Impediments and suggested solutions to improve policies to attract private investment in climate change adaptation activities in the Northern region

August 16, 2022
Photo: Unsplash/ Fabio Lamanna

The Department of Science, Education, Natural Resources and Environment (Ministry of Planning and Investment) and the United Nations Development Program (UNDP) held a policy discussion on barriers and recommend solutions to improve policies to attract private investment in climate change adaptation activities in the Northern region. It was an activity of the GCF-financed, UNDP-supported project entitled “Viet Nam National Adaptation Plan (NAP) Development and Operationalisation Support.”

Experts from the Ministry of Health, the Ministry of Transport, the Ministry of Agriculture and Rural Development, private sector associations, and UNDP participated in, exchanged, and discussed difficulties, advantages, opportunities, and solutions to mobilize private investment in climate change adaptation.

The private-sector economy plays a critical role since it now comprises about 40–42% of GDP, with a goal to make to 60–65% of GDP by 2030. If net zero emissions are to be reached by 2050, the private sector must also be responsible for reducing carbon emission and implementing climate adaptation initiatives.

Private investment is an essential part of dealing with climate change. This can be seen in the following ways: It helps make up for the lack of public finances to respond to climate change; Turn problems into opportunities reap profits; Mitigate the adverse impacts of climate change and adapt to it by application of new technologies. Adapting to climate change is a good way to make investments as well as cut down on pollution.

The Global Commission on Adaptation's report found that spending $1.8 trillion in target adaptation areas on early warning systems, climate-resilient infrastructure, improving dryland agricultural production, keeping Global mangrove protection, and improving water resilience could lead to a net benefit of $7.1 trillion (GCA 2019). Investors can help respond to climate change while making profits in such ways.

"The results of the Climate Public Expenditure and Investment Review of Viet Nam (CPEIR), which MPI and UNDP released in March 2022, showed that the total budget of 29 provinces for responding to climate change, mostly for adaptation, increased by 60%, from 15,000 billion VND to 24,000 billion Dong between 2016 and 2020. However, the study also pointed out that most of the private sector's spending goes toward reducing the effects of climate change," said Mr. Patrick Haverman, Deputy Resident Representative for the UNDP in Viet Nam.

Where private investment stands

Private sector participation in climate change adaptation planning faces four significant barriers: information, finance, policy, and capacity.

Lack of accessible and clear information about the impacts of climate change to private enterprises - whatever sector they are in, or locations they are operating in- is currently the largest barrier currently facing the private sector to adapt to climate change.  Only when private enterprises have easy access to clear and simple information on climate change, such as flooding risks, extreme weather such as storms, landslides, sea-water intrusion, can they adjust their current operations and plan their future investments.

MPI’s expert, Ms. Nguyen Thi Lieu, said, "In terms of policies, there is no mention of specific spending levels for climate change in the current regulations on management of construction investment costs. There are many policies to help businesses that have been impacted by natural. These policies include tax exemptions and reductions, preferential loans, and credit support. But there are still many issues with the implementation of these supportive policies. There have been almost no policies to help businesses that are damaged by climate change and extreme weather or to encourage businesses to invest in adaptation except disaster insurance."

Investment rates for adapting to climate change have not been set for investment projects in general or public-private partnership (PPP) projects specifically, because there are no rules for determining which climate change adaptation projects are most important. Also, there is currently no methodology or mechanisms to determine how much investments help adapt to climate change. For example, in the current rules for managing the costs of construction investments, there is no mention of specific spending levels for climate change and no guidance on how to adapt to climate change when figuring out the total cost of the project.

The public-private partnership mechanism for investing in adapting to climate change is mainly focused on the transportation and energy sectors. In contrast, the public-private partnership proportion of the agricultural sector is still small and doesn't have its own mechanism.

In terms of financial barriers, the expert emphasized a common thinking that investing in adapting to climate change requires a lot of money, but businesses only have a limited budget. When companies invest in adapting to climate change, they need to be able to get access to capital and be helped by the government policy.

Concerning the capacity barrier, private businesses still don't know enough about climate change, and there aren't any courses that teach them this information. The private sector, especially small and medium-sized businesses, have little need to review legal documents and other important information about climate adaptation investment.

Suggested solutions

The participants suggested making it easier for private businesses to take action in responding to climate change. Firstly, information portals on climate change impacts throughout Vietnam need to be developed and mobilized, providing accessible, clear information.

The government should have policies that encourage private businesses and investment funds to help reach the goal of adapting to climate change, develop a clear way for the private sector to get involved, and companies need to put some of their profits toward adapting to climate change.

In addition, the participants suggested that problems with administrative procedures should be fixed, that private businesses should be educated on how to adapt to climate change, that specific plans should be made, and investments should be made in infrastructure, and that the government should issue bonds on climate change.

Photo and article: UNDP/ Phan Huong Giang