Untapped opportunities await with deeply-embedded renewables

ESG awareness is on the rise as investors seek companies with sustainable development.

EY's Fifth Global Institutional Investor Survey 2020 (*) shows that 98 per cent of investors are signalling a move towards a more disciplined and rigorous approach to evaluating companies’ non-financial performance. Ninety-eight per cent of respondents stated that non-financial performance played a pivotal role in investment decision-making.

The disruption caused by the pandemic has accelerated the fundraising growth of organisations that meet ESG principles as investors look for sustainable business models that can withstand market volatility and disruption. The growing public awareness of the climate crisis is also turbocharging the green finance landscape.

Dr. Nguyen Viet Long CPA (Aust.) and Consulting Partner at EY Consulting Vietnam JSC

Despite some progress, in the context of the Global and ASEAN sustainable financial market landscape, Dr. Nguyen Viet Long CPA (Aust.) and Consulting Partner at EY Consulting Vietnam JSC, says Vietnam is still at an early stage.

“The legal and regulatory framework is incomplete,” said Dr. Long, who has more than 20 years of experience in corporate operations and finance transformation, strategic planning, and project finance.

“There is no index of green bonds on the securities markets and no specific provision on a sustainable or green taxonomy,” he added.

“We first need to look at the market, not the financing. In Vietnam, we need a strategy aligned with the ASEAN green taxonomy. That’s number one. The second is that we need an independent green verifier, but because we don’t have that, we don’t have appropriate guidelines from the government.”

Compounding the issue is the fact that guidelines followed by foreign investors and lenders may not suit local lenders or local companies.

“There is a need for more than guidelines that are totally derived from EU standards,” Dr. Long says. “It should be [enshrined] in our legal system, which all players in the market would have to follow.”

He believes it is the only way to ensure all companies know and adhere to the green criteria required to operate in Vietnam.

The value of going green

In 2021, the International Finance Corporation revealed in their press release that climate-related finance in Vietnam accounted for only about five per cent ($10.3 billion) of total bank financing. And according to EY research, as of October 2021, just $778 million in sustainability bonds, of which, $353 million of green bonds, were issued by Vietnamese entities.

According to the definition of the World Economic Forum, “green finance” is any structured financial activity that’s been created to ensure a better environmental outcome.

And this, Dr. Long says, can add value to organisations by engendering innovation and growth which, in turn, can attract new customers and develop trust among existing customers.

“There are also cost reductions through lower energy consumption, reducing water intake, and accessing government tax incentives,” he says. “The sustainable financing programmes of commercial banks can help to enhance long-term investment returns through more sustainable plant and equipment. Investors even have a higher level of confidence in companies that adopt ESG principles.”

Dr. Long believes it will also empower local businesses to meet the standards and requirements of international markets and more effectively participate in the global supply chain.

Risks and challenges

However, these opportunities also bring risks and challenges, such as the ability of lenders to accurately assess the green credentials of projects.

“There is a real lack of relevant regulations on sustainable finance in Vietnam – including definitions, measurements, and standards – to allow financial institutions to evaluate the technology of potential projects and for the owners of such projects to prepare supporting documents,” Dr. Long says.

He cites a lack of awareness of business risks associated with ESG compliance and the importance of sustainable financing in both supply and demand as key challenges to overcome. These are exacerbated by the absence of a sufficiently independent green verification mechanism in both policy and institutional frameworks.

Nonetheless, he says, increased collaboration between the different areas in an organisation, such as finance, risk management, and legal, can lead to an improved approach to ESG.

“Being comfortable with the concepts of ESG and sustainable finance, as well as relevant qualitative and quantitative information, will help when making investment decisions,” he declares.

Building trust and working closely with a range of stakeholders, including financial institutions, rating firms, shareholders, and foreign sponsors via commercial banks and the government, would be vital.

“The country badly needs incentive policies and public-funded projects to further develop renewable areas,” Dr. Long emphasises. “To align with Sustainable Development Goals of the United Nations, the competent authorities such as the Ministry of Finance need to drive the issuance of green bonds, as this will contribute to the proportion of sustainability in our capital markets.”

How CPA Australia can help

“I used to think CPA Australia was purely about accounting – the same as people often think EY organisation is just an accounting and auditing firm, but we’re a lot more than that,” Dr. Long says.

“CPA Australia has a strong focus on strategic thinking, contributing to socioeconomic development, and improving professional conduct.”

It proactively promotes good corporate citizenship

“CPA Australia strengthens the understanding of financial professionals and business leaders on ESG through education and advocacy and improving their skills around sustainable finance management,” Dr. Long says.

CPA Australia offers expert courses and online learning designed to increase the knowledge of accounting and finance professionals in key areas which would be valuable for business leaders to consider for upskilling and reskilling their employees as well as themselves, especially in adopting new practices. An example is a micro-credential course on Creating value through sustainability.

CPA Australia’s Environmental, Social, and Governance Centre of Excellence contributes to policy and thought leadership around regulation, integrated reporting, and climate change risk by being a strategic sounding board for management and providing practical tools for members.

(*) The Fifth EY Global Institutional Investor Survey asked 298 investors with approximately $30 trillion about ESG’s role in their decision-making and long-term investment management. Investors are drawn from across the world and represent three key segments: banking and capital markets, insurance, and wealth and asset management.

Disclaimer

The views reflected in this article are the views of the interviewee and do not necessarily reflect the views of the global EY organisation or its member firms.