ESG: Mandatory Credential for Sustainable Business

Environmental, Social, and Governance (ESG) factors are increasingly becoming a non-negotiable component in the investment decision-making process.

Suppliers failing to adhere to labor standards, uphold gender equality, or implement commendable practices for children’s rights will be systematically eliminated from the supply chain

The Ministry of Planning and Investment in Vietnam recently announced the 2024 ESG Initiative. This marks the second consecutive year of this initiative’s implementation. The primary objective of this initiative is to equip the Vietnamese business sector with the necessary tools to seize emerging opportunities amidst the ongoing green transformation, and enhance their competitiveness as they integrate into global supply chains.

Essential transformation requirement

Sharing about the benefits of ESG compliance, Ms. Trinh Thi Huong, Deputy Director of the Agency of Enterprise Development, MPI, said that applying sustainable business models and practicing ESG not only helps Vietnamese companies simply comply with legal regulations on environment, society and governance, but also meet market, partner and investor criteria. In addition, applying ESG also helps them attract green investment capital - a global trend.

ESG also helps businesses improve their image, position and brand in the market, she added. Accordingly, this is also an opportunity for them to turn compliance responsibilities into new values, create advantages for themselves and contribute to realizing the sustainable development goals of the Vietnamese Government.

From the perspective of a consultant, Ms. Ha Do, Head of Sustainability Consulting at KPMG Vietnam and Cambodia, said that meeting minimum requirements on ESG is becoming a prerequisite to attract foreign investment. Accordingly, in the past two years, KPMG has received requests to inspect suppliers regarding responsible sourcing, labor safety, child labor, fair treatment and gender equality from many multinational corporations. Any Vietnamese supplier that does not meet requirements, especially practicing the principles of children's rights in business, will be eliminated from the supply chain.

One of the recommendations on protecting children's rights in business was introduced by UNICEF in the "Children's Rights and Business Principles" Report.

Ha's opinions were also cited by UNICEF in its reports on children's rights in business. In particular, UNICEF's reports pointed out the fact that invested companies lack awareness of children's rights issues and do not disclose potential risks in connection with children's rights besides child labor issues. Moreover, UNICEF's reports showed a lack of reporting standards on risks concerning children's rights in business. Subsequently, investors or multinational companies lack respect or attention to potential risks relating to children's rights beside adolescent labor in business.

The standards in the ESG framework are designed to foster sustainable development

New sustainability standards

To limit noncompliance risks in connection with children's rights and business principles, support enterprises towards sustainable development and seize opportunities to attract global green capital flows, the Prime Minister issued Decision 167/2022 to approve the program on support for private business development in the 2022-2025 period. Notably, businesses that are evaluated and recognized as sustainable businesses will be supported with advice on accessing finance and investment attraction. In addition, the Government assigned the Ministry of Planning and Investment to coordinate with relevant ministries and branches to guide the implementation of the program to ensure its feasibility and effectiveness.

Most recently, Decision 843/2023 of the Prime Minister on the national action program for policy and law improvement to promote responsible business practices in Vietnam in the 2023-2027 period. The overall goals of the program are to foster responsible business practices, promote positive aspects and minimize negative aspects of economic and business development activities on society and the environment (focusing on investment, labor, environment; protecting legitimate rights and interests of workers, consumers and vulnerable groups), thus boosting circular economy development and perfecting Vietnam's socialist-oriented market economy.

With the desire to realize Vietnam's Green Growth Strategy in the 2021-2030 phase and Decision 167/QD-TTg 2022 of the Prime Minister on the program on support for sustainable private sector enterprises, the Ministry of Planning and Investment coordinated with the United States Agency for International Development (USAID) to launch the "Vietnam ESG Initiative" Program.

Vietnam ESG Initiative 2024 themed "Embracing green opportunities" aims to find three businesses with the best initiatives to receive a technical support package valued up to VND2 billion. The program aims to stimulate the private business sector to adopt sustainable business and practice an ESG assessment framework to measure sustainability factors as well as business impacts on the community.

In alignment with their overarching objectives, UNICEF and the Vietnam Chamber of Commerce and Industry (VCCI) collaboratively initiated the Children’s Rights and Business Principles (CRBP) Project. The primary aim of this project is to enhance the understanding, capability, and dedication of businesses towards the integration of these principles into their operations. This initiative is particularly targeted at companies operating within labor-intensive sectors, including but not limited to, textiles and garments, leather and footwear, Information and Communication Technology (ICT), as well as travel and tourism.

Furthermore, UNICEF also released many recommendation reports, standards and tools to guide the implementation of Children’s Rights and Business Principles, making it easy for Vietnamese businesses to access. Among them, 10 principles on children's rights in business can be mentioned and are considered by businesses as "guidelines" toward sustainable development in general and consistent with ESG standards in particular.

In addition, a set of guidelines for responsible business practices for children's rights in Vietnamese textile and garment companies is expected to be released in the second quarter of this year. This is the result of cooperation between VCCI, UNICEF and the Vietnam Textile and Apparel Association (Vitas) in an effort to promote children's rights in textile and garment manufacturing activities.

This set of standards focuses on two main goals: (1) suggestions for executives and investors to monitor risks and assess commitments to children's rights in business of textile and garment companies in Vietnam and (2) supporting businesses in choosing solutions to optimize resources, integrate children's rights into business policies, processes, and activities and enhance their prestige to investors and customers.

The implementation of principles on children's rights in business by textile and garment enterprises is considered a way to meet export standards. Therefore, the code of standards helps businesses integrate more deeply into the global value chain and gain more motivation to promote children's rights and sustainable development.

By Bich Hanh, Vietnam Business Forum