ESG Compliance: Turning Responsibility into a Competitive Advantage for Vietnamese Businesses

Within the framework of the USAID-funded Project on Strengthening the Competitiveness of the Vietnamese Private Sector (USAID IPSC), a seminar titled "Building Advantages - Securing the Future with the Vietnam ESG Initiative 2024" was held on March 21st. The event was organized by the Department of Enterprise Development (Ministry of Planning and Investment) in collaboration with the United States Agency for International Development (USAID).

ESG: The New Business Imperative

Nguyen Thi Bich Thuy, Deputy Head of the SME Department, emphasized the urgency of addressing climate change and its impacts on Vietnam. She noted the growing market demand for sustainable production and consumption, as well as the Vietnamese government's commitment to sustainable development, posing challenges for businesses.

Businesses must integrate ESG (Environment, Social, Governance) practices into their operations to meet the sustainability standards of large markets like the EU and the US. This shift is an opportunity for Vietnamese businesses to turn compliance into a competitive advantage.

Mark Birnbaum, Director of USAID IPSC, highlighted that green growth is a present-day reality and that businesses face increasing challenges in their green transformation. He stressed that traditional measures of business success based on profit and finances are no longer sufficient. A more comprehensive approach that prioritizes environmental, social, and governance factors alongside financial indicators is gaining traction.

Studies show that businesses with strong ESG ratings achieve higher profitability, with profit-to-equity ratios exceeding their peers by 35% and business valuations exceeding them by 20%. ESG compliance helps businesses minimize risks, improve resilience, and gain competitive advantages amidst the challenges posed by climate change and resource scarcity.

Preparing for Success

Pham Thi Ngoc Thuy, Executive Director of Division IV Office, clarified that ESG implementation targets sustainable practices that add value to businesses. ESG reporting helps businesses identify risks and opportunities that impact their long-term success.

Many key trading partners of Vietnam now have regulations on sustainable practices and ESG compliance. Businesses in the EU supply chain, for example, must meet stringent environmental standards (E factor) within the next two years to remain competitive. Germany's new supply chain law sets criteria on labor rights, gender equality, and working conditions (S factor).

Ms. Thuy also emphasized that effective corporate governance (G factor) is essential for increasing core business value. Both domestic and international policy developments carry compliance requirements that pose risks to businesses if not met.

"Businesses need to prepare well enough before or while following the path of sustainable development," Ms. Thuy advised. She acknowledged that ESG compliance is a tailored process and that businesses will face different challenges and pressures depending on their sector and size.

In this new world order of digital and green capabilities, proactive businesses gain an advantage while those lagging behind face risks. ESG is both an opportunity and a pressure for businesses. "We come from zero but we can become heroes if we are determined," Ms. Thuy concluded.