Vietnam’s Garment and Textile Sector: Navigating the Green Transition

The stakes are high for Vietnam’s garment and textile sector as key export markets and competing producer countries intensify their push for green targets. This evolving landscape significantly influences brand appeal to consumers and sourcing decisions by global fashion retailers.

Current Landscape and Investment Trends

According to the Vietnam Textile and Apparel Association (VITAS), by the end of May 2024, Vietnam’s textile and garment sector had attracted over US$37 billion in foreign direct investment (FDI). This remarkable inflow highlights the sector’s potential, especially as global markets increasingly shift toward sustainable development.

To remain competitive, Vietnamese textile and garment businesses must strategize a green transition. This shift is not just about compliance; it’s about securing unrestricted market access and enhancing their environmental, social, and governance (ESG) profiles to satisfy international standards.

Recent Performance and Challenges

After experiencing negative growth in 2023, Vietnam’s textile and garment sector has shown signs of recovery. The General Statistical Office (GSO) reported a 4.6 percent increase in the sector’s export value, reaching US$16.5 billion in the first half of 2024. The month of June alone saw a 2 percent rebound, driven primarily by the recovery of the U.S. market.

However, challenges linger. Currency depreciation in competing countries like Bangladesh, Indonesia, and Mexico hampers Vietnam’s price competitiveness. Additionally, a new minimum wage increase of 6 percent, effective July 2024, may pressure profit margins as sales prices remain stagnant.

Global Push for Sustainability

The global pivot towards sustainable growth is accelerating, with many industries advocating for greener business models. Governments worldwide are also issuing relevant green policies, further emphasizing the importance of sustainability in business operations.

Legislation in the European Union

As of late 2023, the European Union (EU) has discussed up to 16 laws related to fashion and textiles, set to come into effect from 2024. These laws will regulate the entire fashion value chain:

• EU Strategy for Sustainable and Circular Textiles: Launched in June 2023 to meet climate neutrality goals, focusing on sustainable production and consumption.
• Digital Product Passport (DPP): Mandates transparency in product information and accelerates the transition to a circular economy for products sold in the EU.
• EU Green Claim Directive: Aims to combat greenwashing by requiring companies to provide verified evidence of their environmental commitments.
• Waste Framework Directive (WFD): Introduces Extended Producer Responsibility (EPR) schemes, requiring producers to fund textile waste collection and treatment.
• Corporate Sustainability Reporting Directive (CSRD): Requires companies generating over €150 million in the EU market to report social and environmental data.

U.S. Regulations on Sustainability

The United States is also seeing a surge in sustainability regulations:

• California Senate Bill No. 253: This law requires businesses in California with annual revenues over US$1 billion to report greenhouse gas emissions across multiple scopes.
• New York Sustainability and Social Accountability Act: This proposed legislation aims to hold fashion sellers accountable for standardized environmental and social due diligence.

These developments indicate a growing necessity for businesses worldwide to align with sustainable initiatives.

Actions for a Greener Future

The Fashion Industry Charter for Climate Action, initiated by UN Climate Change, sets ambitious goals for the fashion sector, including reducing greenhouse gas emissions by 30 percent by 2030 and achieving net-zero emissions by 2050. With 99 signatories including major brands and manufacturers, this charter emphasizes collective responsibility in emissions reporting and sustainable practices.

Future Prospects for Vietnam

With approximately 3,500 foreign-invested textile and garment projects valued at US$37 billion, foreign entities play a crucial role in Vietnam’s textile landscape, contributing to 65 percent of total export revenue. Major investors hail from South Korea, Taiwan, Hong Kong, and China.

To maintain this competitive edge, Vietnam must rapidly adopt sustainability practices. This creates substantial opportunities for green investments, from implementing industry best practices focusing on product circularity to upgrading infrastructure for waste management and recycling.

Noteworthy Developments

Vietnam’s competitive edge is highlighted by a recent survey from the U.S. Fashion Industry Association, noting significant advancements in high-value production capabilities thanks to investments in technology and workforce skills.

On June 18, 2024, the Green Tech Landing Pad initiative, supported by the German government, launched five pilot projects focusing on green technology. These include innovative solutions for energy management and recycling, reinforcing Vietnam’s commitment to meeting European markets’ sustainability standards.

By fostering a dynamic, sustainable garment and textile sector, Vietnam holds a promising future, continuing to attract foreign investment while adhering to global sustainability standards.