The increasingly clear trend today is that businesses, large and small, are expanding their strategic vision. They do not stop at optimizing internal factors but also aim for a higher goal, which is to build a sustainable business model based on environmental, social responsibility and governance (ESG) criteria. So what is ESG? Have you applied ESG-oriented corporate governance? Let's find out about this issue with GREEN IN through the article below!
What is ESG?
ESG, an acronym for Environmental, Social and Governance, is a Comprehensive set of standards used to assess the impact of businesses on the natural and social environment and how businesses are managed.
Specifically, ESG looks at how a company manages waste, consumes energy, protects biodiversity, treats employees, and interacts with the community. In addition, this trio of criteria also assesses how the company is governed, including business ethics, transparency, and accountability. Through ESG, companies can measure the sustainability of their operations and demonstrate their commitment to making a positive contribution to society.
The Role of ESG for Business
ESG, which stands for Environmental, Social and Governance, is not just a trend but a smart business strategy.
Sustainable growth: ESG helps businesses attract socially responsible customers and investors, expand markets and build brands. Creating sustainable products and services not only meets the needs of modern consumers but also helps businesses reduce risks and costs related to climate change and social issues.
Performance: Implementing energy-saving measures, effective waste management, and supply chain optimization can help businesses reduce operating costs, increase labor productivity, and improve resource efficiency. At the same time, investing in green technologies and sustainable projects can create new sources of revenue and increase competitiveness.
Risk Management: ESG helps businesses mitigate legal, financial and reputational risks by ensuring compliance with environmental, labor and safety regulations. Building a corporate culture that is transparent, accountable and respectful of core values will help businesses avoid the negative consequences caused by scandals or crises.
Increase competitiveness: ESG-compliant businesses are often highly attractive to talent, especially the younger generation who are socially conscious. A healthy, equitable and growth-enabling work environment will help businesses attract and retain talent, thereby enhancing competitiveness and innovation.
Current status of ESG-oriented corporate governance in Vietnam
The Vietnamese Government has demonstrated its strong commitment to sustainable development through its SDGs commitments and the goal of achieving net zero emissions by 2050. Therefore, ESG - with three pillars of environment, society and governance, has been identified as a new business trend in Vietnam and is strongly encouraged by the State's policies. However, the implementation of ESG in Vietnamese enterprises still faces many challenges.
On the scale of implementation
According to a survey by FPT Digital, 60% of Vietnamese businesses have started their ESG journey, mainly focusing on small and medium-sized operations. The governance aspect is the top priority, with 62% of businesses considering it a focus. This shows that awareness of the importance of ESG is growing. At the same time, a report by PwC shows that, despite great interest, knowledge about ESG is still limited in many businesses. Only 28% of businesses can use comprehensive indicators to track ESG progress, and 71% do not clearly understand the data needed for reporting.
Furthermore, the gap in ESG governance and reporting among enterprises is also large. FDI enterprises tend to be more active in ESG planning and commitment (57%), while the rates for listed and private enterprises are 35% and 40%, respectively. This figure shows that Vietnamese enterprises, especially small and medium enterprises, need more support to improve their capacity and effectively implement ESG.
On leadership
PwC’s report also pointed out a notable fact about the role of ESG leadership in private enterprises in Vietnam. Specifically, 34% of enterprises said that their board of directors has not been deeply involved in ESG issues, and even 48% of enterprises have not clearly identified an ESG leader. Showing a lack of strong commitment from the top level to ESG implementation in many private enterprises.
Furthermore, communication about ESG activities is also limited. Although businesses are making efforts to implement sustainable activities, few actually communicate this information to the public, leading to a lack of transparency and limited engagement with stakeholders. In fact, 70% of businesses provide no or very limited ESG reports, indicating that reporting and measuring the effectiveness of ESG activities remains a major challenge.
ESG Potential in Vietnam
We have a positive signal from the next generation. The majority of the younger generation in private enterprises show interest in sustainability issues and are willing to contribute to building a better future. This signal shows great potential to promote the transition to sustainable business models in the future. The next generation is not only aware of their responsibility towards the environment but also sees new business opportunities from ESG practices in corporate governance.
Conclusion
In the context of the world order shifting strongly towards digitalization and sustainability, digital and green capabilities have become core competitive factors for all organizations and businesses. Proactively seizing and taking advantage of opportunities brought about by the 4.0 industrial revolution and sustainable development trends will help Vietnamese businesses not only stand firm but also rise to a new position in the international arena.
However, the green transition and ESG implementation require large investments in many aspects, from financial resources, human resources to changes in thinking and corporate culture. To achieve success, businesses need to build a transformation roadmap that is suitable for their own characteristics and resources.
Setting overly ambitious but unachievable goals can create unnecessary risks. Instead, businesses should start with small changes, focusing on areas where the business is strong and creating immediate positive impacts.