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What is ESG Investing? What can companies do to attract investment?

May 8, 2024

The ESG (Environmental, Social, and Governance) standards have become a widely recognized concept, acknowledged as very important for businesses globally, including those in Vietnam. Therefore, it is not surprising that ESG is becoming a top priority for Vietnamese companies. Business owners are actively implementing and investing in ESG within their business operations to attract both domestic and international investment.

So, what is ESG investing? How can businesses attract investment while many financial institutions and foreign investors are increasingly focusing their capital on ESG-standard projects? Let's explore this with iLotusLand through this blog post.

What is ESG Investing?

The concept of ESG (Environmental, Social, and Governance) emerged in the mid-2000s in a report by investment expert Ivo Knoepfel. He argued that ESG factors should be considered in financial analysis on capital markets because they help identify risks, influence business valuation, and lead to positive social changes.

ESG stands for Environment, Social, and Governance. These are the three standards used to evaluate a company's commitment to sustainable development.

ESG Investing short for Environmental, Social, and Governance Investing hay ESG investing, also known as socially responsible investing, or sustainable investing, is an investment approach that focuses on environmental, social, and corporate governance factors alongside traditional financial factors such as profit and risk.

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What is ESG Investing?

Goals of ESG Investing:

  • Encourage businesses to operate more responsibly with regard to the environment, society, and community.
  • Attract investment from investors who are concerned with ESG issues.
  • Create sustainable value for both investors and society.

Benefits of ESG Investing:

  • Risk Reduction: Companies with high ESG scores tend to manage risks better and are less affected by negative factors such as environmental volatility, social instability, or governance scandals.
  • High Potential Returns: Numerous studies have shown that companies with
  • Positive Social Impact: ESG investing supports companies that operate responsibly, helping to address social and environmental issues.

Over the past decade, financial investment criteria have undergone a significant transformation, shifting towards environmental, social, and sustainable governance factors (ESG). Today, ESG is considered a "must-have" for investment funds to inject capital into businesses.

According to a representative from a major investment fund in Vietnam, ESG plays a crucial role in assessing business risks. Companies that do not effectively manage, implement, and comply with ESG criteria will have high-risk ratings, leading investment funds to limit capital allocation.

The market has seen participation from over 3,800 investment funds, mobilizing a massive $121 trillion to invest in ESG assets. Upgrading Vietnam's stock market will open up tremendous opportunities for Vietnamese companies to meet sustainable development criteria and attract this potential long-term investment.

The green financial market is becoming an important funding channel in many economies, but it is still relatively new in Vietnam. Capturing this trend will provide businesses with a competitive advantage and contribute to the sustainable development of the economy.

ESG is an indispensable investment criterion for the future. Vietnamese businesses need to proactively adopt ESG principles to enhance their image, attract investment, and contribute to building a green and sustainable financial market.

Read more: What is ESG report? How to implement ESG report

Where Do Vietnamese Companies Stand on the ESG Journey?

In recent years, Vietnamese businesses have significantly shifted their awareness of the importance of ESG. Many companies have begun to integrate environmental, social, and governance (ESG) factors into their business strategies, recognizing the benefits in terms of image, risk management, and potential to attract investment.

However, compared to countries in the region and around the world, Vietnamese businesses still have many steps to take to achieve higher levels of ESG implementation.

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Currently in Vietnam, there are several notable ESG-investing companies, including:

  • Vinamilk: In 2021, Vinamilk reaffirmed its leading position in the ESG field by launching three Vinamilk Green Farms that employ modern technology to optimize production processes, reduce emissions, regenerate resources, and protect the environment.
  • VinFast: Focusing on electric vehicle production, VinFast contributes to reducing environmental emissions. Additionally, VinFast utilizes smart technology to provide a superior customer experience. This effort was recognized when VinFast received an ESG score of 23.3 from Morningstar Sustainalytics in 2022, placing it among the top 10 automotive companies globally for ESG rankings.
  • FPT: FPT has actively contributed to training high-quality human resources and promoting the national digital transformation process. The company provides numerous technological solutions that support other businesses, helping to improve labor quality, create jobs, and increase profits.

