, Indonesia and Philippines stipulate that the confirmation of green bonds is mandatory. The results of international experience and recommendations on the principle of green bonds of the International Capital Market Association (ICMA) and ASEAN Green Bond Standard shows that there are 04 popular methods of confirmation of the following:
First, get second-party opinions: This is the most common form of outside evaluation in the green bond market. In this form, through independent assessment based on research on certification of the sustainability of green bonds as well as projects and assets.
Second, through verification, authentication or assurance: This is a form in which issuing organizations can collect independent verification opinions based on a set of criteria on business processes and/or standard environmental criteria. Authentic opinions provide assessments of compliance with standards applied from outside or with standards or statements established by issuers. In addition, the assessment of the environmental sustainability characteristics of core assets can be called verification and can be used to refer to external criteria (for example, independent auditing is carried out according to the procedures described in ISAE 3000 - analyzing non-financial information in the past).
Third, certification: In this form, green bonds or related green bond frameworks or the use of capital raised from bond issuance can be certified to meet a recognized standard or green label. Standards or green labels are often developed and published by independent organizations with specific criteria.
Fourth, green bond rating: In this form, issuing institutions can be certified by an agency or rating agency or a specialized company to be eligible to conduct a bond framework rating of the issuing institution according to the scoring/rating method established by the rating agency or specialized company that scores. Scoring/rating focuses on assessing key environmental risks, different from the usual credit rating model.
To participate in the assessment, independent rating organizations must be registered or licensed and supervised by competent state agencies, typically: of the EU, the European Stock Market Supervision Authority (ESMA); of Indonesia, the Ministry of Environment and Indonesia, which approves international independent rating organizations; China, which established the Green Bond Standards Committee as the interdisciplinary agency for evaluating and certifying green bonds.
Proposal for Green Classification List for Vietnam
Policy and legal framework on the Green Classification List
In Vietnam, in recent years, many guiding and operating documents of the Government, ministries and branches have also set goals for developing the TDX and TPX markets as the national strategy for green growth; National environmental protection strategy 2021-2030, vision to 2050 .... From the perspective of law, the Law on Environmental Protection 2020 first provides regulations on TDX (Article 149) and TPX (Article 150) and Decree No. 08/2022/ND-CP detailing a number of articles of the Law on Environmental Protection 2020, detailing the detailed roadmap and mechanisms to encourage TDX, issuing TPX (Clause 2, Article 154 and 155 and 156 and 156 and 156). Regulations on TDX, TPX in the legal system on environmental protection, in the development orientations of credit institutions (credit institutions), in decrees on corporate bond issuance (Decree No. 153/2020/ND-CP, Decree No. 65/2022/ND-CP), bonds issued by the Government (Decree No. 95/2018/ND-CP) and local authorities (Decree No. 93/ND-CP) sufficient to form, develop and manage the state for these two potential financial channels to mobilize resources from the market for the conversion and development of green economic models, low waste, low carbon, circulating economy, serving national environmental goals and climate commitments.
The Law on Environmental Protection in 2020 adds two provisions on TDX and TPX is necessary, timely and in accordance with the international trends and practices, contributing to creating a legal corridor to form and develop this potential financial product market, contributing to the orientation of investment flow and implementing the policy of restructuring the economy in the direction of green economy, circulating economy. For full legal and technical basis in determining production and business activities to meet the environmental criteria prescribed in Clause 1, Article 149, Clause 2, Article 150 of the Law on Environmental Protection to be granted TDX, issuing green bonds, the construction of PLX lists associated with screening criteria, thresholds and specific environmental indicators are necessary for credit institutions, foreign bank branches, battlefields in Vietnam, boundaries To manage, operate and effectively implement the issuance of TDX, issue green bonds. In order to solve these difficulties and barriers, the Government has issued Decree No. 08/2022/ND-CP assigning the Ministry of Natural Resources and Environment to preside over and coordinate with the ministries and branches to submit to the Prime Minister for promulgation of environmental criteria for projects granted TDX and issuing green bonds (referred to as PLX list).
Proposing environmental structures and criteria for investment projects on the Green Classification List
The main goals need to be grouped into main groups to ensure compliance with international PLX portfolios such as: (1) effective use of resources; (2) reduction of low carbon emissions; (3) adaptation to climate change (CC); (4) environmental management and implementation of circular economy; (5) renovation and upgrading of medical examination and treatment facilities; building multi-purpose, environmentally friendly infrastructure; (6) restoration of natural ecosystems; investment in natural capital development; green economy; (8) effective management of water resources and wastewater treatment.
