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ESG Enforcement: Challenges and Advantages for Vietnamese Businesses

ESG regulations are becoming increasingly stringent for the global business community, demanding companies not only to generate profits but also to focus on sustainable business models. In the face of this trend, Vietnamese businesses are under growing pressure to implement ESG practices to stay competitive in the “game.”

Despite inevitable challenges, the positive aspects of the green transformation are substantial. Pioneering Vietnamese companies have demonstrated positive outcomes, indicating significant potential when ESG strategies are correctly executed.

Today, ESG is not merely a social responsibility but an essential transformation requirement for entrepreneurs. This need becomes even more urgent as Vietnam commits to achieving net zero by 2050, giving us only a quarter of a century to strive for sustainable business practices. Globally, many leading corporations, as well as small and medium-sized enterprises, have integrated ESG into their business processes for years and are now reaping the benefits. For example, Amazon has utilized AI to improve its packaging processes, reducing half a million tons of packaging over five years. This serious investment is part of Amazon’s environmental protection goals, which is the “E” in ESG.

To successfully implement ESG, it must be embedded into all business processes, from management models to technology greening, ensuring comprehensive sustainable transformation. This approach not only creates value for the business itself but also contributes to the sustainable development of society and the environment.

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All sectors and industries must integrate ESG to reduce production investment costs and increase profits. Complying with ESG standards also enhances competitive advantages in the international market. Implementing green transition solutions will help businesses increase long-term revenue through new products that incorporate sustainability criteria.

Vietnamese companies and corporations are currently facing numerous barriers in the process of transitioning and enforcing ESG principles. The main reason stems from a lack of understanding of the ESG concept or uncertainty about where and how to start. This can lead to consequences where many firms try to “catch up with the trend” of ESG practices casually, resulting in unwarranted mistakes.

Limited Awareness of ESG among Many Businesses

A comprehensive understanding of the ESG concept is still vague among many entrepreneurs. Some remain skeptical about the value ESG actions bring. The application of ESG varies significantly among Vietnamese companies. Some invest in ESG, directly creating economic value, while others participate merely as a trend, aiming to strengthen their brand.

Attempting to “follow the trend” without understanding the principles can pose potential risks of accusations of greenwashing and deceit for firms. If a company does too little but claims too much, exceeding its capacity, it will be deemed deceitful. A classic example is the Volkswagen emissions scandal, where the company’s exaggerated claims led to deceit charges. Conversely, if a company invests excessively or prematurely, it may fail.

Barriers to Identifying ESG Indices

Mr. Nguyen Viet Thinh, CEO of CGS Vietnam, believes that the majority of Vietnamese companies still need to identify ESG standards to establish goals and measure sustainable development effectiveness (SDE). ESG indices need to be focused and tailored to the sustainable development context of the business.

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A KPMG survey in 2023 showed that large companies tend to conduct SDE reports to share their goals and efforts, with 79% of the top 100 largest companies in 58 participating countries doing so. In contrast, the rate of Vietnamese companies producing separate SDE reports still needs to be higher (only below 10%, calculated in the period 2012-2022). If made, most reports still list CSR activities, while sustainability should be based on scientific progress and systemic theory.

Despite challenges, the green transition process of Vietnamese businesses still has favorable aspects. Firstly, Vietnam benefits from strong government support in promoting sustainable development. This creates a conducive environment for entrepreneurs to implement sustainable strategies effectively. A notable example is the “Vietnam ESG Initiative,” jointly implemented by the Ministry of Planning and Investment and USAID. This program aims to realize Vietnam’s Green Growth Strategy for 2021-2030.

Another advantage is the young and dynamic workforce. Vietnam has a young, educated workforce capable of readily absorbing new ESG knowledge. The flexibility and rapid learning ability of this workforce help firms easily adapt and regulate ESG standards in daily operations.

Some domestic businesses have achieved positive results by embracing sustainable growth trends. Firstly, Vinamilk, Vietnam’s leading dairy corporation, stands out. Vinamilk has been practicing ESG since 1990 during the “white revolution” and has intensified its efforts since 2010. Vinamilk’s heat recovery system reclaims up to 92% of excess heat, significantly saving electricity. The smart warehouse operates automatically, minimizing labor and requiring only 1/6 of the space of regular warehouses, saving up to 70% of energy.

Alongside Vinamilk, Asia Commercial Bank (ACB) is the first Vietnamese bank to publish an ESG report. When ESG began gaining attention as a “top trending” keyword in Vietnam in 2023, ACB had accumulated experience for 10 years under the leadership of the youngest Chairman in the company’s history, Mr. Tran Hung Huy.

ACB invests in green technology, optimizes workflows, and saves energy. The bank also emphasizes human resource development, creating a friendly and sustainable working environment. In its 2022 sustainability report, ACB saved and recycled 215 tons of paper and 32 tons of plastic. Over 10 years, ACB has invested over VND 307 billion in practical activities and communication to raise environmental awareness. ACB’s ESG report not only attracts investor interest but also expands international cooperation opportunities, enhancing ACB’s position and creating sustainable values for the community and society.

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Enforcing ESG policies is not only a business responsibility but also an opportunity to create value and strengthen competitiveness. As discussed in the article, pioneering companies like Vinamilk and ACB have proven that ESG participation not only brings economic benefits but also contributes to sustainable growth.

Therefore, Vietnamese businesses should start implementing ESG policies from the earliest stages of business. Despite forthcoming challenges, objective favorable factors exist. By diligently implementing ESG strategies,  entrepreneurs can stand firm and enhance their competitive capabilities.

Source: Forbes