Navigating ESG Adoption in Vietnam: A Pathway to Sustainable Growth

Understanding ESG

In recent years, the adoption of ESG (Environmental, Social, and Governance) practices has gained momentum in Vietnam, driven by regulators, banks, and international aid agencies. This commitment is not just about compliance—it’s a strategic move to access funding sources that support sustainable development. The Vietnamese government has recognized the importance of ESG in enhancing economic competitiveness and addressing global environmental challenges.

The Vietnam ESG Initiative

The Vietnam ESG Initiative represents a concerted effort to incorporate sustainable practices into local enterprises. Born from collaboration between the United States Agency for International Development (USAID) and Vietnam’s Agency for Enterprise Development (AED), this initiative supports businesses in implementing robust ESG assessment frameworks. Aiming to facilitate private sector involvement, it is a key component of Vietnam’s Green Growth Strategy for 2021-2030.

Prime Minister Pham Minh Chinh reinforced this vision during the Vietnam Business Forum (VBF) 2024. He emphasized that green growth is integral to the country’s economic restructuring goals, aiming for improved productivity, efficiency, and competitiveness.

Support and Funding for ESG Practices

The 2024 Vietnam ESG Initiative is crucial for private enterprises. It offers funding of up to VND 2 billion (approximately $81,276 annually) for pilot projects and initiatives that showcase sustainable business models. This financial support not only encourages businesses to adopt ESG practices but also improves access to green capital, which is becoming increasingly vital as global market demands shift.

“Incorporating ESG practices enhances reputations and opens doors to green financing,” remarked Ms. Trinh Thi Huong, Deputy General Director of AED, accentuating the strategic benefits for firms looking to align with market expectations.

The Rise of Green Credit

Vietnam has seen significant momentum in green credit, with data from the State Bank of Vietnam (SVB) revealing a steady annual growth of about 22% in green credit balances from 2017 to 2023. As of March 31, 2024, 47 credit institutions reported outstanding green credit loans totaling VND 636.964 trillion (approximately $25.02 billion), which represents 4.5% of the economy’s total outstanding balance.

This growth is primarily driven by investments in renewable energy and green agriculture, with nearly 45% of green loans directed toward clean energy initiatives and about 30% to agriculture.

Implications of Rising Demand

The growing demand for green credit stems from several factors, including a shift in investor priorities towards sustainability and the potential for increased financial returns on environmentally responsible initiatives. Marco Förster, ASEAN Director at Dezan Shira & Associates, noted that the Vietnamese government’s push for ESG and the regulatory environment is crucial for fostering a sustainable economy.

Collaborative Efforts at the Vietnam ESG Forum

At the recent Vietnam ESG Forum, Deputy Governor Dao Minh Tu of the SVB highlighted the proactive engagement of credit institutions collaborating with international partners to access green capital and technology. This collaboration is fundamental for developing sound environmental and social risk management systems, essential for various credit-granting activities.

Institutions like Nam A Bank are actively integrating digital strategies with green projects, showcasing a diverse range of green credit products focusing on electric vehicles and renewable energy. This proactive approach signals a strong commitment to integrating sustainability into the banking sector.

Addressing Challenges in ESG Implementation

While progress is evident, there are hurdles that need addressing, particularly the absence of a national green taxonomy. This framework is vital for establishing clear guidelines on what qualifies as green investment, helping both financial and business sectors align with sustainable development goals.

The Need for a National Green Taxonomy

The lack of a unified green classification system among governmental agencies complicates the banking industry’s ability to effectively manage and report on green credit resources. A robust green taxonomy would provide a comprehensive framework to standardize green projects across the economy, allowing for better tracking and support.

Vietnam’s regulators are aware of the urgency for such a taxonomy. It would not only enhance the evaluation of policies aimed at achieving green growth but also streamline the financing of environmentally sustainable projects.

Recommendations for Future Initiatives

During VBF 2024, several recommendations were made to bolster green funding efforts:

• Establishing a national green taxonomy aligned with international standards.
• Promoting the development of a carbon market and a carbon credit trading platform.
• Collaborating on a set of environmental criteria for green credit issuance.

The SVB has committed to fostering a banking environment conducive to these initiatives, emphasizing the importance of sustained credit policies that promote green growth.

A Future Focused on Sustainability

The momentum toward ESG adoption in Vietnam is a testament to the country’s commitment to sustainable development. By addressing regulatory challenges and enhancing access to green financing, Vietnam’s banks and financial institutions are paving the way for a greener economy while encouraging businesses to embrace sustainable practices. As the focus on ESG intensifies, stakeholders are positioned not only to comply with global standards but also to thrive in an increasingly eco-conscious global market.

For further insights and updates on this important transition in Vietnam, engaging with local publications and participating in forums can foster a deeper understanding and facilitate active involvement in these crucial developments.