Environmental, social, and governance (ESG) factors have rapidly moved from the periphery to the forefront of dealmaking. In Vietnam, ESG has become a key concern for overseas investors and multi-national corporations, especially in mergers and acquisitions (M&A). A target company’s carbon footprint, labor practices, and governance standards can significantly influence due diligence, valuation, and critically, regulatory approval of a transaction. Vietnam’s government, for its part, is building a legal framework to promote sustainable business – from environmental laws to corporate governance codes – aligning with global ESG trends. This article focuses on how ESG considerations impact regulatory approvals and compliance requirements in Vietnam M&A deals.

Evolving ESG Legal and Regulatory Framework in Vietnam (Context for Approvals) 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. Consequently, Vietnamese businesses, particularly exporters, FDI enterprises, and listed companies, are facing significant pressure from international markets to comply with ESG standards.

While Vietnam does not yet have a single comprehensive “ESG law”, ESG principles are increasingly embedded in various statutes and policies that influence regulatory scrutiny during M&A approvals.

Further details on the legal framework related to ESG could be found here: https://www.lntpartners.com/legal-briefing/esg-in-vietnam-from-inevitable-trend-to-sustainable-competitive-advantage

The legal instruments, alongside emerging regulatory instruments like Decision 167/QĐ-TTg (February 2022) and the Ministry of Planning and Investment’s Circular 13/2023/TT-BKHDT, reinforce the government's commitment to sustainability, which can translate into stricter review of M&A transactions.

ESG Factors in Regulatory Approvals and Compliance: Although not specifically directed at ESG, ESG-related issues can nonetheless influence regulatory approvals in M&A transactions. Foreign investors acquiring Vietnamese companies must often obtain M&A approvals or amend the target’s investment certificates. As part of these processes, authorities may scrutinize the target’s compliance with environmental and labor laws.

For example, if an acquisition involves a factory with outdated, polluting technology, regulators may deny approval or request further explanation, consistent with the ban on extending polluting projects. More strictly, where state authorities are required by law to amend certificates or licenses to reflect the outcome of the deal, they may take the opportunity to ensure that the target is fully compliant with applicable environmental and labor requirements.

In short, a poor ESG track record introduces execution risk into the deal – authorities might impose conditions or the parties may need to allocate extra time and resources to remedy deficiencies as a pre-condition to closing. Dealmakers are also actively structuring M&As to address ESG risks, often insisting on detailed representations and warranties in the purchase agreement attesting to the target's compliance with environmental, labor, and anti-corruption laws, and that it has obtained all necessary permits. Breaches can lead to indemnification by the seller. In some cases, conditions precedent are attached to ESG matters, such as requiring the target to obtain its environmental permit or to settle outstanding payments for employees’ social insurance obligations.

ESG compliance is no longer just a matter of good corporate citizenship but acritical factor in securing regulatory approvals for M&A deals in Vietnam. A robust ESG profile can streamline the approval process, while a poor track record can introduce significant delays, conditions, or even rejection. Foreign investors must integrate ESG considerations into their M&A strategies from the outset to mitigate regulatory risks and ensure a smooth path to deal completion.

More analyses of ESG in M&A will be presented in the next article by LNT & Partners.