The trend of increasing responsibility for information disclosure related to sustainable development is taking place all over the world. With the characteristics of a highly open economy like Vietnam, the impact of these policies is real and will almost certainly heat up Vietnamese businesses - which are also under a lot of pressure. Therefore, ESG practices and reporting according to international standards are necessary when participating in the global supply chain.
Do we need to redesign the wheel?
Although Vietnamese law also has regulations such as reporting greenhouse gas inventory results (in Decree 06/2022/ND-CP) or disclosing information on issues related to sustainable development in the Annual Report of listed enterprises (in Circular 96/2020/TT-BTC), but perhaps that is not enough for Vietnamese enterprises to meet the requirements of the international market. Because, if compared with the regulations of the EU or some other countries, it is easy to see a quite large gap.
We are striving to become an important link in the global supply chain, so Vietnamese enterprises will have to play by the international rules. Therefore, filling the above-mentioned gap is necessary and should be done as soon as possible. Because the period from 2025 to 2028 is the time when new policies of countries in the EU, North America and APAC will take effect.
At events related to the ESG topic, there are many opinions that Vietnam needs to soon issue a common standard on ESG Reporting for businesses to comply with. In response to these opinions, a question that needs to be asked is "Do we need to redesign the wheel?" While the international market already has many comprehensive ESG reporting standards and frameworks that are constantly updated and supplemented. So should Vietnam follow the way that many APAC countries such as Australia, Singapore, Malaysia, etc. are doing. That is, refer to widely recognized international standards for Vietnamese businesses to apply and, if necessary, adjust and supplement them a bit to suit the Vietnamese context.
Which ESG standards should Vietnamese businesses pay attention to?
Many people are certainly confused when they first learn about ESG standards. If you look at the overall “picture” of the development of these standards over the past 30 years, it is not an exaggeration to call it “alphabet soup”. Memorizing the symbols and names of each standard is a challenge, let alone understanding the content of the standards.
Source: IFC Report 2023
However, in the initial stage like the current context in Vietnam, applying and meeting all standards is not necessary, but businesses should only focus on grasping and applying the most comprehensive and widely recognized standards. Based on the 02 popular approaches to ESG issues today, the following standards are worth noting for Vietnamese businesses.
- First, the GRI Standards are issued by the Global Sustainability Standards Board (GSSB), with an “impact materiality” approach.
This is the most popular ESG standard in the world today. According to statistics, up to 68% of the 6.800 largest companies in the world have applied GRI standards. In Vietnam, the number of businesses preparing ESG reports is not much, but most of them apply according to GRI standards.
GRI standards will help reflect the impacts of business operations on the environment and society. This perspective often meets the concerns of state management agencies, business partners, investors, employees, consumers and the social community.
The advantage of this standard is that it has a clear structure with 03 general standards, industry standards are being supplemented with many thematic standards according to 03 aspects E, S and G. This standard is also suitable for all businesses at all levels.
- Second, the IFRS Sustainability Standards by the International Sustainability Standards Board (ISSB), with a “financial materiality” approach
As a typical outcome of COP 26, the IFRS Standard was formed based on the consolidation of many ESG standards and initiatives with the same approach including: CDP's Climate Disclosure Standards Board (CDSB); Integrated Reporting Framework (IR) and the Value Reporting Foundation's SASB Standards and the TCFD Standards.
It is a perspective reflecting the impacts of ESG factors on the financial situation and financial accessibility of the company. The IFRS sustainability standard aims to meet the decision-making needs of investment funds and financial institutions.
IFRS has 02 main standards: IFRS S1 - General requirements for disclosure of financial information related to sustainability and IFRS S2 - Disclosure of information related to climate. In addition, IFRS also integrates 77 industry standards (formerly SASB Standards) to help businesses easily report on important issues of the industry, and at the same time help "readers" easily compare and contrast ESG practices between businesses in the same industry.
Many countries in the APAC region are adopting all or part of IFRS standards in their ESG disclosure policies, such as Australia, Japan, Korea, Singapore, Malaysia, China, etc.
- Third, the EU Sustainability Reporting Standard (ESRS), with its “dual materiality” approach
With an ambitious Climate Neutral target and a leading position on sustainability issues, the European Union has integrated both approaches into the ESRS. Regulated companies are required to disclose not only the environmental and social impacts of their business activities, but also the ESG risks and opportunities that affect their financial situation and operations.
Before the ESRS was issued, many large companies in the world had already made an ESG report that met both of the above approaches. Because the information needs of stakeholders for the company are diverse and different. Therefore, this is a creative way that Vietnamese businesses should learn to "kill many birds with one stone".