Vietnam adapts to global trends in Environmental, Social, and Governance practices
HCM City, September 7 (VNA) - Practicing responsible business in accordance with Environmental, Social, and Governance (ESG) criteria is considered a key that contributes to realising Vietnam’s commitment to bring net emissions to zero by 2050.
On the journey towards green growth, ESG criteria are the standard for measuring and evaluating an enterprise’s sustainable development and its impact on the community. Many of Vietnam's major trade and investment partners have had strict requirements on this issue.
Implementing these three pillars is aimed at achieving sustainable development goals (SDGs), requiring businesses to clearly understand and adopt appropriate practices to meet global standard practices.
According to Dr. Nguyen Dinh Tho, Director of the Institute of Strategy and Policy on Natural Resources and Environment under the Ministry of Natural Resources and Environment (MoNRE), the World Trade Organisation (WTO) previously allowed the free movement of goods and capital between countries, but now, developed countries have established new rules of the trade game.
The movement of goods, services, capital, and labourers now depends on ESG criteria as countries require multinational companies to provide ESG reports. Meanwhile, new-generation free trade agreements (FTA) that Vietnam has recently signed with developed countries all include requirements related to sustainable development.
Tho said that small and medium-sized enterprises (SMEs), and even Vietnamese farmers think that ESG does not affect them, but the reality is that the world has shifted its priorities, with green development being the top requirement, followed by quality, and price. Major markets may be willing to forgo 1% of the market share from Vietnam to focus on protecting the remaining 99% of their market.
Starting from early 2025, agricultural products that originate from deforestation after December 31, 2020, will not be allowed for export to the EU. The EU will officially apply the Carbon Border Adjustment Mechanism (CBAM) in early 2026. The US and other countries have also introduced the Clean Competition Act, which is an effort to create transparency around the carbon footprint of industrial companies. Meanwhile, the UK is also preparing to enact a law similar to CBAM.
Do Thi Thu Ha, Deputy General Director of KPMG Vietnam, a subsidiary of KPMG, one of the top four auditing firms in the world, stated that in the past, investors only focused on financial reports. But now they also rely on ESG reports to make investment decisions or to purchase products from companies. A company may have high profits, but if it has poor working conditions or negatively impacts the environment, it will not attract investor interest.
Truong Vinh Khang, head of the Sustainability Development Department at BSI Vietnam under the British Standards Institution (BSI), a global organisation specialising in evaluation and certification, said that to adapt to sustainable development trends, ESG is a practical approach for businesses to understand and easily meet sustainable development requirements of the market. Standards organisations can outline key points and smaller topics related to ESG, enabling businesses to make commitments and effectively implement organisational changes.
Gaps between awareness and action
At the 26th United Nations Climate Change Conference of the Parties (COP26) in the UK in 2021, Vietnam committed to ending deforestation by 2030, phasing out coal-fired power plants by 2040, and achieving net-zero emissions by 2050.
Vietnam submitted its second updated Nationally Determined Contribution (NDC) to the UN Framework Convention on Climate Change in 2022. Accordingly, by 2030, by 2030 Vietnam will reduce its total greenhouse gas (GHG) emissions by 15.8% compared to the Business-As-Usual (BAU) scenario, and by an additional 27.7% with international support.
Vietnam has also introduced various regulations and policies to enable businesses and stakeholders to effectively implement ESG, including Resolution 136/NQ-CP of 2020 by the Government on achieving SDGs in industries, levels, and localities by 2030. This also includes decisions by the Prime Minister approving a programme to support private firms to do sustainable business in the 2022-2025 period, and a project on tasks and solutions to implement the results of COP26.
“The Vietnamese Government listens to, respects, and supports businesses to overcome difficulties and challenges for mutual benefits and development, while also protecting and creating a peaceful, cooperative, and developmental environment both in the region and globally.”
Prime Minister Pham Minh Chinh made the statement at a meeting with Foreign Direct Investment (FDI) enterprises, and the annual Vietnam Business Forum (VBF 2024).
For each pillar of ESG, in the Environmental (E) domain, Vietnam has enacted several laws and regulations, including the Law on Environmental Protection, greenhouse gas inventory and mitigation, and ozone layer protection. Also enacted are the regulations on power development planning, the project on circular economy development, the national environmental protection strategy, and the national strategy on climate change and green growth.
In the Social (S) domain, Vietnam has enacted the Labour Code, the Law on Trade Union, the Law on Consumer Protection, and the Decree on personal data protection.
In the governance (G) domain, Vietnam has the Enterprise Law, the Investment Law, the Securities Law, the Credit Institutions Law, the Anti-Corruption Law, and guidelines on corporate governance applicable to specific types of enterprises.
A survey conducted by the Business Development Agency under the Ministry of Planning and Investment, with technical support from the US Agency for International Development (USAID) in 2022, also revealed that ESG adoption is primarily led by large enterprises, such as FDI businesses, public companies, and export-oriented businesses. In contrast, only 25% of SMEs commit to ESG, while 21% do not plan to implement ESG in the next 2-4 years.
Amid challenges, effectively practicing ESG requires Vietnamese businesses to be proactive and flexible to find the right path and roadmap for themselves.
To implement ESG appropriately, Tho said businesses need to adhere to global SDGs, international standards, requirements of target markets, and Vietnam’s legal regulations.
Currently, Vietnamese laws are being designed to lag slightly behind EU standards to ensure that markets do not hinder or stop trade and investment with Vietnam. If higher standards are set, costs will increase, and Vietnamese businesses may lose their competitive edge. Conversely, if the standards are set too low, Vietnamese businesses may face the risk of being excluded from the market due to slow adaptation. Most Vietnamese businesses are small and medium-sized, so "collaboration" will help reduce costs for companies, he added./.
