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ESG Standards and Its Subsequent Challenges on Vietnam Industrial Real Estate Sustainable Development

posted 8 months ago

“ESG”, which stands for Environmental, Social and Governance, refers to a set of standards introduced in 2004 with the purpose of measuring factors to determine indicators related to the impact on the community as well as the sustainable development in businesses. Currently, in Vietnam, ESG is a relatively essential factor in the Industrial Real Estate sector for attracting foreign investors.

1. Challenge on environmental issues

Vietnam has yet to address this issue adequately. In May 2023, the Prime Minister finally issued Decision No. 500/QD-TTg, approving the National Power Development Plan for the period 2021-2030, with a vision to 2050 (Power Plan VIII) by the Ministry of Industry and Trade. Unfortunately, from September 2023, the Deputy Prime Minister has returned the decision due to the failure to meet detailed requirements, lack of feasibility and adjusting procedures or processes.

2. Challenge on social element

This is one of the evaluation criteria that not only attracts value investors but also appeals to workers in Vietnam: favorable policies and support for labor. According to a ranking chart of 100 pension funds in 2021 by the Thinking Ahead Institute, Vietnam ranks 98th with a value of $55.7 billion. While this places Vietnam among countries with favorable assessments, compared to large pension funds in other countries that adhere to ESG standards, Viet Nam Corporations may deal with significant pressure when it truly comes to draw other foreign investors attention.

3. Challenge on Governance aspect

According to the Vietnam ESG Readiness Report 2022 of PricewaterhouseCoopers (PcW), in Section 3, which focuses on promoting ESG practices, up to 60% of businesses in Vietnam (including small and medium-sized enterprises) have not made any ESG commitments. These businesses in Vietnam lack knowledge (61%) and transparency in ESG data (28%), which are among the notable reasons. Regarding the lack of specialized knowledge to develop ESG practices, with half of small and medium-sized businesses in Vietnam operating in a “family” model, managers face considerable challenges in establishing appropriate strategies, along with monitoring and maintaining business operations, as well as learning about ESG.

4. Solution

Looking at the bright side, nowadays, numerous countries are highly evaluating Viet Nam as a potential country in Asia Pacific aiming for ESG and sustainable development in multi-area. For specific, also in Vietnam ESG Readiness Report 2022 of PricewaterhouseCoopers (PwC) indicated that 80% Enterprises Have made ESG commitments or plan to do so in the next 2-4 years, or the annual  KPMG’s Asia Pacific report about the rates of sustainability information in annual financial reports (2020-2022) from approximately 0% in 2020 to 79% in 2020 showing how Viet Nam corporations are much in consider to ESG.

Besides, Viet Nam government, even though all entanglements in regulations, are trying to resolve the problem by commitment to cutting emissions to net zero by 2050 announced at the 26th UN Climate Change Conference (COP26) as well as propose amendments to the law and implement all the unsold social house projects in 2023

Ultimately, evaluated by experts, depending on each industrial real estate enterprise trying to follow ESG. Theoretically, Viet Nam real estate companies can still achieve the ESG criteria by focusing on relevant quantitative variables for each company while analyzing the quantitative costs of social impacts and overall interactions with the quality of the local community. In reality, perhaps the biggest barrier is still the time with effort the developers have to exert to establish an ESG-compliant design from the get-go and waiting for the government to stipulate regulations more accurately.

3. Conclusion

ESG will be a crucial standard in the future and there is no denying that Viet Nam Industrial real estate business has great potential in this field. So far, there are difficult challenges to persist in three aspects of its standards. With great strategies and government support, overcoming these difficulties will drive ESG investment forward.

For the full detail of this post, please reference on this link: http://hmlf.vn/esg-standards-and-challenges-in-vietnams-industrial-real-estate/

Harley Miller Law Firm “HMLF”
Head office: 14th floor, HM Town building, 412 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.
Phone number: +84 937215585
Website: hmlf.vn
Email: [email protected]


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