How to Use ESG Principles to Attract Investment

The ESG (Environmental, Social, and Governance) principles are a set of standards that measure a company's impact on society, the environment, and the level of transparency and responsibility in its operations. As concerns about climate change, social inequality, and corporate governance increase, integrating ESG factors is becoming more prevalent worldwide, and Vietnam is no exception.

"Nowadays, any large investor or listed company globally needs to report on ESG standards. Five years ago, an investor coming to Vietnam would often ask 'Why should I come to Vietnam?' Now, they ask 'What ESG principles are you applying?'" - Bruno Jaspaert, CEO at DEEP C Industrial Zone.

"Many international organizations operating in Vietnam require their suppliers and partners to have clear measures for ESG organization and assessment to become their partners. Therefore, I think this is an important motivation for Vietnamese businesses to start thinking about adopting ESG." - Trang Bùi, CEO at Cushman & Wakefield Vietnam.

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When practiced correctly, ESG can help businesses overcome current challenges and seize the best opportunities in the future. However, with its broad scope, ESG will have different meanings in each organization. Therefore, to fully realize the potential and benefits of ESG, it is necessary to align this concept with the organization's strategy, thereby improving the business model.

1. Integrate ESG into Your Business Strategy

To attract investor attention, companies must incorporate ESG considerations into their core business strategy. Develop a clear and compelling ESG narrative that aligns with your company's mission and values. Demonstrate how sustainability, social impact, and good governance are deeply embedded in your business model and growth plans. Showcasing a strong ESG strategy helps investors understand the potential for long-term value creation and risk mitigation.

2. Demonstrate Strong Environmental Practices

Investors are increasingly interested in companies that actively address environmental challenges. Implement sustainable environmental practices throughout your operations. This can include reducing carbon emissions, optimizing energy and resource efficiency, using renewable energy sources, and adopting circular economy principles. Highlight specific initiatives and goals related to waste reduction, water conservation, or carbon footprint reduction. Such efforts demonstrate your commitment to minimizing environmental risks and contributing to a greener future.

One notable example is ACB Bank, which since 2014 has been promoting awareness and practical actions among employees and customers to protect the environment and conserve nature. In 2023, ACB became the first bank in Vietnam to publish a standalone Sustainability Report (ESG), drawing significant attention from investors. According to ACB representatives, protecting natural resources and the environment is a corporate responsibility in the modern world, practiced by many large companies and corporations globally and in Vietnam, aiming for sustainable development.

3. Prioritize Social Impact

Investors are attracted to companies that have a positive social impact and prioritize social responsibility. Focus on creating a positive work environment that promotes diversity, equity, and inclusion. Implement fair labor practices, offer employee development programs, and ensure workplace safety. Highlight initiatives that support local communities, such as volunteering, philanthropy, or partnerships with social enterprises. By aligning your company's social impact with the Sustainable Development Goals (SDGs), you can attract investors seeking meaningful and impactful investments.

4. Emphasize Good Governance

Investors highly value effective corporate governance practices. Establish transparent and accountable governance structures within your business operations. This can include adopting ethical codes of conduct, ensuring board independence, and implementing effective risk management frameworks. Demonstrate your commitment to regulatory compliance and ethical business practices. A strong governance framework helps investors trust your company's ability to navigate challenges and make responsible decisions.

5. Implement ESG Reporting and Transparency

To attract investor interest, it is crucial to communicate your ESG efforts transparently. Implement a comprehensive ESG reporting framework aligned with recognized standards such as the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB). Regularly report on your ESG performance, goals, and achievements. Making this information easily accessible to investors shows your commitment to transparency and accountability.

6. Engage with ESG-Focused Investors

To attract ESG-minded investors, actively seek out those who prioritize sustainability and social impact in their investment strategies. Attend conferences, seminars, and networking events focused on ESG to connect with potential investors who share your values. Leverage online platforms and networks dedicated to sustainable investing. Engage in dialogue with investors, highlighting your ESG initiatives and their potential financial and non-financial returns.

