ຂປລ
Lao PDR is at a pivotal stage in its development, with sustainability taking center stage due to the country's high vulnerability to climate change.
KPL reporter talks with Ms. Christina Ongoma, IFC Regional Manager for Financial Institution Group Upstream and Advisory Services during her visit to Lao PDR, October 15, 2024
(KPL) Lao PDR is at a pivotal stage in its development, with sustainability taking center stage due to the country's high vulnerability to climate change.
Achieving carbon neutrality by 2050 will require significant funding—around $4.8 billion by 2030, representing more than 30% of the country's 2023 GDP. With the government's budget constraints, private sector investment will be crucial.
"Green finance is essential for Lao PDR's shift to low-carbon growth," said Christina Ongoma, IFC's Financial Institution Group Upstream and Advisory Services Manager for East Asia and the Pacific, during her visit to Laos on October 15.
An IFC assessment estimates that the green finance market in Laos could reach $23 billion by 2030, covering sectors such as energy, transport, water management, and agriculture. Currently, 28% of banks in Laos are offering loans for low-carbon projects, though they don't consciously label them as "green." Additionally, an ADB survey found that 60% of institutional investors are interested in sustainable bonds.
However, several obstacles hinder the growth of green finance in Lao PDR. The absence of regulatory guidance and the underdeveloped capital market limit the rollout of green finance products. The market is dominated by government bonds, and corporate bond issuance remains rare. Banks also lack the frameworks needed to mobilize climate finance effectively.
Ongoma emphasized the importance of establishing a clear policy framework for green finance. "A green taxonomy will help define and categorize sustainable activities, expand banks' green portfolios, and ensure transparency," she said. Simplifying project approvals and providing cross-sector credit for green investments are also critical steps, as demonstrated by countries like China and Singapore.
Developing green financial products, such as green bonds and loans, will help build a robust market infrastructure. These products can support key sectors like energy efficiency, sustainable agriculture, and green building.
With ASEAN+3 nations seeing a surge in sustainable bonds—reaching $798.7 billion by the end of 2023—Ongoma urged Lao banks to act swiftly to tap into the growing demand for green projects. Building capacity to assess and utilize instruments like green and blue bonds will be key, she said.
While Lao PDR works on its green finance taxonomy, banks can look to ASEAN and international frameworks, such as those from the ASEAN, EU and the International Capital Market Association ICMA, to guide their efforts. This proactive approach will help them align sustainability goals with economic objectives.
Ongoma also stressed the need for banks to upgrade their internal systems to manage risks from climate change, including climate-transition related risks such as policy shifts and technology changes, and climate physical risks such as extreme weather events. "Tracking carbon emissions in lending portfolios will help banks measure the environmental impact of their funding and align with decarbonization goals," she said.
IFC's ongoing partnership with the Bank of Lao PDR (BOL) serves as a strong example of advancing green finance. The IFC’s Lao Green Finance advisory program, running through 2027, is helping BOL establish a governance structure for a green taxonomy and develop a guideline on the ESG risk management framework and reporting.
With IFC’s support, BOL has developed guidelines for green, social, and sustainability bond issuance. The next steps include providing advisory support to banks, helping them develop sustainable finance frameworks, and expanding their green portfolios through instruments like green loans and sustainability-linked bonds.
KPL