Understanding the scope of ESG in Vietnam, Corporate Sustainability Governance Reporting

ESG in Vietnam is quickly becoming an important part of corporate responsibility & reporting for foreign companies operating in the country.

Environmental, Social, and Governance, or ESG in short, refers to those aspects outside the financial scope that are usually applied by investors to comprehend material risks and opportunities for growth. Although ESG in Vietnam or any other country does not necessarily form a segment of a financial report, however, many companies today are inclined towards declaring their role in it in their annual report. It is also predicted that ESG will become part of future legislation that foreign and local companies will have to be aware of. 

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According to a report by CFA Institute several authorities like the Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI), and the Task Force on Climate-related Financial Disclosures (TCFD) have come together to ensure its inclusion while making decisions about investment. As investment in and implementation of ESG becomes a popular practice, climate change and social unrest are a few trends that are gaining traction globally. Moreover, premier financial institutes like Chartered Financial Analyst are conducting in-depth research and creating a global dialogue around ESG.

Vietnam’s Government policy and ESG guidelines for investment

In order to expedite the incorporation of ESG guidelines in various investment policies in Vietnam, the local government has envisaged a development plan for 2021-2030. One of the major objectives of this plan is to look after human as well as social wellbeing. It further aims to ensure efficient and sustainable utilization of resources. The Communist Party of Vietnam has set aside nature conservation and human welfare as its top priorities. It has made further decisions to stop investment ventures that do not follow norms of environmental and biodiversity protection. It has made firm resolutions to create an environmentally sensitive economy.

This plan is in accordance with Vietnam’s global agreements at present. According to the 2030 Agenda for Sustainable Development, a 15-year-long commitment that envisioned 17 Sustainable Development Goals (SDGs) for all the UN members including Vietnam to reduce poverty, provide clean energy, and ensure zero hunger. Following its pursuit of SDGs, Vietnam shared its review of the execution of the plan in 2018 which showed that the country had been successful in reducing multifaceted poverty rates quite substantially. 

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In collaboration with major trade blocs of the world, Vietnam is all set to focus on ESG concerns. According to the 2019 European Union-Vietnam Free Trade Agreement, all the members would have to show their economic engagement in contributing toward sustainable development incorporating its social, economic, and environmental facets along with boosting corporate social responsibility.

Standards Set on Creating Corporate Sustainability Reports for Companies in Vietnam

A corporate sustainability report for a company in Vietnam should declare concerns associated with material E&S to its major stakeholders. Certain key concerns and aspects of business that are considered crucial from the point of view of communities, suppliers, buyers, investors, and the members of the company itself comprise material problems. The main criteria that form a part of the sustainability report are:

  • Plan of Action
  • Management Style 
  • Execution of action in E&S areas

The initial attempt at publishing a sustainability report would be rigorous, and sufficient resources would be required. It will need a diligent team to address various elements that are crucial to be incorporated into the report apart from collecting data and accounting for its credibility. 

Some aspects of business performance that should be addressed in the sustainability report are as follows:

EnvironmentalSocial
Energy efficiency
GHG emissions
Biodiversity conservation
Water usage
Natural resource use
Waste to energy
Recycling practices
Employee compensation
Benefits
Staff turnover
Employee health
Safety practices
Diversity
Strengthening local communities

Future – What to expect in terms of Corporate Sustainability Reports

You can ensure consistent grades in your corporate sustainability plan of action, thanks to corporate sustainability reports, which is a continuous process. Once the report has been published, you should find out ways to include your findings into your action plan and perform better as far as E&S issues are concerned. 

In the times to come, there is a high probability of the integration of financial as well as sustainable reports which will form a part of one corporate report being published annually. You can already take a few steps in advance by creating a comprehensive work schedule for the annual and sustainability reporting cohorts. In order to avoid any dissimilarities in data, the sustainable and annual reporting timelines should correspond with each other. 

One more agenda to keep in mind while preparing the CSR is the performance target for respective criteria. Sustainability performance can be enhanced if the teams are target-driven. However, the targets should be realistic. This further paves the way for better performance as per the sustainability metrics. It presents the stakeholders with foresight about the company’s sincere efforts taken in the direction of sustainable performance. 

ESG enforcement in Vietnam and Asia

With the ESG trend on the rise in Asia, there is a growing demand among socially active investors to make an assessment of the environmental, social, and governance criteria before making their final decisions. As per a survey conducted by the Robocash Group

amongst a cohort of internet-savvy prospective Asian investors, it was found that 45% of the respondents indicated their concern about ESG. Moreover, 30% agreed that ESG trends are becoming popular in the Asian market. Still, there are many challenges that could restrict ESG enforcement in Vietnam and Asia especially as far as mass acceptance amongst the retail investors is concerned. 

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Vojtech Zehnalek

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Vojtech Zehnalek, MSc.

Vojtech Zehnalek is designated the Business Expansion Manager and specialises in providing complex advisory to foreign companies expanding to Indonesia. He graduated from Economics and International Trade from the University of Economics in Prague, the Czech Republic, and he also earned a Business Degree at the Vlerick Business School in Belgium.