Opportunities for Investors in Environmental Technology in Vietnam

Vietnam has shown dedication to sustainable development and the attainment of net-zero carbon emissions, creating favorable prospects for the advancement of environmental technology and attracting foreign investment.

Amidst the increasing difficulties posed by climate change on a global scale, Vietnam has the potential to take on a leadership role in sustainable development. With its advantageous geographical position, rich natural resources, and government support, Vietnam has the opportunity to lead in the field of environmental technologies. Through the adoption of eco-friendly policies and promoting collaboration, Vietnam is well-positioned to pave the way for environmental sustainability. We will delve into the important factors to consider in this opinion piece.

What does environmental technology refer to?

Environmental technology, also referred to as green or clean technology, covers a wide range of methods and solutions designed to reduce the environmental effects of human actions. This area encompasses developments in energy, transportation, agriculture, and waste management, all working towards a future that is sustainable and environmentally friendly. Innovations like electric vehicles, solar panels, and wind energy are notable advancements in creating a more sustainable planet.

The potential of Vietnam to utilize environmental technology

Vietnam is quickly emerging as a top choice for sustainable investments, drawing in foreign investors with favorable policies and a growing public interest in eco-friendly practices.

Sustainable investments in Vietnam are focused on initiatives that decrease carbon emissions, improve energy efficiency, and build sustainable infrastructure.

Vietnam has incorporated green growth into its national strategies and action plans, achieving significant advancements:

Environmental benefits: Expanded forest coverage, better air quality, and a slower growth rate of greenhouse gas emissions.

Economic opportunities: Investments in renewable energy, sustainable agriculture, and eco-tourism, lead to economic growth and the creation of green jobs.

International reputation: Attracting foreign investments and partnerships, particularly in green sectors.

Challenges and risks

Vietnam is confronted with potential economic and social risks from climate change, with projected costs ranging from 12 to 14.5 percent of GDP annually by 2050. It is anticipated that by 2030, around one million people could fall into acute poverty as a result of climate impacts.

Pledge to achieve zero net emissions

During COP28, Prime Minister Pham Minh Chinh restated Vietnam’s dedication to achieving net-zero emissions by 2050. The Vietnam business community and foreign investors are eagerly awaiting strong sustainability policies to encourage cooperation towards a sustainable economy. The government has already issued national action plans concentrating on air quality, water conservation, and plastic waste pollution, emphasizing the importance of shifting from the "red carpet" to the "green carpet" to ensure a sustainable future.

Transitioning from a 'Red Carpet' to 'Green Carpet' Approach

Vietnam's initial economic reform strategy, referred to as the red carpet approach, effectively attracted investors with various incentives. This strategy has established Vietnam as a leading FDI destination in ASEAN, attracting around US$455 billion in registered FDI by September 2023.

However, this approach is now encountering challenges:

Global minimum tax (GMT): Diminishing the attractiveness of current tax incentives.

Internal economic changes: Decreasing advantages of a young workforce and affordable labor costs.

Climate change and consumer behavior: Increasing consumer worries about environmental issues are compelling manufacturers to embrace sustainable practices.

The green carpet strategy advocates for sustainable policies and solutions to draw high-quality investments, with a focus on nurturing innovative and knowledge-based industries.

Components of a policy

Supply of electricity and sustainable energy sources

Vietnam's sustainable development relies on a stable electricity supply and the integration of renewable energy sources. The implementation of the Direct Power Purchase Agreement (DPPA) will enable the direct procurement of electricity from renewable sources, promoting cleaner energy consumption.

The establishment of green industrial zones, supported by Decree 35/2022/ND-CP, is aimed at fostering eco-friendly industrial zones and transforming existing parks into ecological areas.

Vietnam's government has endorsed the National Energy Master Plan (NEMP) for the 2021-2030 period, with a vision extending to 2050. The NEMP's key objectives include ensuring national energy security, reducing carbon emissions to meet Vietnam’s commitment to net zero by 2050, and ensuring the energy industry's independence and self-sufficiency.

The plan forecasts that Vietnam will generate enough energy to support an economy growing at 7 percent per annum until 2030, and between 6.5 percent to 7.5 percent from 2031 to 2050.

To achieve these ambitious targets, it is estimated that Vietnam will require up to VND 4,808 trillion (US$203 billion) in investment capital between 2021 and 2030. Additionally, an additional VND 14,590 trillion (US$615 billion) will be needed between 2031 and 2050, totaling VND 19,398 trillion (US$818 billion).

Standards for environmental, social, and governance (ESG) practices

The Vietnam ESG Initiative is a significant effort to support the implementation of Vietnam’s Green Growth Strategy for the period 2021-2030 and Decision 167/QD-TTg 2022. This collaborative initiative is led by the United States Agency for International Development (USAID) and the Agency for Enterprise Development (AED) under the Ministry of Planning and Investment (MOPI), aiming to facilitate private sector participation in advancing sustainable and inclusive growth.

By embracing ESG and sustainable practices, businesses can capitalize on new opportunities within the green transition and improve their competitiveness in the global supply chain.

The responsibilities of both the central and local government in shaping institutional framework and policies

• The Vietnam Environment Administration (VEA), operating under the Ministry of Natural Resources and Environment (MONRE), is responsible for issuing regulations, standards, and permits, as well as conducting inspections. MONRE is in charge of overseeing air pollution, water resource management, and waste issues.

• The Ministry of Construction (MOC) is tasked with implementing the Water Supply and Sewerage Law and promoting the development of modern infrastructure.

