Energy Innovation: Financial Keys to A Sustainable Future

Vietnam is embarking on a historic journey to achieve its Net Zero target by 2050. According to the World Bank, this ambitious goal will require mobilizing up to USD 368 billion, which is equivalent to 6.8% of the country's GDP annually until 2040. This substantial amount not only reflects the scale of investment needed but also underscores the systemic transformation required, necessitating a significant shift of capital flows from traditional industries to green and sustainable sectors.
The Asian Development Bank (ADB) emphasizes that Vietnam should focus on five strategic areas: high-tech green agriculture, sustainable urban and transport development, clean energy transition, a circular economy, and ocean protection. Among these, energy innovation is identified as the central pillar, presenting vast opportunities for investment and technological advancement.
The questions are: What financial mechanisms can support this challenging journey? And how can we translate such staggering figures into concrete, feasible, and impactful projects?

Legal Framework: Remarkable Progress
The Party and Government of Vietnam have shown a strong commitment to accelerating the energy transition through various significant strategies and policies. Innovation is consistently recognized as a crucial solution in this effort. With an increasingly comprehensive legal framework in place, several key legal documents have been enacted to promote green energy projects, encourage sustainable finance, and attract investment in environmentally friendly initiatives. Notable policies include:
• Law on Economical and Efficient Use of Energy (No. 50/2010/QH12)
• Resolution No. 57-Nq/Tw – on Breakthroughs in the Development of Science, Technology, Innovation, and National Digital Transformation
• Decision No. 2068/Qd-Ttg – Approving the Development Strategy of Renewable Energy of Vietnam by 2030 with A Vision to 2050
• Decision No. 21/2025/Qd-Ttg – Environmental Criteria and Confirmation of Investment Projects in the Green Classification List
These legal instruments not only create a strong legal framework but also reflect Vietnam’s strategic vision for achieving its sustainable development goals.

The State of Green Finance in Vietnam
Green finance has evolved from being just a trend to becoming a fundamental pillar of Vietnam’s sustainable development strategy. It focuses on mobilizing and directing capital from financial institutions, businesses, and individuals towards projects that yield positive environmental and social impacts, thus fostering long-term sustainability.
Fortunately, Vietnam has developed a relatively diverse green funding ecosystem that includes both domestic and international sources. Domestically, funding comes from the state budget, bank credit, capital markets (such as bonds and equities), and, notably, from large private corporations. Internationally, Vietnam can access green foreign direct investment (FDI), official development assistance (ODA), climate funds, and support from global financial institutions. Among these sources, domestic capital plays a crucial role in stimulating the market through flagship public green projects.
However, the implementation of green finance still encounters significant obstacles. The state budget is limited, and the domestic green finance market is still nascent. According to the State Bank of Vietnam, as of March 2025, the outstanding green credit amounted to only VND 704,244 billion, which is just 4.3% of the total loan portfolio. Specifically:
- Green bonds constituted a mere 1.5% of total corporate bond issuance.
- 53% of green credit was allocated to renewable and clean energy projects.
- Vietnam currently has only two ESG funds: UVEEF and EVESG.
These statistics highlight a critical issue: accessing green capital remains a significant challenge for most Vietnamese enterprises.

Major Barriers to Green Energy Development
Green energy businesses are currently facing several significant challenges from both professional and practical perspectives:
Constraints in Lending Mechanisms
Accessing capital for green energy projects presents major challenges due to current lending practices. Traditional financing channels, such as commercial banks and capital markets, tend to be cautious about new technologies, especially renewable energy, which are often viewed as high-risk investments with long payback periods. Banks, which are accustomed to conventional collateral like real estate or machinery, struggle to accept project-generated assets as security. This situation leaves many enterprises ineligible for loans or guarantees. Additionally, the mismatch between short-term domestic capital and the long-term financing needs of projects exacerbates this issue. The small and fragmented nature of many projects also increases transaction, appraisal, and monitoring costs, making them less appealing to large investors and credit institutions.
In contrast, international financial institutions like the World Bank (WB), Asian Development Bank (ADB), and International Finance Corporation (IFC) play a crucial catalytic role. They not only provide substantial capital at preferential rates but also offer advanced technologies, management expertise, and global environmental, social, and governance (ESG) standards. However, accessing these resources often requires domestic projects and institutions to meet stringent requirements.
Policy Gaps and Limited Incentives for Businesses
Another significant barrier is the existence of policies and mechanisms that are incomplete or insufficiently attractive. Tax, credit, and evaluation policies for specific sectors remain unclear and lack consistency. Although some incentives are in place, they are not substantial enough to drive businesses toward green projects.
The energy market remains heavily reliant on the Electricity of Vietnam (EVN), which restricts competition and flexibility. Additionally, specialized green finance markets, such as green bonds and carbon trading, are underdeveloped, leaving enterprises with limited effective instruments to mobilize capital.
On the business side, there is widespread hesitation towards the green transition, largely due to limited awareness of its long-term benefits. The market still lacks bankable, high-return green projects capable of attracting large-scale investment. Furthermore, revenue streams from green projects tend to be unstable, which further discourages bold commitments.

 Breakthrough Solutions: Unlocking Capital Flows
From a Policy Perspective (The Government as Enabler)
The key to unlocking capital flows lies in creating a coherent and robust policy framework. Promoting Green Investment Funds and Green Credit Guarantee Funds for energy projects will be essential to reducing lending risks and facilitating greater financing opportunities. Legalizing carbon credits as tradable and collateralizable assets will create new financial avenues, allowing businesses to reduce costs and raise funds through both domestic and international carbon markets. Additionally, developing a Direct Power Purchase Agreement (DPPA) mechanism would dismantle EVN’s monopoly, enabling renewable energy producers to sell electricity directly to businesses, stabilize revenue streams, and enhance the sector's attractiveness to investors.
From the Perspective of Enterprises and Financial Institutions
To capitalize on the opportunities presented by new policies, businesses and financial institutions must enhance their internal capabilities. Enterprises should prepare standardized, high-quality project proposals, while banks need to establish specialized teams of experts capable of evaluating innovative green projects. 
Integrating Environmental, Social, and Governance (ESG) criteria is no longer optional; it has become essential for accessing international capital. Transparent and credible ESG reporting will serve as a vital tool for building trust and credibility with global investors and partners.

Vietnam’s journey toward energy innovation is both challenging and full of potential. Solving the financing equation requires close collaboration among the Government (as the policy enabler), banks (as intelligent capital allocators), and enterprises (as pioneering innovators). KLINOVA is proud to support businesses on this journey by providing comprehensive consulting solutions that encompass strategy, finance, and technology. Our goal is to transform challenges into opportunities for sustainable development.