ESG, short for Environmental, Social, and Governance, is a concept that is increasingly important in the fields of business and investment. Known as a set of criteria for measuring sustainable performance and social responsibility of an organization, ESG focuses on three main aspects to assess and shape business behavior.
Environmental: This aspect of ESG measures an organization's impact on the natural environment. Businesses must consider and minimize their negative influence on climate, water resources, and other environmental factors.
Social: ESG also focuses on social relationships, including positive interactions with the community, ensuring rights and social well-being for employees, and creating a fair and diverse working environment.
Governance: The governance aspect evaluates how an organization is structured and managed. It includes management policies, business ethics, leadership, and risk management.
ESG is not just a set of indices or management criteria, but an evolving business philosophy that is changing how companies shape their strategies.
The implementation of ESG (Environmental, Social, and Governance) brings numerous benefits to businesses, not only from a sustainability perspective but also from a business and reputation standpoint. Below are some reasons why businesses need to apply ESG:
Enhanced Brand Reputation: Companies demonstrating commitment to ESG are considered ethical and reliable, leading to positive perception among customers and a favorable reputation in the market.
Attracting Investors: Investors are increasingly interested in companies that adhere to ESG principles, and applying these principles can increase the opportunity to attract investment capital.
Retaining and Attracting Talent: Companies with good ESG practices tend to attract talent, leading to better recruitment and retention rates as well as reduced employee turnover costs.
Compliance with Regulations: Governments are introducing new regulations requiring companies to comply with specific ESG standards, making organizations need to update these regulations.
Profitability: ESG-focused companies tend to operate more efficiently and save costs, leading to higher profits over time. By creating sustainable business models, companies can also reduce the risk of being affected by environmental disasters or social unrest.
According to the 2022 ESG Readiness Report in Vietnam, 80% of businesses have made commitments or are planning to implement ESG practices early, mostly driven by the demand from consumers, laborers, and investors.
However, bridging the gap from commitment to practice proves to be a major obstacle, as over 60% of companies not committed to ESG state that lack of knowledge and clear regulations are the primary barriers, and only 23% of enterprises are confident in the leadership's capacity on ESG-related issues.
In response to that situation, the Vietnamese government has made strong commitments to sustainable development and prioritizing the application of a sustainable development model based on two pillars: (1) Climate change adaptation, and (2) Climate change mitigation by reducing carbon emissions in the growth process, aiming to achieve net zero emissions by 2050.
To realize those goals and commitments, the government, under the Prime Minister's leadership, has issued a series of strategies, plans, and action programs recently, such as: the National Action Plan to implement the 2030 Sustainable Development Agenda linked to the 17 Sustainable Development Goals of the United Nations; the national strategy for green growth for the period 2021-2030, with a vision for 2050; the national action plan on sustainable production and consumption for the period 2021-2030; the national circular economy development project; and the green banking development project in Vietnam. These are all important legal foundations for sustainable business practices to truly become a new driving force for the private sector's economic development.
In order to support sustainable business enterprises according to Decision No. 167/QD-TTg dated February 8, 2022, the program supporting sustainable private sector businesses in the period 2022-2025 provides comprehensive support in ecosystem building (enhancing social awareness, developing assessment measurement tools, consultant networks, etc.) and technical assistance to enhance business capacity (consulting, training, technology, trade promotion, market expansion, financial connections) using state budget sources and mobilized external funding.
Currently, the Ministry of Planning and Investment and the Ministry of Finance are developing guidelines for the implementation structure of the program, where support funding from the state budget will act as seed capital, motivating Vietnamese businesses to take the first steps to align with new development trends and truly turn this into an opportunity for Vietnamese businesses to gain an advantage in this new direction.