Implementing environmental, social, governance (ESG) criteria, introducing sustainable business models, and working towards green growth have become almost mandatory in the modern world, and many of Vietnam’s major trading and investment partners have adopted strict requirements on such matters. ESG has actually become self-imposed criteria at many companies thanks to government efforts and the rising prerequisites of investors when it comes to sustainable development.

Mandatory requirements

Addressing the “ESG - Motivations and Breakthroughs” conference on May 23 in Hanoi, Deputy Minister of Planning and Investment Nguyen Thi Bich Ngoc affirmed that major enterprises are integrating ESG criteria into their development processes and this is now mandatory for businesses if they hope to succeed in a sustainable manner.

According to the Deputy Minister, promoting green growth has become a pressing need, a driving force of economic growth, and a key factor in enhancing national competitiveness amid international integration. On the journey towards green growth, ESG criteria serve as the standard for measuring and evaluating an enterprise’s sustainable development. Post-pandemic, ESG stocks have continued to perform well, and many economists view such criteria as a new element of corporate social responsibility (CSR) efforts.

In addition to the bottom line, businesses also need to pay attention to the social environment. Major companies have come to recognize that promoting ESG measures is essential for sustainable development, offering long-term benefits to both shareholders and local communities. ESG criteria have therefore become key considerations when investment decisions are being made. “Major enterprises all integrate ESG criteria into their development processes, as it has become mandatory for those hoping to be in business for the long haul,” Deputy Minister Ngoc emphasized.

Many of Vietnam’s significant trade partners and investors are now imposing stringent conditions in this regard. For instance, countries and territories across Asia, like Singapore, Malaysia, Hong Kong (China), and the Philippines, stipulate that publicly-traded entities disclose their ESG performance or adhere to sustainability reporting requirements. China is also poised to implement similar policies targeting publicly-traded entities in the near term. Beyond national regulations, many international agencies regard ESG as pivotal when contemplating collaborative agreements.

Mr. Patrick Haverman, Deputy Resident Representative for the UNDP in Vietnam, noted that meeting ESG criteria creates long-term value through efficiency improvements, employee benefits, and improved labor policies. Upgrading ESG practices can also enhance a company’s access to international markets and sustainable finance. The EU, in particular, is implementing stricter sustainability requirements and disclosures for businesses, including regulations directly related to corporate sustainability reporting and practices. For businesses wishing to export to the bloc, sustainability and labor rights provisions are included in free trade agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Similarly, the UK emphasizes ESG practices and has aligned them with sustainable development goals.

Breaking down barriers

According to Mr. Haverman, in Vietnam, where greater attention is being paid to ESG by the media, the government, and businesses, the concept has found a place within the National Green Growth Strategy and National Climate Change Strategy, supporting private sector enterprises and sustainable businesses. However, many frameworks and guidelines suggest that the actual level of ESG practices is still quite low in the country. A report from the Vietnam Chamber of Commerce and Industry (VCCI) found that 80 per cent of local businesses have made ESG commitments or plan to do so in the near future, but 70 per cent of these show a lack of understanding of the relevant data and have conducted only limited reporting. Just 24 per cent had a definite governance structure in place and an ESG committee.

Various challenges and barriers hinder the advancement of ESG practices in Vietnam, including a lack of knowledge, human resources skilled in the task, and appropriate government regulation, Mr. Haverman noted. There is a need for a comprehensive program to build business capacity in this regard, develop a clear regulatory framework for businesses and financial institutions, and raise awareness about the importance of ESG, all based on scientific validity and real-world impact.

According to Mr. Matthew Smith, Head of Research at Yuanta Securities Vietnam, investors always assess the value of enterprises both now and in the future when making investment decisions. Drawing from past calculations, companies with higher ESG standards generally face lower risks, which explains why investors perceive companies adopting ESG practices as being more valuable.

Investing in ESG measures may spark debate initially due to the cost involved. However, over the long term, these will have a positive influence on business operations and satisfy all stakeholders, such as management, partners, and customers, and yield rewards. Consequently, from an investor’s standpoint, companies practicing ESG will be better able to boost anticipated cash flows, reducing the capital outlay from the investor. From a corporate perspective, ESG practices facilitate more efficient capital mobilization, especially when compared to entities with sub-par or no ESG practices.

