ESG is a set of standards evaluating Environmental, Social, and Governance factors. Currently, ESG is becoming a trend for assessing the activities of companies in international trade and global integration.
1. What is ESG?
ESG (Environmental, Social, and Governance) is a set of criteria used to evaluate an organization's or company's activities and impacts concerning three main areas: Environment, Social, and Governance.
ESG (Environmental, Social, and Governance) standards began to attract attention around the early 21st century. Although concepts related to environmental, social, and governance factors had been discussed for some time, ESG as a more formal and structured concept started to gain prominence from the 2000s.
One of the key milestones in the development of ESG was in 2004, when the United Nations launched the Global Compact and the Principles for Responsible Investment (UN PRI) were established by the University of Stanford's Committee on Research and Recommendations. These standards and recommendations helped to promote interest in and adoption of ESG factors in investment decisions and corporate governance.
2.What are ESG assessment standards? What is the set of ESG standards currently applied globally?
The ESG standards encompass three groups of criteria, specifically:
E - Environmental: Evaluates the extent of a company's impact on the environment. This includes factors such as energy consumption, greenhouse gas emissions, waste management, use of natural resources, and activities aimed at minimizing negative environmental impacts.
S - Social: Assesses how a company manages its relationships with employees, customers, communities, and other stakeholders. Examples include working conditions, labor rights, gender equality, employee health and safety, and contributions to the community.
G - Governance: Evaluates how a company is managed and operated. Factors include transparency, business ethics, risk management, governance structure, and compliance with laws and regulations.
Aspects of ESG standards are often assessed through various measurement frameworks such as the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), etc. The ESG standards help investors and businesses create long-term value not only financially but also socially and environmentally.
2.1 E-Environment
Evaluating a company's environmental impact in ESG practices includes:
Greenhouse Gas Emissions: Measuring the amount of CO2 and other pollutants emitted by the company. The company must adhere to international and national commitments, as well as local policies and regulations on environmental pollution control.
Energy Usage: Assessing the use of renewable and non-renewable energy sources. Companies practicing ESG should ensure that energy extraction and usage are efficient.
Resource Management: Includes water management, land use, and raw material consumption. To score high in this criterion, companies need to ensure that they have proper licensing for the use and extraction of any resources.
Waste Management: Companies need to ensure that they do not release pollutants into the environment. Additionally, implementing recycling and reuse processes to optimize the waste management chain and reduce environmental waste is encouraged.
Impact on Ecosystems: The effect of production and natural resource extraction activities on biodiversity. Companies that develop clean technologies, green buildings, and optimize renewable energy use will be highly regarded for their ESG performance.
2.2. S-Social
Evaluating a company's social impact includes:
Working Conditions: The company must ensure that it provides employees with an equitable working environment, reasonable working hours, safety, and fair treatment.
Equality and Diversity: Labor laws require organizations to not discriminate against employees in any form based on race, religion, nationality, etc. Male and female employees should receive equal treatment in all aspects: job opportunities, promotions, salary, and benefits.
Employee Benefits: Employees should be guaranteed full participation in social insurance, welfare policies, and compensation that match their job and professional skills.
Community Relations: In addition to ensuring internal benefits and development, ESG-practicing companies are also valued higher if they have community development projects and contribute to societal progress.
Product Quality and Customer Satisfaction: How the company ensures safety, quality, and ethical standards in providing products or services.
2.3. G-Governance
To evaluate internal governance factors, an ESG-practicing company should meet the following criteria:
Transparency and Disclosure: Is the company transparent in disclosing financial information, strategies, and operations?
Board Structure: Assess the independence, diversity, and experience of the board members.
Business Ethics: The company should establish policies against corruption, money laundering, bribery, and fraud.
Risk Management: How does the company manage business risks, including both financial and non-financial risks?
Shareholder Interests: How does the company address conflicts of interest and protect the rights of minority shareholders?
3. Current ESG Policies and Regulations in Vietnam and Around the World
3.1 ESG Policies and Regulations in Vietnam
In recent years, Vietnam has implemented various policies and regulations to promote sustainable development of businesses according to ESG standards.
In 2020, the Vietnamese National Assembly passed the Environmental Protection Law No. 72/2020/QH14, officially adopted on November 3, 2020, and effective from February 1, 2021. Under this law, businesses in Vietnam are required to apply technological and management measures to protect the environment and use natural resources efficiently, sustainably, and effectively.
Following this, on July 26, 2022, Deputy Prime Minister Le Van Thanh signed Decision No. 896/QD-TTg approving the national strategy on climate change up to 2050, based on Resolution No. 06/NQ-CP dated January 21, 2021, issued by the Government. This decision outlines the Government’s action program to proactively address climate change, enhance resource management, and protect the environment.
Additionally, the Ministry of Finance and the Ministry of Labor, War Invalids, and Social Affairs have issued circulars and decisions on sustainable development reporting and corporate governance, contributing to the refinement of the legal framework for the governance aspect of ESG in Vietnam.
Overall, Vietnam has made efforts to encourage businesses to comply with ESG regulations; however, implementation still faces several challenges. More intervention from the government and relevant authorities is needed. Furthermore, the Vietnamese Government should continue to refine the legal framework and create more favorable conditions to help businesses better understand and apply ESG criteria.
3.2 ESG Policies and Regulations Worldwide
Developed countries such as the European Union (EU), the United States, the United Kingdom, and others have implemented various specific regulations and policies on ESG to promote sustainable business development.
In the European Union, the European Commission issued the Non-Financial Reporting Directive in 2014. This directive requires certain large companies headquartered in the EU to disclose information about their activities and performance related to environmental, social, and governance (ESG) issues.
In the United States, the Securities and Exchange Commission (SEC) has established regulations for ESG disclosure, mandating that publicly traded companies disclose relevant information. The goal of these regulations is to enhance transparency, helping investors better understand the ESG opportunities and risks associated with companies. Additionally, this encourages businesses to reassess their ESG performance and develop solutions for more sustainable future practices.
It is evident that developed countries are increasingly emphasizing the importance of sustainability, transparency, and corporate responsibility. The continuous introduction of new policies and regulations related to ESG implementation indicates that sustainable development is a trend that all countries are striving towards.
Commentaires