Unlocking green finance in agriculture

Accounting for the characteristics of agriculture

According to Tran Dai Nghia, climate finance expert at the Food and Agriculture Organization of the United Nations (FAO) Viet Nam, the country needs a new policy approach if green finance for agriculture is to be effectively delivered.

The agricultural sector is characterized by more than 90% of production entities being small farmers, cooperatives and micro-enterprises. These groups often lack collateral, lack supporting documentation and struggle to meet green criteria. If policies are designed without accounting for these characteristics, most producers will remain excluded.

There is an urgent need to finalize a set of “green” criteria for agriculture and the environment soon. In many countries, standards developed by international organizations such as the Climate Bonds Initiative have laid the foundation for issuing green bonds for agriculture, enabling investors to trust that their capital truly generates environmental benefits.

Experiences from Thailand, Indonesia and the African Development Bank Group show that when criteria are transparent, the green bond market for agriculture can expand rapidly. These models are considered suitable for Viet Nam as it works to improve its legal framework.

In addition, many countries apply agriculture-specific green taxonomies that clearly define eligible activities such as low-carbon farming, circular agriculture or sustainable water management. Experts believe that developing an agricultural taxonomy will not only standardize domestic criteria, but also help enterprises better access international capital flows that increasingly require clear “green identification”.

Another lesson comes from the European Bank for Reconstruction and Development (EBRD), which has successfully allocated green bonds to farm households and small agricultural enterprises, a group traditionally considered high-risk. EBRD’s success shows that with strict monitoring mechanisms, clear environmental impact assessments and transparent reporting systems, green capital can reach small producers while maintaining financial safety.

In Viet Nam, most green bonds remain concentrated in renewable energy. Several large enterprises have experimented with issuance, providing early market experience, but agriculture remains a major gap. Therefore, Nghia believes that to unlock capital flows, multiple instruments must be developed in parallel: preferential credit, risk guarantees, public-private investment and climate insurance. These instruments not only reduce concerns about non-performing loans, but also create a “safety net” for borrowers facing disease, natural disasters or commodity price volatility.

He also emphasized that in the context of increasingly severe climate change, risk-sharing tools such as weather-index insurance or crop protection funds will play an essential role. These models have been successfully applied in many countries to ensure farmers do not lose access to credit when suffering unavoidable losses, thereby keeping green capital markets stable.

Establishing monitoring mechanisms to prevent greenwashing

One feasible solution highlighted by the FAO expert is the “focal point” model in credit allocation. Instead of working with hundreds of individual farmers, banks assess and lend to a cooperative or enterprise that then redistributes capital to farmers through linked contracts. This mechanism reduces monitoring costs, strengthens compliance with green standards and builds trust between stakeholders. In fact, this model has proven effective in improving credit access for small production groups.

However, green finance cannot develop without monitoring mechanisms to prevent greenwashing. In many European countries, environmental impact assessments are integrated directly into the disbursement process. Funds raised from green bonds are managed through separate accounts, with periodic impact reports and independent verification. This is an important lesson for Viet Nam to avoid the risk of projects “wearing a green label” to access capital without delivering real environmental benefits.

The final highlight is the need to establish a dialogue space among three groups: policy-making agencies, banks and enterprises. When these stakeholders meet, the issue is no longer “lack of capital”, but capital not reaching the right place. Therefore, if organized, multi-stakeholder forums will help clarify responsibilities. The government improves the legal framework, banks design products suited to agricultural characteristics, and enterprises and producers demonstrate the actual environmental impacts of their projects.