The importance of a green project list for ESG goals

Through research, we see the risks for banks and businesses if they do not implement environmental, social, and governance (ESG) criteria. About three months ago, I was invited to participate in a research project of the Economic Research Institute for ASEAN and East Asia (ERIA) in collaboration with Waseda University from Japan. The research was on the effects and connections between the transition to net-zero and was conducted in major markets such as the US, China, Japan, South Korea, and ASEAN members like Vietnam.

Ta Duc Binh, senior researcher, Institute of Strategy and Policy on Natural Resources and Environment

According to the research, when putting variables on business efficiencies such as return on assets, return on equity, or earnings per share into the ESG scores integrated model.

The research results show that in large markets such as the US and Japan, businesses with high ESG scores have stronger resilience. This result can be demonstrated by the fact that in addition to long-term benefits, ESG implementation also helps businesses cope with short-term challenges and changes.

To share the importance of the promulgation of the green project list in practising ESG, I am a member of the drafting team of Vietnam’s Green Project List. The team has the view that the list will greatly support the banking industry in identifying qualified and green projects.

In addition, the list also helps banks have more detailed standards in the process of identifying qualified projects, helping them assess the risks and benefits of projects.

However, although the list is significant, it is not a mandatory condition for the success of integrating ESG factors in the banking industry, or in the operations of businesses.

The reason is that nearly two years ago, a group of 50 American businesses came to Vietnam to explore investment opportunities. I was a member of the group to welcome the businesses. I was asked, “Why do businesses and Asian markets like green project lists?” In the US, there is no green classification, but businesses practice ESG very well and the results of ESG implementation are among the best in the world.

My team then began to research and review this question, and we found that countries like the US and Japan all rely on standards that are popular in the capital market to implement.

The second important basis is the role of ESG rating and credit rating organisations. Such organisations have issued ESG index portfolios or scores for each business and bank, which can rely on these assessments to identify good businesses, low-risk businesses, and those with high ESG scores to have the basis to issue investment decisions.

As far as I know, the criteria set provided by ERIA shows that only two Vietnamese enterprises meet the ESG scores standard.

I also approached and worked with Dragon Capital and learned that they have these indexes for enterprises based on sustainable development reports according to rules guiding the disclosure of information on the securities market. However, their rankings are private and they use them for investment research, so they do not share specific information.

I also worked with Bloomberg Vietnam, and they shared data that 27 Vietnamese enterprises have met the ESG scores standard so far. Not all enterprises publish sustainable development reports that meet the standards required by current rules, and very few enterprises provide emission indexes to include in the model or for evaluation.

Emerging markets like Vietnam really need a green project list because they lack information – an important part of assessing the ESG index. We have little information about how businesses implement the three factors, or there is not enough for international rating organisations to score. Therefore, we cannot have a complete index for banks to rely on to select qualified projects and have to wait for the guidance issued by the government.

In countries that have issued green project lists, no country has any preferential support for projects in the lists, so they let the market operate proactively by using an independent unit to verify whether this project is in that list or not, without needing a state management agency to verify it.

ESG represents a shift towards sustainability for banks At a seminar on environmental, social, and governance (ESG) factors in the banking sector hosted by VIR on November 19, industry experts assessed that banks have performed exceptionally well in governance, while the environmental and social aspects remain challenging.