Determinants of environmental financing constraints: a case study from Vietnam

The Environment Fund is a state financial institution and a non-profit organization, operating mainly in concessional loans with low-interest rates for green investment projects, working towards sustainable development. There have been no studies to assess the firms’ ability to access environmental finance from these Environment Funds. This study uses a combination of both qualitative and quantitative methods. We initially identified the determinants of access to green finance and financing constraints that firms face by in-depth interviews with 32 individuals from the six largest Environment Funds in Vietnam and their clients. Secondly, by surveying 213 firms that had loan request from 26 Environment Funds, we investigated the factors affecting access to environmental finance by the Ordered Probit model. The findings show that firm characteristics and environmental project characteristics have a relationship vis-a-vis access to green finance. We did not find evidence that supports state-owned firms experiencing less financing constraints than other types of firms. Collateral requirements, excessive paperwork requirements, and insufficient capital from Environment Funds are the three main obstacles to green financing. Environment Funds should design loan packages that are more diversified and suitable for different types of environmental projects. At the same time, a more relaxed collateral policy should be applied in Environment Funds to enhance firms’ ability to obtain green finance. We suggest that Environment Funds cooperate with commercial banks to provide financial support for the environment to compensate for capital size constraints and asymmetric information.