Tiếng Việt
The Covid-19 pandemic has been causing various negative impacts on the socio-economy worldwide. In the context of a global crisis that poses many challenges, ESG is not only a general trend but also a necessary solution to solve environmental, social and governance issues, towards the development of circular economy, a goal that all countries in the world are interested in and oriented their development. This study aims to provide an overview of ESG, analyzing the current state of ESG in Vietnam, including: commitments and policies of the Government, commitments and practices of Vietnamese enterprises; From there, we propose a number of solutions to promote the process of commitment and practice of ESG in Vietnam.
PROBLEM STATEMENT
Since the outbreak of the Covid-19 pandemic, the world has witnessed numerous upheavals, with global economic and political health severely challenged by factors such as: US-China trade tensions, the Ukraine conflict, climate change, rampant inflation, and rising prices of raw materials and other commodities. These factors have created serious disruptions in the global supply chain, significantly impacting Vietnam’s supply chain (Pham Thi Thanh Binh, 2023). Furthermore, Vietnam is among the countries most vulnerable to climate change, ranking 127th out of 182 nations. A World Bank (WB) study revealed that from 2011-2022, climate change caused losses exceeding USD 10 billion in Vietnam, and this figure is projected to escalate rapidly (Le Quan, 2023).
In this context, the world is turning towards a circular economy. This approach is considered a suitable and practical solution to address the challenges of resource depletion and environmental pollution (Nhi Anh, 2023). Implementing a circular economy through the adoption of ESG principles is an indispensable approach that businesses must prioritize. With its three core pillars, ESG assists businesses in developing strategies, orientations, risk prevention and management for environmental, social, and governance aspects, addressing global issues and promoting sustainable development (Huong Loan, 2023).
OVERVIEW OF ESG
ESG stands for Environmental, Social, and Governance. The term first emerged in 2004 within the financial sector when the United Nations Global Compact released the report “Who Cares Wins”, advocating for the integration of environmental, social, and governance factors into financial analysis, asset management, and securities brokerage. Subsequently, it gradually gained traction in other sectors.
Kocmanova (2014) defined ESG as a set of standards for the environmental, social, and governance performance of companies, providing a framework for measuring the sustainable performance of a company in its Sustainability Report.
The WB further elaborated on each aspect of ESG. E – Environment measures the sustainability of economic activity based on natural resource use, management of environmental risks, and resilience to climate change and other natural hazards. It focuses on internalizing environmental externalities, ensuring access to sustainable energy, and addressing food security. S – Social evaluates the sustainability of economic activity based on meeting people’s basic needs, poverty reduction, managing social issues, promoting equality, investing in human capital, and enhancing labor productivity. Finally, G – Governance measures the sustainability of economic activity based on governance capacity, the strength of political, financial, and legal systems, and the ability to address environmental and social risks.
Vietnam’s Commitments at COP26
At the 2021 United Nations Climate Change Conference (COP26), Vietnam made a strong impression on the international community, opening up opportunities for growth and development of a circular economy. Vietnam’s key commitments to combat climate change include (IUCN, 2022):
Global Methane Pledge: Joining the global effort to reduce methane emissions by at least 30% from 2020 levels, with a focus on the energy, waste, and agricultural sectors. Vietnam aims to achieve this in agriculture by leveraging technology, particularly in rice production.
Halting Deforestation by 2030: Vietnam joined 141 countries in signing the Glasgow Leaders’ Declaration on Forests and Land Use, committing to halt and reverse forest loss and land degradation by 2030. This declaration plays a crucial role in conserving forests and other terrestrial ecosystems.
Achieving Net-Zero Emissions by 2050: Vietnam pledged to achieve net-zero emissions by 2050 through efficient resource utilization, accelerating financial and technological partnerships, and promoting sustainable practices.
Phasing Out Coal-Fired Power by 2040: Vietnam’s Minister of Industry and Trade signed the Global Coal to Clean Power Transition Statement, committing to a fair and comprehensive transition away from coal power generation. This includes rapidly scaling up clean electricity production and halting new permits for coal-fired power plants.
Reducing Greenhouse Gas Emissions: Vietnam was one of 12 countries to update its Nationally Determined Contributions (NDC) by September 11, 2020. The updated NDC commits to reducing greenhouse gas emissions by 9% with domestic resources and 27% with international support
Commitment, Implementation, and Reporting among Vietnamese Businesses:
Numerous surveys indicate that Vietnamese businesses recognize the importance of sustainable development. Notably, the UOB Business Outlook 2023 report, surveying over 4,000 SMEs across ASEAN and China, found that 94% of participating Vietnamese businesses acknowledge the significance of sustainable development. This report also identifies Vietnam and Thailand as frontrunners in sustainability adoption, with 51% having initiated sustainable practices.
Similarly, PwC’s “ESG Readiness of Vietnamese Private Companies 2022” report, involving 234 Vietnamese companies surveyed between May and August 2022, revealed that 44% have established ESG plans and commitments, while 36% are in the planning phase for the next 2-4 years. Additionally, PwC’s “Vietnam Next Generation Family Business Survey,” conducted between October 8th and December 12th, 2021, with 38 Vietnamese representatives, highlighted a promising future for sustainable development with strong commitment and responsibility towards sustainable business practices.
