Top strategies to employ for integration of ESG aspects

Nguyen Hoang Nam, Partner and ESG leader PwC Vietnam

Vietnam has implemented various strategies and laws to promote environmental protection, facilitate the transition to green technologies, develop electric energy plans, measure greenhouse gas emissions, and enforce regulations for manufacturers.

Working with businesses recently, we have noticed a clear and rapid increase in ESG awareness and initiatives. While governance remains a key focus in ESG strategies of businesses in Vietnam, there is a growing emphasis on environmental and social issues.

On the other hand, the evaluation of costs must extend beyond mere expenditure, delving into a detailed cost-benefit analysis. It is not just about the expenses incurred, but the substantial benefits that follow.

This perspective is particularly relevant in the context of ESG practices, which, despite their initial costs, offer a balanced approach to prevent businesses from lagging.

Initially, businesses may face significant investments in developing processes, standards, and transitioning models. These expenses, though substantial, are a crucial investment in the long-term journey towards ESG compliance.

Over time, these practices help businesses enhance regulatory adherence, improve operational efficiency, and bolster risk management, eventually leading to the creation of new value.

In the long run, these elements can position a company as a leader and pioneer in its field.

From a risk perspective, businesses face two primary types of climate-related risks: physical and transitional. Physical risks relate to operational activities, infrastructure, or supply chains.

Transitional risks, on the other hand, arise from the large-scale changes necessary for transitioning to a low-carbon economy, spurred by policy shifts and new technologies, such as renewable energy development.

Vietnam’s pledge to achieve net-zero emissions by 2050 is poised to significantly reshape its business landscape. PwC advises Vietnamese businesses to adopt a strategic approach to their ESG initiatives, moving beyond trend-based responses to a more comprehensive, risk-focused strategy.

Initially, companies must rigorously reassess risks, uncovering new opportunities linked to ESG factors. This involves not just adopting ESG practices as a trend, but truly integrating them into business operations. Central to this is risk management, which encompasses both physical and transitional risks, demanding a dual focus on regulatory compliance and operational efficiency.

As Vietnam gears up for net-zero with specific action plans, anticipated government policies are expected to impact business operations deeply. Proactive risk assessment and diverse planning are critical for companies to align with these upcoming changes. This reorientation involves a strategic reevaluation of partnerships, potential shifts in business models, and preparation for external reporting.

Subsequently, the focus shifts towards deriving tangible value from ESG initiatives. Companies are encouraged to introduce ESG-compliant models to the market, targeting growth and a stronger market position.

The third phase involves achieving strategic advantages and market leadership, with an emphasis on building strong relationships with customers, suppliers, and partners who value sustainable practices.

The increasing focus on ethical business conduct and the rigour of ESG practice effectiveness is reshaping the business environment. This is coupled with a rise in legal actions and regulations pertaining to ESG performance, demanding transparency and accountability. The challenge of greenwashing has become more pronounced, necessitating factual and honest reporting.

Supply chain security, resilience, and transparency have emerged as key areas of focus. The need for managing carbon emissions, ensuring product origin transparency, and preparing for geopolitical and environmental shifts, including cybersecurity risks, is paramount.

Additionally, the workforce is undergoing transformation, with the clean energy transition necessitating new skills and careful management to minimise negative impacts on communities and employees.

Finally, the political and legal landscape is undergoing significant changes, driven by pressing global issues. These changes may present challenges in obtaining green financing for various industries. With the regulatory environment expected to evolve significantly, businesses must remain adaptable and agile.

The standardisation of ESG reporting, as evidenced by the International Sustainability Standards Board’s issuance of international standards on sustainability and climate reporting, underscores the need for early preparation. This foresight will enable businesses to adjust more efficiently to new regulatory requirements.

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