In the context of global economic integration, Environmental, Social, and Governance (ESG) principles are becoming the compass for sustainable business development. In Vietnam, ESG is no longer a “choice” or a “slogan”, but has become an “inevitable trend” and a “requirement” for businesses. ESG is not merely about compliance; it involves setting new business standards, attracting “green” investment capital, and significantly enhancing business competitiveness in the market. Currently, many businesses have already implemented or are in the process of implementing ESG, yet it is not uncommon for some to lack sufficient information or appropriate guidance for effective implementation.

ESG in Vietnam's Legal Landscape

Overall, the Vietnamese Government has been actively fulfilling important international commitments such as COP26 and the Net Zero pledge, while simultaneously issuing numerous policies related to sustainable development and green growth. Vietnamese businesses, particularly exporters, FDI enterprises, and listed companies, are facing significant pressure from international markets to comply with ESG standards. The “E” (Environmental), “S” (Social), and “G” (Governance) pillars of ESG are already strongly present in Vietnam’s legal system. For reference purposes, the legal framework for the “E” “S”’ and “G” pillars is outlined at the end of this article.

Challenges and Opportunities for Vietnamese Businesses

While ESG offers many benefits, Vietnamese businesses, especially SMEs, still face significant challenges. Many businesses still do not fully understand or underestimate the importance of ESG. The transition to ESG compliance can require initial investments in technology, management systems, and training, leading to hesitation among many businesses in adopting it. Furthermore, the lack of unified ESG measurement and reporting tools and standards, particularly at the national level, also poses a barrier to ESG compliance for businesses.

However, from a positive perspective, integrating ESG is not just a responsibility, but a smart strategy that helps Vietnamese businesses build sustainable competitive advantages in the new era. Specifically, ESG compliance opens up countless opportunities for businesses.

First, increased access to “green” investment capital and sustainable finance: Investors and financial institutions are increasingly prioritizing businesses with clear ESG strategies. Many international investors, especially large investment funds, have established clear and strict ESG criteria in their investment portfolios. This means that businesses without an ESG roadmap or commitment will face significant limitations in their competitive advantage when seeking capital, and may even be excluded from the radar of sustainable-focused investors. Conversely, pioneering ESG businesses will gain access to “green” capital flows with more preferential conditions.

Second, enhanced competitiveness and market expansion: In the context of deep integration, meeting the ESG requirements of global supply chains becomes a prerequisite for Vietnamese businesses to participate and maintain their position. International partners and customers are increasingly focusing on product origin, socially and environmentally responsible production processes. ESG-compliant businesses will easily attract discerning foreign partners, expand their market share in developed markets, and build a reliable brand image on the international stage.

Third, attracting and retaining high-quality talent: In the current era, corporate values and culture are increasingly playing a crucial role in attracting and retaining employees. A fair, safe, transparent, and socially responsible working environment not only fosters cohesion but also attracts top talent. Employees, especially the younger generation, tend to prioritize working for companies that demonstrate a strong commitment to ESG values, seeing it as part of their professional development and personal meaning.

Fourth, mitigating legal risks and protecting brand reputation: Proactively complying with environmental, labor, and corporate governance regulations under ESG standards helps businesses effectively prevent lawsuits, avoid costly penalties, and protect their brand image from reputational risks. In an age of rapid information dissemination, an ESG-related incident can cause severe damage to a business’s reputation and market value. ESG compliance is akin to building a solid “shield” for businesses against these risks.

Fifth, contributing to sustainable development for the community and environment: Last but not least, ESG compliance demonstrates a business’s commitment and enhances its responsibility towards the community and the environment. This is not merely an obligation but also an opportunity for businesses to actively contribute to solving social and environmental challenges, thereby creating shared value for society as a whole.

Recommendations for Vietnamese Businesses: Acting for ESG Excellence

To truly seize the immense opportunities that ESG offers and transform challenges into competitive advantages, Vietnamese businesses should consider a proactive and systematic approach. Here are some key recommendations:

• View ESG not as a burden, but as an opportunity and a strategic competitive advantage: Instead of seeing ESG as a cost burden or a mere compliance requirement, businesses need to shift their mindset to recognize it as a crucial factor that helps optimize operations, mitigate risks, and create sustainable value in the long run. Integrating ESG into core business strategy not only helps businesses meet increasingly high market standards, but also opens up new opportunities for innovation, attracting green capital, and enhancing competitiveness in the international arena.
• Start with “S” (Social) and “G’ (Governance) – Practical first steps: For many businesses, especially small and medium-sized enterprises (SMEs) with limited resources and knowledge of ESG, starting can be easier by focusing on the “S” and “G” pillars. These are two aspects that businesses can implement immediately by reviewing and strictly complying with current labor laws, ensuring appropriate and compliant labor policies, and creating a fair, safe, and non-discriminatory working environment. Simultaneously, building a transparent corporate culture that upholds business ethics, prevents corruption, and enhances effective internal     governance are solid foundations for building trust with stakeholders and attracting talent.
• Enhance comprehensive training and awareness: One of the biggest barriers to ESG implementation in Vietnam is the lack of understanding or underestimation of its importance, especially among SMEs. Therefore, enhancing training and raising awareness for the entire team, from senior leadership to operational staff, is crucial. Workshops, in-depth courses, and guidance materials will help everyone better understand the importance of ESG, relevant regulations, and how to specifically implement it in each business activity, thereby fostering consensus and proactivity in ESG execution.
• Proactively report transparently and effectively: While ESG information disclosure is not yet mandatory for all types of businesses, being proactive and transparent in ESG reporting is a key strategy to build trust and credibility. Businesses can start by disclosing information related to corporate governance, energy     and water usage, greenhouse gas emissions, and compliance with environmental and labor laws, thereby demonstrating responsibility and concrete evidence of the business’s sustainable commitment.

Properly understanding and effectively implementing ESG not only helps businesses comply with regulations but also creates sustainable value and elevates their position on the international stage.

Please contact LNT & Partners for the list of relevant regulations concerning ESG.