• The Ministry of Public Security (MOPS) is responsible for ensuring the enforcement of environmental protection laws.

• The Ministry of Industry and Trade (MOIT) issues regulations specific to industries and carries out inspections.

Scope for sustainable investing

Supplying water and treating wastewater

Vietnam relies heavily on agriculture and aquaculture as key economic sectors as it aims to become an industrialized nation by 2045. The country is currently a major exporter of rice, coffee, pepper, nuts, shrimp, and catfish. With a population of over 98 million, it is expected that by 2030, half of the population will be living in urban areas.

The country's intensive agricultural activities, rapid growth in industrial sectors like metallurgy, garment, paper, dairy, and furniture, and fast urbanization highlight the urgent need for sustainable water resource management. In 2020, Vietnam's water consumption was 3.6 billion cubic meters for municipal activities, 7.5 billion cubic meters for industry, and 94 billion cubic meters for agriculture. Projections suggest that these figures will increase to 5.7 billion cubic meters, 15.6 billion cubic meters, and 103 billion cubic meters respectively by 2030.

Currently, only 15 percent of Vietnam's wastewater undergoes collection and treatment. A significant amount of wastewater from residential areas, animal husbandry, and various small and medium-sized economic activities is released into the environment without proper treatment. Vietnam is also among the top five countries globally in discharging the largest amount of water into the sea, following China, Indonesia, Thailand, and the Philippines. Furthermore, municipal solid waste significantly contributes to underground water pollution in Vietnam.

According to a report from the Ministry of Natural Resources and Environment in 2022, there has been improvement in wastewater treatment systems in industrial parks in Vietnam, with 91 percent of parks having a centralized system. However, it has been noted by ICHAM that many of these parks still lack standard or efficient wastewater treatment systems, leading to negative impacts on nearby ecosystems when companies treat or discharge wastewater arbitrarily. The main challenges in meeting environmental targets include limited investment capital and financial capacity, which hinder infrastructure development in certain areas, as well as a lack of awareness among businesses about the environmental damage caused.

The industrial wastewater treatment sector is primarily made up of domestic enterprises and joint ventures with foreign companies. Some of the key players in this sector include Envico, Envitech, Navitechco, Tam Nhin Xanh, SEEN Technologies Corp., and Ecoba ENT. There are plans for 50 wastewater treatment plants with a combined design capacity of around 1.8 million cubic meters per day by 2022, with 80 percent of them using activated sludge technology. However, this technology faces challenges in terms of control and optimization, requiring large construction areas and bio-energy. In contrast, developed countries use advanced oxidation processes (AOP), nanotechnology, and biodegradation to effectively treat persistent pollutants, save electricity, optimize treatment processes, and reuse water resources.

Air pollution management

The rising demand for pollution control technologies and stricter regulations create opportunities for foreign companies, especially in the industrial sectors.

Effective waste management

An expanding market for advanced waste treatment technologies and systems is being fueled by the growing volume of waste and insufficient current infrastructure.

Consulting and engineering for the environment

The need is increasing for environmental impact assessments, pollution control technologies, and advanced engineering services to tackle Vietnam's environmental issues.

Opportunities in the renewable energy sector

Vietnam is capable of producing 160 gigawatts of electricity from renewable sources such as solar, wind, and hydropower, as stated in a 2019 McKinsey report. This potential presents various investment prospects for foreign investors looking to participate in Vietnam's shift towards clean energy.

Investing in Solar Energy

Vietnam's tropical climate, which experiences an average solar irradiation of 5 kWh/m² per day, is well-suited for solar energy initiatives. Key areas like Binh Thuan, Ninh Thuan, and Tay Ninh receive the highest levels of solar radiation in the country, making them suitable for large-scale solar farms.

Investing in Wind Energy

With a coastline stretching over 3,000 kilometers, Vietnam provides favorable conditions for both onshore and offshore wind farms. Regions such as Binh Dinh, Quang Tri, and Gia Lai are particularly appealing for wind energy investments due to their consistent and strong wind speeds.

Investments in hydroelectric power

Vietnam possesses abundant rivers suitable for hydropower, such as the Mekong, Red, and Song Ma rivers. Regions like Lao Cai, Son La, and Thanh Hoa have already experienced significant hydropower development due to their plentiful river resources and high precipitation levels. Overall, Vietnam's rich natural resources and favorable conditions create an encouraging environment for investments in renewable energy, facilitating the country's shift towards sustainable and clean energy sources.

Prominent companies and initiatives

Notable companies and initiatives include Dragon Capital Group, which has invested over US$1 billion in renewable energy projects through its Renewable Energy Fund II, LEGO Group's construction of a carbon-neutral facility with solar panels in Vietnam-Singapore Industrial Park, and the investments made by Google, Facebook, and Samsung in renewable energy projects and facilities powered by renewable energy sources. Google, for example, has established a solar power plant in Ninh Thuan province, while Samsung is in the process of constructing a solar-powered factory for environmentally friendly manufacturing.

Conclusion

In light of Vietnam's determination to embrace green growth and renewable energy to tackle power shortages, alongside its rapid economic progress and favorable investment environment, there are significant opportunities for investing in environmental technology and sustainable solutions.

Foreign investors have the potential to play a pivotal role in steering the country towards a more sustainable and eco-friendly future by harnessing innovative technologies and forging strategic partnerships.

Vietnam's transition to a "green carpet" investment approach is crucial for upholding its investment appeal and ensuring sustainable progress. The success of this endeavor will hinge on the government's ability to adapt its policies and maintain competitiveness in line with global trends.