Businesses can show the way with ESG compliance

December 13, 2022 | 19:11

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The importance of sustainability to the bottom line, particularly a stronger corporate governance foundation, has risen to the top of the agenda for businesses large and small.

At last week’s fifth annual Corporate Governance Forum, co-hosted by the Vietnam Institute of Directors (VIOD) and VIR, three companies – Hau Giang Pharmaceutical, FPT, and Vinamilk – were named the three Vietnamese listed companies with the best corporate governance score in the country through the ASEAN Corporate Governance Scorecard.

Businesses can show the way with ESG compliance

The Ho Chi Minh City forum comprised deep discussions on the importance of modern corporate governance, Le Toan

Other companies at the event described how vital it is to develop a sound strategy for environmental, social, and governance (ESG) criteria. Le Tri Thong, CEO and vice chairman of jewellery firm PNJ, revealed that this year it had established an ESG committee in its Board of Directors, which helps it develop related strategies and integrate them into the company’s overall development strategy.

“This is good practice in corporate governance. When dealing with ESG issues, PNJ shifts through common practices, at the same time evolving and conducting more profound research into its separate pillars. For corporate governance to be effective at every level of the company, there needs to be harmony between the director and the enforcer so that we can implement ESG with strategy, influence, and balance in execution with the strategic direction,” he said.

Thong explained that PNJ’s ESG committee consists of three members, led by a non-executive member and two independent members, to ensure balance when giving orientation and evaluating and implementing tasks. Each party has a set of ESG enforcement on the executive board. The department head will build the leading orientation and development strategy in parallel with the development of the company.

“During the implementation process, members of the subcommittee discuss and consult without giving orders, then bring it to the ESG department. The CEO and Board of Directors will contribute to the overall ESG strategy. In other words, strategies will be proposed by the committees and decided upon by all members of the Board of Directors,” Thong added.

Dominic Scriven, chairman of Dragon Capital, emphasised the importance of an independent board as a watch dog and overseeing the function of senior management of a company from a neutral perspective.

“Since there has been a global push for better corporate governance and widespread adoption of ESG best practices, the function of the independent director in a corporation has come under scrutiny. For the board to be effective, they need to be compensated fairly. In addition, the board must swiftly adapt the ability, experience, and understanding gained from previous events and from history lessons,” Scriven added.

Darryl Dong, business development manager at IFC Vietnam, also highlighted the need for strong leadership. “We need leaders to be strong and insist on strong ESG considerations – the leaders who can set the bar, rally the troops, and lead by action,” he said.

Corporate governance and environmental and social standards are the future, and investors want more than financial return, he added. “Companies are required to have good corporate standing, protect the environment, promote humanity and do it in an open, transparent, and just manner.”

While IFC believes that Vietnam has the vision and leadership to reach high-income status and achieve net-zero carbon emissions, Dong emphasises that it will not come cheap. The World Bank and IFC estimate that in order for Vietnam to achieve both goals, the nation will need to see an additional investment of $368 billion present-value, between now and 2040.

“Companies are going to be asked to step up and shoulder maybe half of that. It says that today’s world dictates that we need new ways to operate, and ESG can be a leg up for others on that journey,” Dong continued. “The market knows that good ESG is good for the world, and good for the companies involved. The market places great value in the boards that commit, and investors are voting more for companies with integrated ESG.”

General director of the VIOD, Phan Le Thanh Long, said that in order to grow successfully, companies nowadays need to look beyond their own bottom line.

“Many foreign investors are opting for ESG-centric companies, with strong corporate governance practices, as their long-term and valuable investment,” Long said.

Ken Atkinson-Founder and senior board adviser Grant Thornton

Small- and medium-sized enterprises (SMEs) are very interested in ESG and I think they understand the urgent need of implementation to their sustainable development in the long term.

Notwithstanding, only some companies can afford to hire consultants to help them develop ESG frameworks. However, SMEs by and large often cannot afford the cost of international consultants, and local consultants are now starting to see a body of creativity.

There needs to be more rollout of training on how to build an ESG framework and how to implement any state framework. Embedding sustainability from the early phase of development, even for SMEs, means it will grow and evolve along with other firms.

Susanna Hasenoehrl-Head of Sustainability (Asia-Pacific & Japan), SAP

Vietnam’s ambitious commitment to reach net-zero in 2050 is that not far down the road because there are also 2025 targets and 2030 targets, so we absolutely must start with decarbonisation today. Vietnam is a top manufacturing hub – international companies and local companies produce and procure here. Bosch from Germany, for example, not only manufactures here but procures many components here. Many companies also export to markets such as the US and the European Union, where rigorous standards apply.

Let us not forget that Vietnam is a growth economy, and many companies are looking to recapitalise to gain access to sustainable finance from the international markets. Companies here must therefore comply with those international expectations.

If you are a company that is looking to tap into the international financial market, ESG would play a crucial role in that journey.

The Securities Exchange Commission in the US is starting to require disclosures and also more evidence for ESG. G7 countries and other nations like New Zealand are also introducing climate disclosure requirements and task forces for climate-related disclosures.

Ta Thanh Binh-Head of Securities Market Development State Securities Commission

The Corporate Governance Scorecard is an initiative under the ASEAN Capital Markets Forum to raise the corporate governance standards and practices of publicly listed companies and promote the appeal of the ASEAN asset class.

However, only one Vietnamese listed company is included in this, Vinamilk. There are some major perspectives to distinguish a high-ranking company in accordance with the scorecard from the rest, in terms of their ability and willingness to go above and beyond the conventional requirements.

In general, the top organisations are distinguished by their proactive compliance over and above what is required by law. For example, they actively develop an independent sustainable development report in accordance with international standards.

Besides that, the number of members on independent boards are higher than regulatory percentages, illustrating their stringent requirements for independent assessment and governance.

On the other hand, diligent international investors are now also taking non-financial factors into their decision-making process, and a solid foundation of corporate governance is of utmost importance.

Pham Nguyen Vinh-Director of Corporate Development, Dragon Capital

ESG standards are subject to change depending on the nation, operating industry, and the scale and nature of each business.

For example, in the governance aspect, while Vietnamese enterprises and governing bodies are still struggling with problems like intellectual property, European counterparts are focusing on issues like gender equality and inclusivity. So there’s a gap in ESG development around the world. Some countries are in the risk-management phase, while some are creating new values.

Dragon Capital has been in the ESG journey for 20 years and, like other businesses, we start from compliance. We have integrated ESG in our internal operation for managing risks and seeking new opportunities.

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By Luu Huong

What the stars mean:

★ Poor ★ ★ Promising ★★★ Good ★★★★ Very good ★★★★★ Exceptional