The momentum behind the global adoption of ESG practices primarily stems from policies mandating that all market participants allocate funds towards such initiatives. Financial institutions and institutional investors are compelled to consider ESG factors when investing, Mr. Smith said, while businesses must invest in these practices to comply with regulatory requirements.

Engagement of Vietnamese enterprises

According to data from Bloomberg, as of 2022, global ESG assets were estimated at around $30 trillion, with projections indicating a doubling of this figure by 2030. All institutional investors have devised strategies for allocating funds to ESG initiatives.

Mr. Smith shared an intriguing insight: ESG investment isn’t solely driven by institutional investors adhering to governmental regulations; it also stems from the desires of individual investors - a demographic not bound by obligatory regulations. The percentage of individual investors involved in ESG investments rose from 20 per cent in 2016 to 25 per cent in 2018. “From our observations, this demographic comprises young investors, those born after 1990,” he explained. “The younger generation exhibits increasing concern about the future. Business owners seeking foreign funding have undoubtedly been exposed to the issue, and they have no practical alternative since it has become a mandatory requirement.”

As a frontrunner in eco-friendly transportation, the Green and Smart Mobility (GSM) JSC has strategically positioned its brand as “green”, pioneering a shift towards sustainable mobility. This strategic move is in harmony with both global trends and the commitment of the Vietnamese Government at the COP26 meeting in late 2021 to reach net-zero emissions by 2050. According to Mr. Nguyen Van Thanh, CEO of GSM, the company’s primary objective is to deliver substantial value to customers and partners. Consequently, within just a year of opening, it forged partnerships with over 33 entities, facilitating the deployment of 50,000 electric vehicles in 40 cities and provinces around Vietnam, resulting in a reduction of over 52,000 tons of carbon dioxide emissions.

“Embracing green transportation is an imperative that cannot be overlooked,” Mr. Thanh insisted. Government Decision No. 896 clearly outlines targets for 2030 of 50 per cent of public transport being electric, with the ultimate goal of achieving 100 per cent electric transport by 2050. GSM’s inception aligns seamlessly with this national vision and strategy, making it an indispensable player in Vietnam’s transport sector. With the country’s transportation market estimated to be worth $1.4 billion in 2023 and projected to grow at an annual rate of 14-21 per cent, there exists significant space for expansion. The ride-hailing sector in Vietnam is also poised for substantial growth over the next two decades. GSM operates not in isolation but collaboratively with the community, including transport businesses and individuals, who all have the potential to become advocates for sustainability.

“We have initiated a new era of ESG-driven business in Vietnam and are ready for global expansion,” Mr. Thanh asserted, adding that GSM aims to establish a presence in seven countries and territories, with Laos being the first followed by Indonesia this year. As the sole provider of comprehensive electric mobility infrastructure in Vietnam and with an international reach, GSM stands at the forefront of the sustainable transportation movement.

Sharing insights from an energy development entity, Mr. Nguyen Giang Nam, Deputy General Director of Project Financing at BCG Energy, highlighted the environmental risks associated with fossil fuel development, as activities such as coal and petroleum extraction can lead to land erosion and degradation of the continental shelf. Hydroelectric projects, meanwhile, can result in significant environmental alteration. With Vietnam’s commitment to achieving net-zero emissions, the emphasis on developing renewable energy becomes paramount. It is anticipated that in order to reach the net-zero target, renewable energy sources must contribute over 70 per cent of Vietnam’s electricity supply.

“We are in step with the Vietnamese Government’s vision for renewable energy development in support of sustainable objectives,” Mr. Nam said. At the end of 2023, BCG Energy initiated a merger and acquisition (M&A) deal with the Tam Sinh Nghia Investment-Development JSC, which has been tasked with processing accumulated household waste to generate clean energy. Tam Sinh Nghia now operates waste processing, sorting, and incineration facilities across locations in Ho Chi Minh City and the Mekong Delta’s Long An and Kien Giang provinces.

In August last year, BCG Energy also forged a partnership with a leading Asia-based ESG data technology firm, enabling the transparent disclosure of emissions volumes of the group and its subsidiaries, given that the implementation of ESG practices fosters credibility among both local and international investors. Through this initiative, BCG Energy successfully secured $60 million from foreign investment funds and garnered trust from investors and partners inside of Vietnam. The group has clearly recognized the numerous benefits that come from a commitment to ESG principles.