7. Leverage ESG Certifications and Standards

Consider obtaining relevant ESG certifications or aligning your company with recognized sustainability standards. Certifications such as B Corp or LEED (Leadership in Energy and Environmental Design) demonstrate your commitment to rigorous ESG practices. These certifications provide third-party validation of your company's sustainability credentials, bolstering investor confidence and market differentiation.

8. Collaborate with ESG Consultants

Partner with ESG consultants or advisory firms specializing in sustainable investment. These experts can guide you on ESG best practices, help identify areas for improvement, and provide insights into investor expectations. They can assist in developing robust ESG strategies, frameworks, and reporting mechanisms that align with investor requirements.

9. Continuous Improvement

ESG is an evolving field, and investors are increasingly demanding more from companies. Continuously assess and improve your ESG performance, keeping up with emerging trends, regulations, and investor preferences. Regularly engage with investors and stakeholders to understand their evolving ESG priorities and adjust your strategies accordingly. By demonstrating a commitment to continuous improvement, you showcase your startup's adaptability and readiness to meet future ESG challenges.

By implementing these strategies, Vietnamese businesses can enhance their ESG positioning, effectively attract ESG investment capital, and contribute to the sustainable development of the economy.

Vietnamese Companies Aiming for Sustainable Development and ESG Investment

1/ Vinamilk

In 2021, Vinamilk affirmed its leading position in ESG by launching three Vinamilk Green Farms. These farms utilize modern technology to optimize production processes, reduce emissions, regenerate resources, and protect the environment. Vinamilk's commitment to environmental responsibility is further demonstrated through its investment in the iLotusLand environmental monitoring and management software, which enhances environmental oversight and reinforces the company's social and environmental responsibilities.

2/ Vinfast (VIC)

VinFast: Focusing on electric vehicle production, VinFast contributes to reducing environmental emissions. Additionally, VinFast utilizes smart technology to provide a superior customer experience. This effort was recognized when VinFast received an ESG score of 23.3 from Morningstar Sustainalytics in 2022, placing it among the top 10 automotive companies globally for ESG rankings.

3/ AES Mong Duong

AES Mong Duong is committed to sustainable development by actively applying ESG principles. The company was listed in the Top 10 Sustainable Businesses in 2021 and is among the few Vietnamese companies whose 2021 Sustainability Report was verified by the Global Reporting Initiative (GRI). AES maintains transparency by publicly sharing environmental monitoring data, complying with environmental regulations, and building trust with the community.

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Online Environmental Monitoring Data Control at AES Mong Duong

4/ AMATA Viet Nam

Aiming to be an efficient, resilient, and environmentally friendly enterprise, AMATA Vietnam aspires to create a low-carbon city by 2040. The company actively applies ESG principles across its business activities, demonstrated by the implementation of automated wastewater treatment and monitoring systems in its industrial parks in Biên Hòa, Long Thành, and Hải Phòng. AMATA Vietnam also uses integrated technology systems to share environmental data with the community publicly.

phan-mem-giam-sat-du-lieu-quan-trac-ilotuslandAmata VN is always committed to becoming a responsible enterprise, driven by the vision of creating a perfect urban area where we minimize environmental impacts while creating opportunities and supporting each other. This brings benefits to stakeholders according to AMATA's 'ALL WIN' philosophy.

iLotusLand software is an environmental monitoring data management and supervision softwarethat provides businesses with a comprehensive tool for collecting, analyzing, and reporting environmental quality data. With iLotusLand, businesses can automate data collection processes, continuously monitor the environment, conduct in-depth data analysis, and generate visual data reports. This solution brings companies closer to sustainable development and serves as a valuable ESG investment for enterprises (factories, industrial zones).

Conclusion

ESG has become a crucial factor for Vietnamese businesses to attract domestic and international investment. This article has highlighted the importance of ESG investing and provided specific strategies for Vietnamese companies to effectively implement ESG principles.

To succeed in ESG, companies must proactively develop an ESG strategy tailored to their industry and specific circumstances. Additionally, they need to clearly demonstrate their commitment to sustainable development and transparency in all operations.

By making these efforts, Vietnamese businesses can enhance their ESG standing, attract effective investment, and contribute to the sustainable development of the economy.

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