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 even 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 examines how ESG considerations are reshaping due diligence and valuation processes in Vietnam M&A deals.

Evolving ESG Legal and Regulatory Framework in Vietnam (Context for Due Diligence) 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 directly impact due diligence scope. 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 Decision167/QĐ- TTg (February 2022) and the Ministry of Planning and Investment’s Circular 13/2023/TT-BKHDT, explicitly define ESG criteria and promote sustainable business models, making them integral to a thorough due diligence process.

ESG Due Diligence and Valuation in M&A Transactions ESG considerations now permeate the M&A process in Vietnam, starting with due diligence. Traditionally, due diligence focused on financial, legal, and commercial risks; now buyers also assess a target’s environmental and social footprint as a standard practice. An ESG due diligence review evaluates the target’s compliance with relevant environmental permits and standards (e.g., emissions, waste disposal, resource use), labor and human rights practices(e.g., wages, occupational safety, non-use of child or forced labor), and governance issues (e.g., anti-bribery controls, transparency in supply chains).

This process helps identify both risks and opportunities: for instance, undisclosed pollution liabilities or poor labor conditions pose financial and reputational risks (fines, cleanup costs, or brand damage), whereas strong ESG performance can indicate operational efficiencies or a resilient brand. Report duties are also a relevant consideration, where non-fulfillment may expose the target to administrative penalties over time.

Interestingly, investors increasingly recognize that targets with robust ESG practices may deliver superior long-term returns – a recent report noted businesses with clear ESG strategies attract 20–25% more investment and enjoy 10–30% better financial performance on average^[1].

Thus, buyers are factoring ESG into valuation. A company with significant ESG risks might see its purchase price discounted or deal terms adjusted to account for remediation costs, whereas a “sustainable” company might command a premium or at least a smoother path to deal completion.

ESG due diligence has become an indispensable component of M&A transactions in Vietnam. By thoroughly assessing a target's environmental, social, and governance performance, investors can identify potential risks and opportunities, which directly influence valuation and deal structuring. Proactive ESG management by target companies can significantly enhance their attractiveness and value in the M&A market, ensuring a smoother transaction process and unlocking long-term value for both buyers and sellers.

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

^[1] The report is retrieved fromen.vietnamplus.vn, at: International Finance Corporation’s 2023 Country Climate and Development Report