Responsible investment gains ground

Responsible investment gains ground, photo Shutterstock

As a global trade dispute reaches new levels, Vietnam has enjoyed a bit of spotlight as the next big production base for the ASEAN, poised to welcome scores of investors shifting production away from China. A recent Maybank survey showed that a fifth of China-based manufacturers are rushing to Vietnam to avoid high tariffs set by the United States. Foreign direct investment in the first quarter of 2019 jumped 86 per cent on-year, with flows mostly into electronics, textiles, garments, and consumer goods production.

However, at last week’s Invest Asia 2019 conference held by Maybank Group in Singapore, experts and investors emphasised that if Vietnamese businesses do not pay close attention to sustainable development, they will not be able to join the global supply chain, attract major foreign investors or retain consumers.

“As the next manufacturing hub, Vietnam might want to avoid a similar fate as China, where pollution is becoming a dear cost to quick manufacturing growth,” said Nicola de Loisy, president of Hong Kong-based advisory SCMO.

South China Morning Post cited a Chinese University of Hong Kong study stating that air pollution from smog-inducing ozone and fine particles may be shaving an estimated 267 billion yuan ($38 billion) off the Chinese economy each year in the form of early deaths and lost food production.

Melissa Kang, founder and managing partner of Jupiter Impact Partners, a Singapore-based firm in favour of sustainable investment, told VIR that Vietnamese consumers are also becoming more informed about sustainability and demand it from businesses. Thanks to a number of environmental scandals and social media, consumers, especially the younger generation, want businesses to be responsible towards the environment and community they operate in.

“Sustainability isn’t something simply nice to have anymore. If companies in Vietnam want to stay in business, join the global supply chains, and keep customers, they must invest in sustainable development,” said Kang.

She spoke from her experience as a former investment officer of the International Finance Corporation and Morgan Stanley, and a close observer of Vietnam’s sustainability practices.

Two months ago, a survey conducted by Oxfam and partners showed that 81 per cent of Vietnamese consumers have at one time or another boycotted a product due to poor business ethics, with environmental and social responsibility making up a prominent part.

At the Invest Asia event, financiers also discussed how the financial industry can push sustainability practices in Vietnam. Efforts usually come from international investors, stock exchanges, and banks. The message is that if local companies want to receive funding from financial institutions or join the stock exchange, they should pay close attention to sustainability.

“When we talk with companies, we don’t want the glossy sustainability reports. We’ll have discussions with executives to see whether this is an integral part of their strategy, because these efforts have to come from the top,” said Munib Madni, CEO of Panarchy Partners.

The investor said that environmental, social, and governance (ESG) criteria are increasingly used by investment funds that look for companies with not only growth prospects, but also a good impact on the environment and wider society.

Last month, the ESG Global Survey 2019 showed that a quarter of European investors and 20 per cent of those in the Asia-Pacific already adopt ESG for more than half of their investment decisions. Investors in Asia in particular strongly believed that companies with ESG are more likely to outperform those without it for long-term, and this safeguards the reputation of both investors and their businesses.

In Vietnam, there are already initiatives to push ESG by regulators and overseas investors. One example is Dragon Capital, who oversees $3 billion in assets and quickly realised that previous investments mostly failed due to ESG problems. To continue raising capital from major investors from across the world, the group has adopted an ESG standard and declined to invest in any Vietnamese companies that do not meet these requirements.

Another strong advocate of ESG investing is Vietnam Holding, who have partnered with sustainability organisations and held annual forums on ESG best practices. “We’re a sustainable investor and are driven by shareholder value and the goals of ESG principles. Our investment system includes 36 specific criteria, and our evaluations compare an investee company’s ESG improvement over time,” said the investment fund.

Market regulators are promoting ESG via legal documents such as Circular No.155/2015/TT-BTC on sustainability, and Decree No.71/2017/ND-CP on corporate governance. The Ho Chi Minh Stock Exchange has also introduced the Vietnam Sustainability Index for listed companies with the highest ESG scores.

When asked whether Vietnamese companies can comply with regional and global ESG benchmarks, Rajiv Vijendran, regional head of Investment Banking and Advisory at Maybank Kim Eng, said that this is a common problem in frontier markets across Asia, and that opportunities to invest in ESG-compliant businesses are still limited, especially in listed ones. That said, the trend towards ESG is clear, especially with the push from institutional backers.

“As more investors put sustainability goals in their portfolios, companies will have to follow if they want to look for funding,” Vijendran told VIR.