### The Evolving Landscape of ESG in Vietnam’s Manufacturing Sector
Globally, Environmental, Social, and Governance (ESG) criteria have transitioned from being a voluntary initiative to an essential core business requirement. This shift is largely driven by stricter international regulations, such as the EU’s Carbon Border Adjustment Mechanism and the Corporate Sustainability Reporting Directive, along with similar U.S. supply chain due diligence laws. These measures are reshaping the market’s expectations, compelling buyers and investors to demand transparency, responsible sourcing, and credible carbon management from their partners.
#### Vietnam’s Response to Global ESG Trends
Recognizing this global transition, Vietnam is aligning its manufacturing sector with international sustainability standards. A significant initiative in this direction is the development of eco-industrial parks (eco-IPs), which embody the country’s commitment to ESG principles and the circular economy. Since 2014, Vietnam has been collaborating with international partners to pilot and expand the eco-IP model, aiming to create sustainable and efficient industrial spaces.
Despite this strong momentum, Vietnam’s adoption of ESG standards still lags behind regional peers like Singapore and Malaysia, which have established regulatory frameworks and mature reporting practices. Within Vietnam, larger enterprises and foreign-invested companies are typically at the forefront of ESG adoption, transferring sustainable practices from their global operations. In contrast, small and medium-sized enterprises (SMEs) often face significant barriers, including limited resources and gaps in knowledge, making it challenging for them to systematically integrate sustainability strategies.
#### Compliance and Market Access
ESG compliance has effectively become a “ticket” to participate in global supply chains. Multinational corporations are increasingly focused not just on low-cost production but also on ensuring that their suppliers meet stringent sustainability benchmarks. For instance, Heineken has incorporated ESG into its operations within Vietnam by upgrading technologies to reduce carbon emissions, expanding solar energy use, and utilizing agricultural waste for thermal energy systems.
A standout example is Lego’s recent investment in a $1 billion carbon-neutral plant in Binh Duong, entirely powered by solar energy. This not only showcases Vietnam’s potential as a hub for sustainable manufacturing but also illustrates the clear message that companies unable to align with ESG principles risk exclusion from profitable contracts and export opportunities. For an export-driven economy like Vietnam, the integration of ESG is crucial for maintaining and expanding market access.
#### Shifting Investment Strategies
Capital markets are experiencing a rapid shift toward sustainability-driven investment strategies. Investors are increasingly viewing ESG performance as an indicator of resilience, risk management, and long-term profitability. In Vietnam, this growing trend is supported by new policies introduced in 2023, which provide preferential credit terms for businesses adopting ESG-aligned practices. This particularly benefits enterprises focused on advancing green growth and circular economy models.
Early and credible ESG adoption no longer merely improves a company’s reputation; it opens doors to cheaper capital, priority financing, and enhances trust from both domestic and international investors.
#### Operational Advantages of ESG Integration
Beyond market access and capital, ESG integration delivers direct operational benefits that often align with efficiency gains. Sustainable practices can help reduce waste, optimize resource use, and subsequently cut costs. Furthermore, the value of ESG extends to human capital. A new generation of educated workers increasingly seeks employment in companies that demonstrate a commitment to sustainability and ethical business practices.
In Vietnam, where the manufacturing sector grapples with a skills shortage and stiff competition for talent, embedding ESG principles not only improves employer branding but also enhances productivity. Companies committed to safe working conditions, employee development, and positive societal contributions are better positioned to attract and retain skilled labor.
#### Addressing Social and Governance Dimensions
While discussions on ESG in Vietnam frequently emphasize environmental priorities, the social and governance dimensions are equally critical. On the social front, workers often face challenges related to occupational health and safety, job insecurity, and excessive overtime linked to short-term contracts. In manufacturing hubs like Binh Duong, the presence of a significant number of migrant workers complicates social inclusion efforts. Therefore, manufacturers must strengthen labor protections and invest in upskilling programs that equip employees with the skills necessary to adapt to new technology and production models.
Workplace safety, gender equality, and fair wages are increasingly becoming non-negotiable within global supply chains. International buyers, especially from the EU and U.S., are enforcing stricter due diligence on labor practices, meaning that non-compliance can lead to reputational damage and the loss of vital export opportunities.
The governance aspect of ESG has also evolved in Vietnam. Over the past five years, the country has made strides in formalizing corporate responsibility and transparency, particularly among listed firms. Key regulations such as the 2019 Law on Securities and Decree No.155/2020/ND-CP emphasize the need for corporate governance and information disclosure, requiring public companies and fund managers to report relevant ESG risks. These reforms resonate with a broader global shift toward accountability.
#### Technology and Process Transformations
Vietnamese manufacturers are beginning to weave ESG principles into their operations through technology adoption and process transformation. A key focus area has been the deployment of carbon tracking and management technologies, driven by necessities imposed by compliance and regulatory expectations.
Currently, local regulations mandate the reporting and monitoring of greenhouse gas inventories, while the EU’s carbon mechanisms amplify the stakes for exporters. Manufacturers are concentrating on implementing carbon monitoring systems that facilitate decarbonization efforts and utilizing automated data collection platforms to streamline compliance reporting. Digital solutions, including blockchain and the Internet of Things (IoT), are improving transparency and accuracy throughout supply chains.
At the same time, circularity initiatives are gaining traction as manufacturers look to minimize environmental impact while enhancing efficiency. These initiatives include optimizing resource use and adopting symbiotic relationships within eco-IPs, enabling companies to share resources and by-products.
#### Looking Forward: Policies and Strategies
As Vietnam’s regulatory reforms and international trade commitments continue to align with global ESG priorities, manufacturers have a clear policy framework and incentives to follow. Policies such as the Green Growth Strategy and the ambitions for achieving net-zero emissions by 2050 provide a roadmap for businesses aiming to integrate sustainability.
Fostering partnerships among government entities, private sectors, and civil society will be crucial for maximizing the potential of ESG. By collaborating on solutions and addressing the challenges of ESG implementation, Vietnam’s manufacturing sector can navigate the intricate landscape of global sustainability in a competitive manner.
Vietnam’s manufacturing industry stands at a pivotal intersection, where ESG integration is essential for sustainable growth and competitiveness on the world stage. Addressing challenges such as social inequality and evolving regulations will ultimately create a more resilient and inclusive sector, capable of thriving responsibly in the global economy.