JETP - key benefit for Vietnam to attract greener FDI: HSBC

Luong Phuong Mai, Senior VP, Team Lead, Large Corporates South and Commercial Real Estate, Wholesale Banking, HSBC Vietnam, shared her perspective on opportunities and challenges faced by the nation in its implementation of JETP and how to make the most of Vietnam JETP.

JETP represents a financing co-operation mechanism that is designed to help a selection of heavily coal-dependent emerging economies make a just energy transition. The aims of such multilateral financial agreements are to support the phase out of fossil fuels in a tailor-made and country-driven pathway. This will specifically address the social consequences involved, such as training and reskilling affected workers and new economic opportunities for affected communities.

The first JETP, South Africa JETP, was announced at COP26, the 26th UN Climate Change Conference of the Parties held in Glasgow two years ago. Since then, a few additional countries have taken part in these mechanisms, with Vietnam became the third country to adopt a JETP with the International Partners Group (IPG), including the EU, the UK, the United States, France, Germany, Italy, Canada, Japan, Norway, and Denmark.

The opportunities and challenges

Under the terms of Vietnam JETP, the IPG commits an initial US$7.75 billion in public capital over a three-to-five-year period aimed at supportting the nation achieve a number of energy transition targets. In support of these efforts, the Glasgow Financial Alliance for Net Zero (GFANZ) has established a Working Group, which HSBC is a member of, in order to help mobilise and facilitate a matching US$7.75 billion of private capital. In short, Vietnam JETP involves the mobilisation of US$15.5 billion of public and private financing as a means of achieving its net zero ambitions.

Following bold Vietnamese commitments made at CO26 where its PM Pham Minh Chinh stated that the country requires external support in order to achieve net zero transition, Vietnam JETP will absolutely be helpful for the country to drive its climate agenda.

The HSBC expert assessed that there is huge potential for shifting in energy and transportation, the top two emitting sectors in Vietnam, in implementing Vietnam JETP. Transitioning from coal straight to wind and solar would enable the country to make use of its own natural resources in order to provide its people with an economically secured source of energy given its considerable wind and solar potential. Along with this, the country also boasts exceptional natural endowments, specifically wind speed and photovoltaic power potential, to generate renewable energy among Southeast Asian peers.

However, key barriers to financing the move into the energy transition is the bankability of the PPA, whilst for transportation transition the pace of change is an issue, which in turn is a result of an absence of any regulatory-push and limited availability of charging infrastructure. 

Unlocking possibilities

Vietnam JETP bears the potential to represent a turning point in the climate finance agenda. One of the three goals at its core is to mobilise private sector capital in an effort to finance decarbonisation efforts. Bankability and recovery in case of distress would be the first main aspects to present to lenders if businesses are to further explore sustainable finance opportunities. They should be prudent with their business case and build in buffer in their sensitivity analysis, for instance considering factors such as curtailment, operational and maintenance costs, hikes in interest rate, and volatility in foreign exchange.

The think thank outlined that lenders like HSBC will pay great attention to the greenwashing risk. Indeed, mitigating this risk is wired into the overall strategy. When providing green or sustainability-linked facilities, it’s important for the bank to “green proof” the investment or the use of proceeds by proper certification, monitoring and audit.

She revealed that the bank typically demands such certification/audit to come from a qualified third-party organisation to obtain independent assessments, meeting international standards, and maintaining a consistency across markets.

Moreover, HSBC’s green loans must fully comply with the Green Loan Principles issued by the Loan Market Association and green bonds must also comply with the International Capital Market Association’s Green Bond Principles.

She emphasised that a key benefit for the nation in a JETP is in attracting greener FDI and to become a champion in clean energy.

The Vietnamese Government has therefore been focusing on high-quality FDI and green FDI. Like-minded partners attract each other, and therefore to attract investors who are serious about green development, the country needs to profile itself accordingly, from green policy, its infrastructure, to the local supply chain ecosystem. JETP, backed by G7 governments, is a very strong platform to make such aspiration of the country known to international communities.

Immediately after the nation announced its net zero commitment at COP26, Lego announced its plan to build the first carbon neutral factory in Binh Duong, marking its second investment in Asia.

“HSBC is proud to support such flows and we believe that any member of JETP and GFANZ would be a champion echoing the “Vietnam green effects” to the international investor communities via our own network,” she stressed.

She pointed out that experts are looking into a possibility of applying the JETP model to other sectors beyond energy if the nation and other countries can prove JETP to be a successful approach for delivering climate finance.

“These efforts will take time to see the results, but it's an opportunity not to be wasted to make a leap forward for realising decarbonisation goals,” she noted.