ESG adoption and implementation for prosperity

May 27, 2024 | 16:00
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The past few years have witnessed an exponential rise in environmental, social, and governance (ESG) awareness and adoption worldwide. While officially coined in 2004 in a UN report, ESG has transcended from a niche concept to a mainstream consideration for investors, businesses, consumers, and regulators alike.

The key to balancing economic growth with environmental protection, is the practice of ESG. Integrating it into business operation can change the way businesses are managed, how they perform and monitor their impact on the environment and society.

ESG adoption and implementation for prosperity
Patrick Haverman, deputy resident representative United Nations Development Programme in Vietnam

From a business perspective, it creates long-term value through improvement in efficiency, competitiveness, and labour policies. Its adoption can improve access to international markets and to sustainable financing. The EU in particular is gradually introducing new, more demanding requirements for businesses on sustainability practice and disclosure, which will impact both businesses who wish to export to the EU, and their supply chains.

Provisions about sustainability and labour rights in trade are also included in three of the free trade agreements to which Vietnam is party: the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, EU-Vietnam Free Trade Agreement, and UK-Vietnam counterpart.

Meanwhile, the global economy is recovering from a series of shocks: we have just started to recover from the pandemic and disruption in supply chains to then face armed conflicts, rising interest rates, high inflation, and global economic recession. Meanwhile, countries around the world are affected by the impact of climate change and severe weather conditions.

Vietnam managed to sustain its growth during the pandemic, but it has slowed down during the recovery. Its economy is export intensive, using lots of natural resources such as water, land, and energy. Export-led growth is facing challenges due to disruption of supply chains, economic recession, and more stringent requirements into export markets.

On top of economic crises, the impact of climate change will create more challenges to businesses in Vietnam. Therefore, businesses are motivated to transition to a more sustainable operational and business model.

Thus, there is a need to improve both digital capabilities and green capabilities for Vietnam. This is well reflected in the recent Ministry of Planning and Investment report on promoting digital transformation with green transition as a testament to Vietnam’s commitment to the dual transformation.

Within Vietnam, more attention is being paid to ESG by the media, government, and also businesses. In Vietnam, the concept is beginning to gather pace, underpinned by various national green growth strategies and directives on supporting private sector enterprises in sustainable businesses.

Different sources indicate that the actual level of practice is still low. A report from PricewaterhouseCoopers states that 80 per cent of businesses in Vietnam have made ESG commitments, or plan to so in the near future. However, around 70 per cent of them indicate a lack of understanding of the data required and have none to very limited reporting. Only one-quarter indicate to have a clear governance structure to drive related commitments forward.

There are different challenges and barriers to advancing the practice in Vietnam, including lack of knowledge, human resources, and government regulation. We see the need for a comprehensive programme to work on capacity building for businesses, to support their access to the ESG and impact investors, to develop clear regulatory frameworks for businesses and financial institutions, and to raise awareness about the importance of doing ESG the right way, with focus on scientific validity and real-world impact.

Globally, the UN Guiding Principles on Business and Human Rights offer guidance on social performance for businesses. The Sustainable Development Goal Impact Standards, a readily available management practice tool, is designed to guide businesses in effective governance. These standards provide a decision-making framework, helping businesses embed sustainability into their management and decision-making processes while filling gaps in current market practices. We have supported the Social Impact Business ecosystem to respond to the recent pandemic, and supported the establishment of the Vietnam Circular Economy Hub.

The current evolution of ESG increasingly calls for more ambitious interpretation of materiality, going beyond risk management and do-no-harm approaches to actively creating a net-positive impact while ensuring financial returns. While Vietnamese businesses lag in relevant practices, they have the opportunity to leapfrog others on their sustainability journey.

Entrepreneurs must join the movement of sustainability management, measurement, and disclosure, creating a culture of accountability and trust, and striving for a real-world impact. We need every enterprise to make a difference where it matters most: on the ground, for people and the planet, and for green growth in Vietnam.

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By Patrick Haverman

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