The ESG Landscape in Vietnam: Driving Sustainable Business Practices

Vietnam stands at a pivotal moment in its journey towards sustainable development, strongly influenced by its commitment to Environmental, Social, and Governance (ESG) criteria. This commitment is integral to Vietnam’s goal of achieving net-zero emissions by 2050, aligning with global efforts to combat climate change.

The Importance of ESG in Vietnam

As countries increasingly prioritize sustainable practices, the encouragement of businesses to adhere to ESG principles becomes essential. In the context of Vietnam, ESG criteria serve as a crucial benchmark for assessing sustainable growth and community impact. Major trade and investment partners have established stringent requirements that domestic businesses must meet to remain competitive.

The Pillars of ESG

ESG is built on three fundamental pillars:

1. Environmental (E): This encompasses laws related to environmental protection, renewable energy, and climate change.

2. Social (S): Social aspects like labor rights, consumer protection, and community engagement fall under this category.

3. Governance (G): Strong governance practices, including anti-corruption measures and corporate responsibility, are essential in this framework.

Vietnam aims to fully integrate these pillars into its business landscape, facilitating compliance with global sustainability standards and enhancing its international competitiveness.

Changing Trade Dynamics

The World Trade Organization (WTO) has historically promoted the free movement of goods. However, recent shifts have required that trade practices incorporate ESG criteria, particularly from developed nations. Multinational companies now face increased scrutiny, needing to submit detailed ESG reports in accordance with recent free trade agreements signed by Vietnam.

Dr. Nguyen Dinh Tho, Director of the Institute of Strategy and Policy on Natural Resources and Environment, notes that many small and medium-sized enterprises (SMEs) and even farmers in Vietnam often underestimate the importance of ESG. The current global market favors green supply chains, with major traders prepared to sacrifice minor market shares to maintain sustainability.

Regulations and Future Implications

As of early 2025, the European Union will prohibit the import of agricultural products linked to deforestation post-December 31, 2020. Similar legislation is expected in the UK and the US, emphasizing the global trend toward stringent sustainability practices.

Do Thi Thu Ha, Deputy General Director of KPMG Vietnam, points out that investors are shifting their focus from merely financial reports to comprehensive ESG assessments, indicating a fundamental change in investment dynamics.

The Gap Between Awareness and Action

During the COP26 summit in 2021, Vietnam reaffirmed its commitment to grant net-zero emissions by 2050, phasing out coal power by 2040 while reducing greenhouse gas emissions significantly by 2030. Various policies, such as Resolution 136/NQ-CP of 2020, have been put into place to guide businesses in adopting ESG principles effectively.

Prime Minister Pham Minh Chinh emphasized the government’s supportive role in helping businesses transition towards sustainable practices, demonstrating an awareness of the delicate balance needed for economic growth while safeguarding environmental interests.

Legislation Framework

Vietnam has established a comprehensive legal framework aimed at supporting ESG implementation. This includes:

• The Law on Environmental Protection for environmental governance.
• The Labour Code and Consumer Protection Law for social accountability.
• Rigorous governance laws covering corporate responsibility and anti-corruption initiatives.

The Role of Industry Leaders

Truong Vinh Khang from BSI Vietnam suggests that standards organizations can guide businesses in effectively implementing ESG strategies, setting the groundwork for sustainable development in Vietnam.

The Challenge for Small and Medium Enterprises

A 2022 survey revealed that while ESG adoption is predominantly led by larger companies, only a small fraction of SMEs demonstrates a commitment to these practices. The added burden of compliance with ESG standards is often seen as a deterrent rather than an opportunity for SMEs, who may lack the resources to adapt swiftly to the evolving marketplace.

Collaborative Efforts Towards ESG Compliance

With Vietnam’s economy composed predominantly of SMEs, collaboration will be vital in achieving widespread compliance with ESG standards. The government’s gradual implementation of ESG-related regulations is intentional, helping businesses transition without major financial upheaval.

The Mekong Delta province of Long An exemplifies this shift with substantial investments in solar energy, marking a significant move towards renewable resources in the agricultural sector.

Conclusion: A Road Ahead

The transition towards a greener economy is not merely a regulatory obligation for Vietnamese businesses; it’s a strategic imperative. As the global marketplace evolves, the adaptability and proactive approach of Vietnamese companies toward ESG compliance will determine their success in the years to come.

With this collective focus on sustainability, Vietnam not only enhances its international business standing but also plays a pivotal role in the global fight against climate change.