Why do Vietnamese businesses need an ESG strategy to maintain success?

DNHN - The implementation of ESG (Environmental, Social, and Governance) standards is identified as the key to business success for Vietnamese enterprises.

According to a recent report by Delta West, Vietnam, a country heavily reliant on exports, is facing a critical moment as the global market increasingly focuses on sustainability. The shift towards protectionism and stringent sustainability standards is posing significant challenges to key sectors of Vietnam's economy. 

The implementation of ESG standards is identified as the key to business success for Vietnamese companies. The report points out that while social and governance factors are more frequently applied in industries oriented towards export, sectors addressing sustainability and climate change are becoming increasingly important trends for the future.

Implementing an ESG strategy is necessary to maintain success
Implementing an ESG strategy is necessary to maintain success.

There are five main reasons why implementing an ESG strategy is essential to maintaining business success for Vietnamese companies:

Development to meet global standards and maintain market access: Vietnam, with its export-dependent economy heavily linked to the European Union (EU), needs to meet global standards to maintain market access. For example, the EU Green Deal requires the fisheries and steel industries to comply with carbon emission standards and sustainable practices. Vietnamese export companies must implement sustainable transition strategies to remain competitive and meet these regulations.

Enhancing brand image and reputation: Companies committed to ESG can enhance their image and reputation, helping attract and retain customers. Vinamilk is a prime example, being recognized as one of the top 5 global companies in sustainable development, which has improved its ESG score and perception of sustainable development.

Significant cost reduction: ESG initiatives can help reduce costs, particularly operating costs related to raw materials, water, and carbon. For instance, Thành Thành Công - Biên Hòa saved approximately 73% of water costs through the implementation of a Cooling Tower system, contributing to lower operating costs and increased efficiency.

Attracting and retaining employees: A strong ESG commitment can increase a company’s attractiveness as an employer, creating a more engaged and motivated workforce. However, PwC’s survey reveals that many employees feel inadequately supported in efforts to mitigate their company’s environmental impact, highlighting the need for effective implementation and clear communication of ESG policies.

Increasing investor confidence: Investors are increasingly focusing on ESG factors in their investment decisions. Nearly 80% of investors consider ESG important, and about 50% are willing to divest from companies that do not take action on ESG issues. Therefore, companies aligned with ESG expectations will attract more investment and maintain investor confidence.

ESG stands for Environmental, Social, and Governance. ESG data helps businesses and organizations increase transparency, understand non-financial risks, and identify opportunities for daily operations.

Environmental: The environmental aspect of ESG relates to how a business or organization operates as a steward of the natural environment, focusing on all aspects of sustainability, including waste and pollution, resource extraction, greenhouse gas emissions, deforestation, and climate change. Many businesses have recognized that failing to act responsibly as a global community member exacerbates climate change's impacts, risking not only our planet but also their ability to operate. Instead of viewing environmental harm as an inevitable consequence of business operations, they become part of the solution.

Social: In ESG, the social criteria examine the impact of an organization’s operations on labor and human rights of employees and other community members, including working conditions, equal pay, and creating an inclusive environment. The environmental aspect of ESG often takes precedence over social or governance aspects because an organization's impact on the environment can be more easily quantified. However, the impact on workers and employees is essential to minimizing risks and ensuring responsible business operations.

Governance: The governance aspect of ESG aims to identify how a company structures its policies or how it is managed. While the environmental and social aspects are relatively straightforward, governance tends to be the most confusing. Responsible governance in a company includes efforts related to transparency and compliance, such as using accurate and transparent accounting methods, pursuing diversity in leadership selection while avoiding conflicts of interest, accountability to shareholders, and avoiding any illegal activities…

P.V

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