To facilitate management, statistics and application in practice, projects on the PLX List need to rely on Vietnam's economic sub-sector system; inherit the portfolio being guided by the State Bank, the Ministry of Natural Resources and Environment; good experience of regional organizations such as the European Union, ASEAN, China, India, CBI, International Finance Corporation, etc.
Regarding the division of projects, it should be grouped to suit the lists that are being popularly applied in the world such as the EU, ASEAN, China ... and at the same time in accordance with the Vietnam's economic system, the goals set out in national strategies, sector plannings and fields. In the early stages, Vietnam focused on developing the following groups: Energy; transportation; build; Water resources; Agriculture, forestry, fisheries and biodiversity conservation; Processing and manufacturing; Environmental services.
Recommend the fields and types of investment projects in the Green Classification List for Green Credit and Green Finance in Vietnam:
In Vietnam: In the energy sector, including solar power projects, wind power, other renewable and clean energy sources such as geothermal, biomass, tides, waves, sea waves, waste, green hydrogen, green ammonia, along with works, equipment, and technology for transmission, storage, and release of renewable energy sources.
In the field of transportation, it is recommended that transportation projects use vehicles that do not emit or emit low carbon, infrastructure and energy recharge services for vehicles that do not emit or contain low carbon.
For the construction sector, including projects to build new or renovate houses and public works to meet green, environmentally friendly project standards, using energy effectively.
The water resources sector includes projects to build water supply and drainage works, exploitation - treatment - supply of clean water and management and protection of water resources.
In the fields of agriculture, forestry, fishery and biodiversity conservation, the list includes projects for cultivation according to VietGAP, GlobalGAP, and circular standards; safe livestock farming; afforestation, combined forestry and forestry farming; sustainable aquaculture; sustainable food production - processing; eco-tourism; protein conservation and rare species; sustainable farming on land at risk of degradation; treatment and improvement of soil resources; and activities of collecting, treating, recycling agricultural - forestry - fishery waste.
The processing and manufacturing sector includes projects to produce energy-saving equipment and machinery; electronic components for low-carbon technology; packaging and environmentally friendly chemicals; as well as technology and equipment for environmental protection.
Finally, in the field of environmental services, it is recommended that projects for collection, classification, transportation, and treatment of solid waste (active and industrial waste), hazardous waste, urban wastewater and production and treatment of emissions.
Regarding the environmental criteria for investment projects to be granted TDX, the issuance of green bonds is the criteria for adjusting the design, performance, materials, production, maintenance and change or modification of products, goods or services to ensure production processes, products, goods or services that meet environmental protection goals, including: screening criteria, environmental indicators and other environmental objectives. In particular, the requirements do not significantly harm other environmental goals including: Suitable for environmental protection planning, provincial planning, standards and local environmental technical regulations; Comply with environmental impact assessment requirements, environmental licenses and other requirements in accordance with the law on environmental protection.
Regarding the confirmation of investment projects on the PLX List, it is advisable to approach based on international experience, diversify the forms of confirmation such as self-confirmation or confirmation through qualified consulting units. In case it is necessary to implement the State's policies related to green credit, green bonds and green finance (such as incentives and support), it is necessary to promote the role of independent organizations with sufficient capacity and in accordance with Vietnamese laws to carry out confirmation and assessment. The proposed confirmation approach also promotes the autonomy and decision-making rights of financial institutions, ensuring safety, control and compliance with international practices.
Conclusion
Building a PLX List system according to international standards plays a very important role for Vietnam in promoting sustainable development and sustainable development and environmental protection. Applying international standards in evaluating and classifying green projects will bring many significant benefits to the country, from economic, environmental to social aspects. One of the top priorities is to facilitate sustainable development. The development of PLX based on international standards helps to clearly identify important criteria and factors in assessing the sustainability of projects. This encourages investment and development of projects with a positive impact on the environment, while limiting the development of harmful projects.
In addition, creating favorable conditions for international investment and financing is an important factor. International investors and organizations are increasingly interested in green and sustainable projects. By applying international standards in classifying projects, Vietnam will create transparency and trust for the international community. This helps attract international investment and sponsorship, contributing to promoting domestic economic and technological development.
