Green transformation and ESG practice to participate in the global competition

Green transformation, once successful, will help businesses increase profits, increase productivity and work performance of workers. Illustration photo: ST

Be proactive to have an advantage

Green growth, green development, and circular economy have become a global trend as a positive solution to reduce greenhouse emissions, improve resilience and creativity of the economy, towards carbon neutrality and sustainable development goals.

Regarding the important role of implementing ESG (A set of 3 standards E - Environment, S - Society, and G - Corporate Governance measuring factors related to the direction of sustainable development activities) in businesses; Ms. Pham Thi Ngoc Thuy, Director of the Office of the Private Economic Development Research Board (Division IV), said that a successful business not only creates a lot of profits but also must pay attention to the ESG factors. Faced with this trend, Vietnamese businesses, especially those participating in global supply chains or exports, are facing increasing pressure to apply ESG practices to avoid falling behind or be eliminated from the "game". Therefore, applying sustainable business models as well as ESG practices will help businesses meet the requirements of the market, partners and investors, access green investment capital, and improve their capabilities of competitiveness to participate in the global value chain...

According to Ms. Thuy, in the past 2 years, information about regulations and policies related to ESG has become very "hot"; many important trading partner countries with Vietnam have issued regulations on sustainable development, practicing ESG. The number of policies related to ESG in Asia-Pacific has doubled since 2016. If businesses do not update these regulations, the opportunity will close immediately. Therefore, proactive businesses will have advantages while "slow" businesses will have increasing risks.

With Europe's carbon border adjustment mechanism (CBAM), many high-emitting industries in Vietnam have had to start reporting to Europe. In the next 3 years, a carbon tax mechanism will be applied within the CBAM framework. This means that businesses currently exporting to Europe will have to bear equal responsibility with businesses producing here. If you do not lower your emissions level, you will have to pay a relatively large tax. Along with that, Europe also introduced regulations to prevent natural forest loss (EUDR) which has a relatively large impact on Vietnam's major export industries, including wood, rubber, and coffee. Meanwhile the US Clean Competition bill is passed, it will also have a greater impact on businesses than CBAM. Meanwhile, the US is Vietnam's major export market.

As in the Japanese and Korean markets, there are no mandatory regulations, but signals from partners who are interested in sustainability factors and ESG practices in Vietnamese businesses are increasing. “There are starting to be some chains requiring reporting lines to integrate ESG-related information in the supply process to Japan and Korea. If there is no movement or practice on ESG in accordance with international and domestic policy developments, businesses will be closed before many opportunities," Ms. Thuy emphasized.

Green transformation for sustainable export

Faced with this trend, Vietnamese businesses must adapt to the green transformation trend and thereby participate more deeply in the global playing field. Reality also shows that; once successful, green transformation will help businesses increase profits, increase productivity and work performance of workers, increase legal compliance and vice versa, reduce production investment costs and capital raising costs. However, for green transformation in practice, the most difficult thing for businesses is green credit capital.

Recently, Division IV surveyed 10 large and medium-sized factories about the capital flow used for the conversion process. All businesses said they use their own capital. Total green capital by the end of 2023 accounts for no more than 4% of outstanding debt. This is a very modest number. This shows that the very important green credit capital flow is short of a legal framework. However, businesses should not wait until the law is complete, but need to be prepared, even one step ahead to convert.

From the perspective of businesses that have participated in ESG 2023, Ms. Nguyen Thi Huyen, General Director of Vietnam Cinnamon Production and Export Joint Stock Company (Vinasamex) said that instead of focusing on sales, businesses should pay more attention to ESG. Vinasamex has received a lot of value from the program, notably the business has access to demanding markets and increased value. Vinasamex has accompanied farmers to build raw material areas and value chains, improve quality and brand to increase export value. To date, Vinasamex cinnamon products have been exported to high-end markets such as Europe, America, Japan and Korea and will go further.

Vice Chairman of the Board of Directors and Head of the ESG Subcommittee of Phu Nhuan Jewelry Joint Stock Company (PNJ) Tran Phuong Ngoc Thao also said that the mindset of business owners is extremely important. Listed businesses need to establish a separate sub-committee on ESG, with separate personnel in charge. That shows commitment, the spirit of learning and investing in sustainable development.

Deputy Director of Global Investment, Climate Finance Department, Respons Ability Investments AG Fund (Switzerland) Bui Quang Duy commented that green issues and sustainable green development will guide where to invest in the long-term strategy. However, implementing a green, sustainable transformation requires a large, expensive investment in modern, energy-saving machinery and equipment... However, with such large investments, businesses cannot go it alone, but we need an ecosystem. Accordingly, the fund currently tends to invest in green transformation and sustainable export through technical packages and long-term investment aid. To support businesses in effective transformation, it is the resonance of businesses, the financial system, and banks in investing and cooperating to bring green capital into practice.