|Grete Løchen-Norwegian Ambassador to Vietnam |
In Vietnam, the Nordic Embassies of Norway, Denmark, Finland, and Sweden and the Ho Chi Minh National Academy of Politics co-organised, in March, a workshop on the ESG agenda in which the Nordics showcased and shared experiences about how our governments interact with the private sector on responsible business.
It is well known that environmental factors include actions related to climate change issues; social factors cover a vast range of potential issues, but business relationships with its employees are a big aspect; and governance is about how a company is managed responsibly and sustainably.
International-standard guidelines have also introduced the most comprehensive set of recommendations on responsible business addressed by governments, which reflect good practices not only for multinational enterprises but for all. Unfortunately, according to a 2019 survey by Norway’s National Contact Point for Responsible Business, too few companies follow these guidelines.
In the context of a vibrant economic recovery after the pandemic, this is becoming more important than ever, because the pandemic has confirmed that the threat of overlooking the planet and people’s health is real. No industry can afford to perceive itself as separate from the context in which it functions – whether environmentally, socially, or in terms of how businesses and societies are governed.
This is crucial for the developing and emerging economies that want to attract more foreign direct investment. Investors are now targeting destinations where both the government and business community put sufficient emphasis on responsible business and adherence to ESG principles.
At the same time, there is increasing pressure from informed consumers demanding products and services that are sustainable, ethically and socially responsible or made in countries that take ESG seriously. The public shares a general desire for more transparency regarding how goods are produced and services are supplied, especially how businesses respect ESG principles and fundamental human rights such as decent working conditions as part of these processes.
A game changer
The new Transparency Act in Norway is aimed to promote enterprises’ respect for fundamental human rights and decent working conditions – both in global supply chains and in enterprises in Norway. Thus, the act has made all the formal ESG reporting and due diligence requirements, which have so far been voluntary for most companies in Norway, a legal obligation.
It is seen as an important game changer by requiring larger enterprises resident in Norway offering goods or services in or outside Norway to carry out due diligence, publish an account of the due diligence assessments, and have a duty to provide information. This also applies to larger foreign enterprises that offer goods or services in Norway.
It has made Norway a leading country in this field together with the EU when the European Commission adopted a proposal for a directive on corporate sustainability due diligence in February this year.
Against this backdrop, companies in Norway will have to look carefully at their own business operations, their supply chain and business partners to find out the biggest risks. They will have to investigate whether there are any actual, or risks of, adverse impacts on human rights or decent working conditions such as the use of child labour, implementation of health and safety measures in their own operations, their supply chain partners, and other business relationships.
That also means their investment and business decisions will be made in a more careful and cautious manner based on green and sustainable factors and not just profit-related.
The world is recovering from the pandemic and shares many challenges, the biggest of which include geopolitical tensions, climate change, pollution, biodiversity loss, and decent working conditions. The world today is globally connected, therefore regulations and rules here will have significant implications there and beyond. We all have to play our roles and so does business.
Vietnam made significant environmental and climate change commitments last year: reach net zero by 2050, end all investment in new coal power generation, scale up the deployment of renewable energy, and phase out coal power by 2040. Many multinational companies already in Vietnam have also made their commitments to green their production and reduce their carbon footprint.
The World Bank in their recently launched Vietnam Country Climate and Development Report underscores the urgency of adaptation to climate change, combined with policies and public and private investments to reduce the carbon intensity of growth. It proposes actions on two fronts for Vietnam: adapting to climate impacts and pursuing a growth strategy that steers the economy away from carbon-intensive production.
The twin goals of becoming a high-income and net-zero country in the next 30 years will, however, require the mobilisation of enormous amounts of private capital. For this to happen, it is vital that Vietnam designs and implements the right policies and reforms.
Vietnamese companies, especially exporters, should be forward-looking by recognising the importance of, and focusing on, ESG implementation, compliance monitoring and reporting if they want to succeed in Vietnam’s most important markets such as Europe and the US. Investment in responsible business and ESG means investing in a sustainable future for companies. It should become an integrated part of their strategy and corporate governance framework.
Companies that can demonstrate their commitment to responsible business are now more likely to attract and retain new customers and partners, meaning more profits. In the long run, they will contribute significantly to Vietnam’s twin goals of sustainable development and addressing climate change. This is not just the right thing to do, but it is also smart business.