Banks shaping the future as business advisors

At a seminar themed “ESG in Banking: Leading through Implementation” hosted by VIR on November 19, Nguyen Ba Hung, chief economist at Asian Development Bank (ADB) Vietnam, emphasised that Vietnam’s financial market, investment, and advisory sectors are still in the early stages of development and most investment advisory services focus primarily on financial consulting, such as capital mobilisation and issuance. Therefore, banks could expand their services to include environmental, social, and governance (ESG) advisory, as well as green economy, green growth, and circular economy consulting.

“For businesses, especially small- and medium-sized enterprises (SMEs), they can greatly benefit from the advisory services offered by banks. As banks establish deeper relationships with businesses, they generate revenue from advisory services and gain a better understanding of their business operations. This allows banks to collect more accurate information, which in turn strengthens their own ESG practices,” said Hung.

In the past, banks focused mainly on borrowers' ability to repay loans and their financial stability, while ESG factors were seen as non-financial. However, these non-financial factors are now recognised as systemic, and banks are increasingly interested in understanding how they impact operations.

“There are two perspectives on ESG factors. The first, the floor factor, which refers to risk management. Previously, banks assessed financial risks for loan repayment. The second, the ceiling factor, involves positive contributions like addressing climate change and improving governance. While these outcomes are typically outside a bank's immediate focus, they are becoming increasingly important,” he explained.

“Now, ESG risks are not financial but can still affect businesses, assets, and repayment ability, influencing overall financial risk management. Banks need to measure these contributions, relying on ESG reports from businesses to assess them effectively.”

Responding to proposals for standardised ESG guidelines, Hung emphasised that regulations cannot follow a singular, specific framework. Instead, they should be incorporated into a broader legal structure governing economic activities nationwide, serving as a common legal foundation for both banks and businesses.

“ESG risks are not defined by specific regulations but by the broader legal framework governing business activities,” said Hung. “For domestic businesses, a common legal framework for environmental and social governance exists, but banks assess ESG risks based on their individual risk appetite, with higher risks leading to higher interest rates,” added Hung.

The chief economist emphasised that promoting ESG in banking requires both incentives and mandatory regulations to achieve results. He noted the growing trend of greenwashing, where companies claim sustainability but fail to meet real green standards, often obtaining certifications without fulfilling their commitments.

"Some countries are exploring tools to combat greenwashing. Once commitments are made, mechanisms must verify if businesses are fulfilling their promises, with sanctions ensuring that green commitments are genuine and fully implemented,” said Hung. “There is a process between awareness and action. Turning awareness into results requires several factors, but if no action follows prolonged awareness, government tools, legal instruments, and policies must be introduced to turn green objectives into binding regulations. Once these regulations are established, awareness must lead to real action and outcomes.”

At a seminar on environmental, social, and governance (ESG) factors in the banking sector hosted by VIR on November 19, industry experts assessed that banks have performed exceptionally well in governance, while the environmental and social aspects remain challenging.

Vietnam Investment Review organised the conference themed "ESG in Banking: Leading Through Implementation" at the Pullman Hotel, Hanoi on November 19.

Deputy Governor of the State Bank of Vietnam Dao Minh Tu emphasised that increasing ESG implementations requires financial institutions to consistently comply with evolving regulations, demonstrating environmental and social responsibility while enhancing their credibility and transparency.