Legal and Regulatory Challenges for Green Banking in the Context of Sustainable Development: The Case of Viet Nam

Green banking has emerged as a crucial tool for promoting sustainable development by integrating environmental and social factors into financial decision-making processes. In Vietnam, the development of green banking is increasingly encouraged through policy initiatives; however, the legal and regulatory framework remains fragmented, lacking classification criteria, risk management obligations, and effective sanctions. This paper explores the legal and regulatory challenges of green banking in Vietnam, a developing economy undergoing rapid growth and environmental transformation. Using a theory- and policy-based legal analysis approach, along with comparative insights from selected international and regional practices, this study identifies three main challenges: (I) the lack of a coherent legal definition and classification of green banking activities; (ii) reliance on non-binding regulatory instruments rather than enforceable legal obligations; and (iii) restrictive mechanisms for oversight, disclosure, and accountability, particularly concerning environmental, social, and governance (ESG) risks and greenwashing. The paper argues that these challenges undermine the effectiveness and credibility of green banking initiatives, diminishing their ability to make a meaningful contribution to sustainable development goals. The paper concludes by proposing key legislative reforms, including integrating green banking into sustainable development strategies, strengthening ESG disclosure and risk management requirements, and aligning Vietnam's legal framework with international standards while remaining sensitive to domestic institutional and economic conditions.