Currently, many businesses are focusing on applying and ESG investing—an approach to enhance the quality of their operations in order to attract more domestic and foreign investment.
1. What is ESG Investing?
ESG Investing is an investment approach that focuses on three key factors: Environmental, Social, and Governance. These criteria are used to evaluate the sustainability and social responsibility of companies that investors can invest in.
The goal of ESG investing is not only to seek profits but also to consider the sustainability and social responsibility of companies. ESG investors believe that companies with strong performance in these areas may have long-term growth potential and reduced risks.
1.1 What is the goal of ESG investing?
RSM Vietnam introduces some goals of ESG investing for businesses as follows:
Maximizing long-term profits: Investors believe that companies performing well on Environmental, Social, and Governance criteria will have greater sustainable growth potential, leading to stable and long-term profits.
Minimizing risks: ESG investing helps investors avoid companies with high environmental risks (e.g., polluting companies), social risks (such as human rights violations), and governance risks (like poor management or lack of transparency). These companies may face legal, financial, or reputational issues that can impact their stock value.
Creating positive impact: ESG investing aims to encourage companies to adopt policies and practices that benefit the environment and society. This is also a way for investors to support global sustainable development goals, such as reducing carbon emissions, protecting labor rights, and promoting transparency and accountable governance.
Meeting consumer and societal expectations: An increasing number of consumers and investors are concerned about sustainability; thus, ESG investing helps financial institutions and businesses align with the needs and values of their customers.
1.2 What are the benefits of ESG investing?
When engaging in ESG investing, businesses can achieve several benefits, such as:
Sustainable long-term profits: Companies that effectively adhere to ESG criteria tend to have more sustainable and stable growth, helping investors achieve steady, long-term profits.
Reduced investment risks: ESG factors help mitigate risks related to environmental, social, and governance issues. For example, a company that fails to comply with environmental regulations or faces governance scandals may encounter fines or reputational damage, negatively impacting its stock value.
Improved reputation and credibility: Investors and companies that adopt ESG practices are often viewed more favorably by society and communities for their positive contributions to issues like environmental protection, human rights advocacy, and transparent governance.
Adaptation to legal and market trends: Many countries are tightening regulations regarding environmental protection and corporate governance. Companies that implement ESG practices will be better prepared to comply with these regulations, avoiding unnecessary legal costs.
Investment opportunities in emerging sectors: Trends such as renewable energy, clean technology, and environmentally friendly products are rapidly growing, presenting significant growth opportunities for ESG investors.
According to Mr. Đang Nguyen Truong Tai, Investment Director of Dai-ichi Life Fund Management Company in Vietnam: “Evaluating stocks against ESG benchmarks is a way to attract capital from ESG funds, which could lead to future valuation expansion.”
Businesses that strive to pursue ESG goals will become well-run organizations. And well-run businesses will be the desirable stocks that investors want to own.
2. The trend of investing in businesses according to the ESG model.
The trend of investing in businesses according to the ESG model is rapidly growing worldwide, especially as investors and companies become increasingly aware of the critical role that sustainability factors play. For some investors, there is a particular focus on environmental issues such as climate change impacts, as well as social concerns like gender equality, racial discrimination, data security, and privacy rights.
Investors are more willing to make investment decisions in favor of companies that are leaders in the ESG movement.
In Vietnam, investment funds focusing on ESG criteria are experiencing rapid growth, with significant capital flowing into these funds. More and more investors, from individuals to institutions, recognize the importance of investing in companies that adhere to ESG standards to protect the environment and promote social responsibility. Renewable energy sources like solar, wind, and clean technology are becoming focal points for many ESG investors. The government and businesses are increasingly committed to reducing carbon emissions and utilizing environmentally friendly energy sources, creating substantial opportunities for long-term investments.
Global ESG standards and regulations are becoming more firmly established. International policies such as the Paris Agreement on climate change, as well as regulations from bodies like the European Union (EU) regarding sustainability reporting, are creating pressure for companies to improve their ESG performance in order to access capital and maintain their business operations.
3. Challenges in ESG investing in Vietnam.
In Vietnam, the implementation of ESG investing within businesses faces several unresolved issues. Applying ESG standards to business operations involves more than simply adding features to products, increasing productivity, boosting revenue, or rebranding. Companies seeking effective ESG investment must address broader macro issues such as vision alignment, core values, and ensuring benefits for both employees and customers.
Additionally, the lack of necessary expertise among employees regarding ESG poses a significant challenge. Senior executives need to continuously update themselves on the latest developments in ESG implementation and the unclear legal frameworks to apply ESG standards more accurately.
Moreover, businesses require greater support and endorsement from the government and ESG committees to swiftly adopt standards for developing sustainable plans. Developing a transparent and accurate measurement and monitoring data system is essential.
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