“ESG: Unlocking Capital Flows and Sustainable Success for Vietnamese Businesses”
The growing trend of foreign institutional investors prioritizing sustainable development calls for Vietnamese businesses to focus on and continuously enhance their corporate governance, including effectively managing environmental, social, and stakeholder interests.
The ESG (Environmental, Social, and Governance) standards have become a prevalent concept and, unsurprisingly, a top priority for Vietnamese enterprises. Business leaders are actively investing in and applying ESG principles to their operations to attract both domestic and foreign capital.
Foreign investors scrutinize ESG practices
ESG encourages businesses to operate more responsibly, attract investment, and create sustainable value for investors and society. Currently, the ESG trend is positively impacting global financial markets.
According to Ms. Nguyen Thi Thuy Duong, Director of Investment Banking Services at Yuanta Securities Vietnam, many foreign investors hire third-party firms to independently assess and evaluate companies’ adherence to ESG factors in addition to financial and legal due diligence.
Hence, enterprises that effectively manage, implement, and comply with ESG criteria will attract more investors and may benefit from lower capital-raising costs or higher valuations.
On the Vietnam Stock Exchange, ESG governance is a novel concept for most listed companies. According to the 2023 Corporate Governance Evaluation Report of Listed Companies in Vietnam, only 50 out of 511 evaluated enterprises (10%) have prepared and published sustainability reports adhering to internationally recognized standards, and merely 5% meet the sustainability criteria in the VCGS 2023 questionnaire.
Additionally, Mr. Do Bao Ngoc, Deputy General Director of CSI (Vietnam Construction Securities Joint Stock Company), affirmed that international investment funds pay close attention to ESG factors when evaluating potential investments. This trend also encourages enterprises aiming for an IPO, seeking strategic shareholders, or desiring to diversify their shareholder structure before becoming a public company to focus on business orientations that align with ESG criteria.
Enterprises that effectively manage, implement, and comply with ESG criteria will attract more investors and may benefit from lower capital-raising costs or higher valuations. Illustration
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How can Vietnamese businesses attract foreign capital?
ESG is not merely a trend but a decisive factor for businesses’ long-term success and sustainable development. To capture investors’ attention, enterprises must integrate ESG considerations into their business strategies. Moreover, they should emphasize the transparency and good governance of their operations.
Ms. Hoang Hai Yen, Deputy Director of SSI Investment Banking Division (SSI Securities Company), recommends that enterprises develop a prioritized strategy to attract investment through ESG.
Firstly, enhance ESG reporting. To attract international investment funds, enterprises should develop and publish detailed and transparent ESG reports adhering to global standards such as GRI (Global Reporting Initiative) or SASB (Sustainability Accounting Standards Board). These reports should clarify the measures undertaken to mitigate negative environmental impacts, contribute to communities, and enhance governance.
Enterprises should focus on developing highly sustainable projects, such as adopting renewable energy, reducing greenhouse gas emissions, and protecting water resources. These projects will not only improve the company’s image but also attract the interest of ESG-oriented investment funds.
Lastly, improve corporate governance. The “G” in ESG is one of the most critical factors for investors. Enterprises must ensure that their governance structures, including the leadership and board of directors, adhere to the best practices of transparency and accountability.
Mr. Dinh Quang Thuan, Director of FPT Securities’ Ho Chi Minh City branch (FPTS, HOSE: FTS), shared that the regulators are implementing concrete solutions to support the stock market’s upgrade from frontier to emerging status. One of the purposes of this upgrade is to attract foreign capital inflows, but the question remains: How can enterprises capture the attention of large and financially potent investors and funds?
The answer lies in transparent governance structures, strategies that mitigate environmental impacts, and the creation of social value. In other words, it’s about corporate governance tied to ESG – a factor that foreign investors value and assess highly.
FPTS believes that Vietnamese enterprises need to act swiftly, both in awareness and concrete actions, to develop their ESG practices.
Firstly, business leaders must recognize the urgency and essential nature of improving transparent governance tied to ESG as a mandatory requirement. ESG is not a superficial trend but an inevitable evolution that businesses must embrace in the future.
While business growth is crucial, sustainable governance is vital. Companies shouldn’t wait until they face collapse to change their mindset about ESG. Moreover, governance should be viewed as a resource for survival, a competitive advantage, and a means to attract capital.
Secondly, enterprises need to devise specific and clear action plans to enhance transparent governance linked to ESG. Having a dedicated board member responsible for ESG can help build strategies, closely monitor progress, and ensure the effective implementation of ESG practices that align with the company’s reality.
In conclusion, only with a comprehensive and accurate understanding, coupled with concrete and determined actions, can Vietnamese enterprises enhance transparent governance linked to ESG and become the preferred choice of many professional investors.
In addition to embracing ESG, information transparency plays a pivotal role in attracting foreign capital. Mr. Kim Thien Quang, General Director of Maybank Securities Vietnam, emphasized that for buy-side investors, information transparency is a decisive factor in the investment decision-making process. It entails not only the provision of accurate and comprehensive financial information but also the disclosure of governance practices, development strategies, and ESG considerations.
Today’s investors demand an unprecedented level of transparency, especially in the intricate and sensitive landscape of global financial markets. They expect enterprises to be forthcoming about potential risks, risk management strategies, and factors that may impact long-term financial performance. Lack of transparency or inadequate disclosure can lead to a loss of trust and diminished opportunities for capital mobilization from investors with a long-term vision.
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