ESG Creates Obstacles for Vietnamese Companies in International Trade Growth

Although ESG standards might still be relatively unfamiliar to many Vietnamese enterprises, major markets around the globe are steadily implementing regulations that make ESG compliance not just desirable but obligatory. This development necessitates urgent action from local businesses to adapt and comply.

In the UK, for instance, a law enacted in 2022 mandates that companies with over 500 employees report on ESG issues under the Sustainable Disclosure Requirements (SDR). This legislative shift signifies a broader move towards accountability in corporate practices.

Similarly, the German government has introduced the Supply Chain Due Diligence Act, holding large firms accountable for ESG criteria throughout their supply chains. Fines for non-compliance can be steep, and suppliers may face exclusion from lucrative contracts if they fail to meet these standards.

Moreover, in January 2023, the European Union rolled out the Corporate Sustainability Reporting Directive, affecting approximately 50,000 large entities in the region. This comprehensive directive underscores the EU’s commitment to improving the transparency and sustainability of corporate operations.

While the United States has yet to establish specific regulations fully governing ESG, it does enforce laws aimed at preventing human rights violations and human trafficking. The U.S. Securities and Exchange Commission is also actively drafting new rules requiring companies to disclose more information on environmental and climate issues.

It’s clear that Vietnam cannot remain insulated from this global shift, where major markets like the EU and the US are increasingly prioritizing ESG standards in international trade and production. The implications for Vietnamese businesses are profound: over two-thirds of trade experts in the Reuters survey indicated that they consistently consider ESG issues before partnering with suppliers.

As the global supply chain continues to undergo significant restructuring, Vietnam stands ready to seize substantial opportunities. Its abundant resources and skilled workforce provide a solid foundation for businesses aspiring to meet international ESG standards.

For Vietnamese firms to remain competitive and retain access to major markets, it’s essential to embrace ESG regulations. Failure to do so could hinder their potential for integration into the global value chain. Moreover, firms that successfully align with ESG standards not only enhance their credibility but also open doors to long-term investment capital, fostering sustainable partnerships.

At the recent COP 28 summit, the Vietnamese government reaffirmed its commitment to achieving net-zero emissions by 2050. The country has also launched a national green growth strategy aimed at engaging local businesses in sustainable development practices.

According to a 2022 ESG report published by PwC, the readiness of Vietnamese companies to adopt ESG practices is encouraging; a significant 80% of surveyed firms plan to commit to ESG initiatives within the next two to four years.

This proactive approach can be attributed to three key drivers: adherence to local regulations, enhancement of business value, and mitigation of reputation-related risks. Aspects of the supply chain—such as carbon emissions, labor rights, and anti-corruption measures—demand that trade experts actively participate in corporate ESG initiatives.

The Reuters report highlights that over half of companies surveyed are already collecting data on various ESG metrics, including health and safety (54%), labor practices (51%), ethical conduct among suppliers (48%), and carbon emissions (47%).

Given this landscape, it is imperative for Vietnamese businesses to rapidly integrate ESG considerations into their sustainable development strategies. This shift represents not only a compliance necessity but also a strategic opportunity for growth, allowing companies to enhance their competitive edge in the global trade arena.