ESG misinterpretations may cripple Vietnamese companies in international markets

Misunderstandings over Environmental, social and corporate governance (ESG) practices are undermining the chances for Vietnamese companies to tap into global markets, specialists said at a conference on November 9.

The conference on ESG practices reporting was hosted at the Vietnam News Agency on November 9. Photo: Việt Nam News

Nguyen Quang Vinh, Vice Chairman of Vietnam Chamber of Commerce and Industry (VCCI) cum Chairman of Vietnam Business Council for Sustainable Development (VBCSD), cited a report conducted in 2022 by PricewaterhouseCoopers Vietnam and the Vietnam Institute of Directors that 80% of 234 surveyed companies plan and commit to soon executing ESG practices.

However, the report, focusing on domestic firms’ willingness and determination to comply with ESG standards, indicated that such willingness is caused by the demand of consumers, laborers and investors towards sustainability.

The report also revealed that corporate governance (G) is the most important of the three aspects as it is selected by 62% of the surveyed companies. Environmental (E) and Social (S) are less considerable factors with selection percentages of 22% and 16%, respectively.

In addition, 71% of the enterprises have not gained sufficient information and data about ESG reporting, 70% of them have produced limited ESG reports or none. At the same time, only a third of them explore third-party data to verify public ESG information.

Small and micro enterprises have little information and knowledge about ESG standards, and they worry that ESG activities will cost a huge amount of spending for the initial stage, said Trinh Thi Huong, Deputy Director of the Enterprise Development Agency under the Ministry of Planning and Investment.

“Adoption of ESG practices is an investment for the future, not an expense,” she said. “Following ESG standards may keep enterprises comply with the legal frameworks in their operating markets, increase their competitiveness, and draw further green finances into their capital.”

Pham Hoang Hai, VBCSD’s Head of Partnership Department, said that sustainability concepts such as CSR (corporate social responsibility) and ESG have been used more frequently to evaluate sustainability efforts among local companies.

The finance ministry in 2020 ruled that domestic companies, especially those listed on the stock market, must report ESG activities in their annual and financial reports, he said.

“However, the reporting is literally written to showcase the will and strategy of the business, while it practically requires the business to set out specific targets and make detailed, assessed reports on its works,” he said.

“It remains a big challenge for Vietnamese companies to understand how ESG practices work fully,” he said.

ESG practices will have big impact on Vietnamese companies that export to the European markets, Hai said.

In January 2024, European enterprises with more than 200 employees and workers must compile their sustainability report in ESG style, which clarifies ESG performances with facts and data, he said.

“Such a move will affect Vietnamese businesses because European markets are one of the key export markets for Vietnam,” Hai said.

Koen Soenens, General Sales & Marketing Director of DEEP C Industrial Zones, stressed that there is a long way for Vietnam to achieve sustainability.

The biggest obstacle is the lack of a proper legal framework, he said as saying many local officials have little understanding of new industries, which may drive Vietnam towards green growth and a green economy.

Recommendations for better ESG implementation

Hai from VBCSD’s partnership department said that the body has tried to assist and educate Vietnamese companies about ESG practices.

“The three letters must go together. ESG reporting must be detailed, quantitative based on specific criteria,” he said, referring to the fact that many businesses prioritize the quality of corporate governance as they consider it the key to better business performances.

He suggested Vietnamese companies rely on the Corporate Sustainability Index (CSI) for ESG reporting.

“We have talked about ESG practices for a long time, now is the time for us to take action,” said Le Thi Hong Nhi, Head of Communications and Corporate Affairs of Unilever Vietnam.

The adoption of ESG practices will be quite costly at the beginning, but it brings enormous profits and benefits for the business in the long run, she said.

“Vietnamese companies must change their mindset and leadership. Larger companies must be role model, so that smaller ones can follow,” she said.

 Nhi urged government agencies to develop green growth rules for the business community, thus drawing more Vietnamese companies to join and adopt ESG practices.

According to Tran Thi Thanh Nga, Head of Adaptation Division at the Department of Climate Change under the Ministry of National Resources and Environment, enterprises are encouraged to reform their production models to meet sustainability standards.

She said that Vietnamese companies should proactively study the rules of their export markets to qualify for technical and tariff barriers, as well as increase the chance to access green financial sources.

The conference, themed “ESG Commitment: We walk the talk", was organized by Việt Nam News, the daily English-language newspaper under the Vietnam News Agency.