Chris Milliken-Counsel, Freshfields Bruckhaus Deringer LLP

To give two recent examples: VinFast, the electrical vehicle unit of Vingroup, is to begin construction of a new multi-billion-dollar facility in the United States that will manufacture electric cars; and, closer to home, HDBank has recently issued over $160 million worth of bonds, where the proceeds are destined to go to women-led businesses.

ESG may seem a simple concept. But the principles of environmental, social, and governance are broad and open to significant interpretation. Every business will assess the principles and their importance differently. For example, the way in which a bank implements ESG projects will be very different to how an energy company would do so. And the way in which a US company, for example, would implement them will be different to how a Vietnamese company would do so.

In Vietnam, ESG could currently be characterised as “Esg”, where the environment is seen as being the primary factor of the trinity, with social and governance being of more secondary importance and hence still part of the acronym but expressed in the lower case.

That is not to say that social and governance issues are not important here – far from it. But you must put ESG into the context of Vietnam’s development story. Vietnam has a stated overarching ambition to achieve net-zero by 2050.

The challenge for Vietnam is that it needs to make an orderly transition from a country where coal accounts for a significant chunk of its energy output to a country with a cleaner and more diverse energy mix. To do that, Vietnam knows that it needs the support and assistance of international experience. In particular, Vietnam needs two things that only international investors and experts can really provide: significant amounts of investment capital and high-quality expertise.

The good news for international companies that have one or both of those qualities is that Vietnam has also publicly identified areas in which it would like their support. These range from, at one end of the spectrum, vanilla (for example fossil fuel to green/clean energy sources) and, along the way to the other end, literally green (for instance sustainable management, use of existing forests, and increase of afforestation for carbon absorption) to, at the very end of the spectrum, very-forward thinking (for example acceleration of the digital economy conversion for climate change).

The key point here is that there will be companies, and projects, that have been very successful at achieving similar aims in other countries. By leveraging that experience, taking the initiative, using a bit of gumption, and getting the right advice (whether it is legal or otherwise) from reputable advisors here in Vietnam, they could be successful here too.

Another observation is the flipside of the first, namely that the opportunities are not only for the benefit of international investors – they also exist for Vietnamese companies. ESG is indeed a buzzword, but buzzwords often have substance behind them and ESG is no exception. There are now funds that have ESG mandates. Multinational investors have internal ESG criteria for their operations and external standards for their joint ventures and investee companies. According to recent reports in The Financial Times, some investors are now requiring their senior employees to have demonstrated a commitment to ESG as part of their remuneration package.

Therefore, if you are a Vietnamese company looking for investment from international investors, you may be able to make yourself more attractive, differentiate yourself from your competitors and even increase your valuation by demonstrating a stronger commitment to ESG. Of course, this needs to be more than just paying lip service to the concept and international investors will be suspicious of “green-washing” (meaning claiming green/ESG credentials that are not merited or that are exaggerated). There will need to be clear evidence of what you are doing.

It may mean that you manufacture a product differently, either through the process you use or by way of its design/composition. Perhaps you implement an inclusive/flexible people policy that focuses on the promotion of women or other groups of people that need support to achieve their career ambitions. If you are a listed company, you might look to overhaul your governance protocols or set up a committee of the board of management that focuses on ESG issues.

In a 2022 Vietnamese business context, this may seem very sanguine and ambitious. But what does seem clear, from having spoken to international investors who are looking at opportunities here, and from hearing from colleagues and others about the general market sentiment overseas, is that companies that avoid implementing ESG positive initiatives will likely lose out in the long run.

ESG is certainly a buzzword with substance behind it. But, as we all know from just the past couple of years, the world, together with people’s expectations and ambitions, can change quickly. We may now be in some kind of new global normal, but whether ESG has a real place in that is difficult to say even in more developed markets.

The risk for ESG is that it fades into the background and/or is seen as irrelevant or out of touch in a world where countries are considering investing in their military and defence capabilities as well as taking strong fiscal defensive action to help protect and prop up their economies. We may therefore, in the short term, see a degree of hesitancy from both investors and companies alike in adopting radical changes, even if such changes would have long-term and sustainable results.

In Vietnam, there will certainly be investments this year driven by ESG implementation, or which have ESG metrics or factors underpinning them. But I think the adoption of ESG globally as a key deal metric is something that will develop more slowly than perhaps was initially anticipated, even at the beginning of this year. That has certain disadvantages for a developing country like Vietnam. But one advantage that it does have is that, by allowing a slower pace of change, ESG implementation, in the long run, may be more interesting and nuanced than just more renewable energy deals.