However, these reports also suggest that the percentage of SMEs engaged in ESG remains limited. In 2022, the Small and Medium Enterprise Development Department (Ministry of Planning and Investment), with technical support from the USAID IPSC Project, conducted a survey on business awareness. The findings revealed that ESG adoption is predominantly driven by larger companies, including those with foreign direct investment (FDI), publicly listed companies, and export-oriented enterprises (Ngan Ha, 2023). In contrast, only 25% of small and medium-sized enterprises (SMEs) have proactively implemented ESG, while 21% are not considering it within the next 2-4 years (Nhu Loan, 2022). PwC’s report further indicated that while 57% of FDI enterprises have established ESG plans and commitments, this figure drops to 35% for listed companies, even lower than private/family businesses (40%). Among businesses without commitments, 60% are SMEs.
Evidence from these surveys suggests that translating commitment into action poses a challenge for Vietnamese businesses. While 80% of businesses have either adopted or plan to adopt ESG, 34% lack dedicated ESG programs, and only 22% have comprehensive ones.
Data also reveals a low level of emphasis on ESG reporting. According to PwC, 70% of surveyed businesses in Vietnam have limited or no external ESG reporting, with only 15% comprehensively reporting. In 2023, KPMG published the results of a survey of Vietnam’s 100 largest companies (2022 data) revealing that: 87% engage in reporting, but 90% do not report on carbon targets; 93% do not report on environmental risks; 86% do not report on social risks; and 86% do not report on governance risks. Furthermore, among the 30 largest companies listed on the Ho Chi Minh Stock Exchange (HOSE), only 13.33% (4 out of 30) publish separate sustainability reports. The rest integrate it into their annual reports, with only 3 out of 30 companies (10%) utilizing audit services (Tran Ngoc Hung, 2023).
Analysis of the Current Situation and Key Challenges:
The analysis reveals that both the Vietnamese government and businesses recognize the importance of ESG. This is evident in the government’s commitments at COP26, the policies and strategies implemented, and the level of commitment expressed by businesses in surveys. However, current actions are primarily limited to commitments, lacking concrete implementation.
One major barrier is the lack of knowledge and expertise. PwC’s “ESG Readiness of Vietnamese Private Companies” report highlighted that 60% of businesses identify the knowledge gap as a key obstacle to ESG adoption. Specifically, 54% stated that their organizations haven’t considered providing ESG training to their employees.
Beyond a lack of ESG awareness, weak governance structures also hinder adoption. With four generations (Baby Boomers, Gen X, Gen Y, and Gen Z) now in the workforce, managing a multi-generational workforce is a challenge. This extends beyond recruitment to retaining skilled employees and maximizing their potential, particularly emphasizing the leadership’s role in driving ESG.
From an investor perspective, caution and reluctance to invest in the Vietnamese market stem from concerns about ESG practices, data transparency, and reliability (Dung Nguyen, 2023). A lack of transparent regulations further hinders ESG implementation. Despite numerous government regulations, policies, and strategies for ESG development, many areas lack clear guidance, leaving organizations awaiting specific instructions on implementation.
Solutions for ESG Development in Vietnam:
Knowledge Management:
Knowledge management is crucial for both the government and businesses. Companies need training programs to equip leaders and employees with the necessary environmental, social, and governance knowledge and expertise. Technology plays a vital role in knowledge management, necessitating continuous technological upgrades to keep pace with the evolving global economy (KPMG, 2023; Chinh & Hoang, 2009).
Human Resource Management:
The ESG revolution demands strategic HR planning to attract and retain talent. PwC’s Asia-Pacific Workforce Hopes and Fears Survey 2023 highlights a shift in power dynamics between employees and employers, with salary no longer being the primary factor for retaining talent. Employees increasingly prioritize values such as fairness, transparency, and work flexibility (PwC, 2023), requiring employers to adapt their recruitment and retention strategies. Creating a digital workplace, with remote management and monitoring – a model already successfully implemented by numerous companies globally – can mitigate employee turnover and recruitment challenges. However, understanding employee needs remains paramount in effective HR management.
Building Trust in the Supply Chain through ESG Integration:
According to a March 2023 KPMG analysis, Vietnam is currently in the “Limited Manufacturing” stage of the global value chain. This is characterized by developing industrial infrastructure and supporting industries, primarily involving labor-intensive and low-tech production processes, and limited supply chain management capabilities. In the current economic climate, where supply chains remain disrupted post-Covid-19, building trust is crucial for Vietnam’s economic growth. To attract investment and instill confidence, Vietnamese businesses must prioritize transparency and expand the scope of their ESG reporting. Adopting globally recognized standards, such as the Sustainable Development Goals (SDGs), Global Reporting Initiative (GRI), Task Force on Climate-Related Financial Disclosures (TCFD) recommendations, and Sustainability Accounting Standards Board (SASB) framework, will further enhance their attractiveness to investors (PwC, 2020).
Collaboration across Levels, Sectors, and Stakeholders:
Building and implementing ESG is a long-term endeavor requiring collaborative efforts from various levels, sectors, business communities, citizens, and the international community. Vietnam’s government demonstrates commitment through policies and strategies, but specific implementation guidelines are needed.
Beyond government policies, businesses must understand the importance of ESG and establish clear strategies. Currently, a lack of understanding regarding ESG standards poses a significant barrier for businesses in Vietnam and globally. Therefore, the government should collaborate with domestic and international organizations to organize workshops, address concerns, and enhance awareness, knowledge, skills, and expertise, not just for leaders but for all employees within Vietnamese enterprises.
Vietnam is in the early stages of its ESG journey and requires support from international organizations and the global community. This support will enhance implementation capabilities, foster experience sharing, and ultimately drive progress in ESG commitment and implementation.