Innovative Climate Debt Instruments for Sustainable Management: Vietnam’s Path to Climate Resilience

Abstract

Vietnam experiences significant economic impacts from climate-induced disasters, sustaining annual GDP losses ranging from 0.8% to 1.2%. Addressing this challenge urgently requires innovative financial instruments aligned with sustainable management principles and Vietnam’s ambitious goal of achieving net-zero emissions by 2050. This study critically evaluates Vietnam’s green finance policies and instruments between 2015 and 2025, specifically examining innovative climate debt instruments such as climate bonds and catastrophe (CAT) bonds, as strategic tools for embedding sustainability into financial management practices. Employing a mixed-method research design incorporating qualitative policy analysis, quantitative market trend assessments, detailed case studies of two major state-owned enterprises, and global comparative benchmarking, the research identifies substantial gaps within Vietnam’s green finance market. Findings show that green credit constitutes only 4-5% of total lending, and officially labeled green bonds represent just 1.5% of Vietnam’s domestic bond market as of 2023. These deficiencies primarily result from the absence of a standardized green taxonomy and inadequate fiscal incentives. Additionally, significant behavioral barriers, including investor distrust and limited awareness of green financial products, further impede market expansion. Drawing on the best international practices regarding CAT bonds, the study proposes tailored recommendations, such as the establishment of a comprehensive national green taxonomy, the structured issuance of CAT bonds, focused capacity-building initiatives, and enhanced interdisciplinary collaboration among policymakers, financial institutions, and community stakeholders. These actions could substantially strengthen Vietnam’s climate resilience, actively contribute toward regional sustainable development objectives within Southeast Asia and serve as a replicable framework for other climate-vulnerable economies.