Green transformation creates competitive edge for enterprises

Dr. Nguyễn Đình Thọ, director of the Institute of Strategy and Policy on Natural Resources and Environment under the Ministry of Natural Resources and Environment

Many Vietnamese enterprises are using green transformation as a strategy to raise their competitive advantage. Vietnam News Agency discussed this issue with Dr. Nguyễn Đình Thọ, director of the Institute of Strategy and Policy on Natural Resources and Environment under the Ministry of Natural Resources and Environment.

Green and circular economies are an inevitable global trend. What opportunities and challenges does this offer the Vietnamese business community?

The world is facing three global crises: climate change, environmental pollution and biodiversity loss. Therefore, countries around the world are focusing on reducing emissions and environmental pollution to diversify biodiversity and restore ecosystems with an aim to achieve global goals in protecting people, creatures and nature. Global trade regulations are moving towards requiring enterprises to implement green transformation to reduce emissions and environmental pollution.

In 2023, Việt Nam rose to the Top 20 largest economies in the world in terms of import and export. To maintain this position, especially in Việt Nam’s key markets such as the US, Europe, Japan and Korea, Việt Nam must comply with world regulations.

Since January 2023, the EU has officially issued regulations requiring listed companies to conduct sustainable development reports. Under this regulation, by June 2024, European countries must incorporate regulations on sustainable development reports into their laws for implementation. Therefore, global financial institutions have also required Việt Nam to have sustainable development reports. In the sustainable development reports, three factors of economy, society and environment are shown in the ESG (Environment – Social – Governance) report of enterprises. If enterprises do not implement these issues, they will not be allowed to participate in global trade and investment.

From January 2023, according to the EU’s regulation of CBAM (Carbon Border Adjustment Mechanism), four Vietnamese products, including steel, cement, aluminum and fertiliser, are directly affected. When Vietnamese enterprises export to Europe, they must have a report on emission reduction in their production sector. From January 2026, countries wishing to export goods to Europe must buy carbon credits. These are the regulations and requirements for Viêt Nam to meet international standards.

In the near future, if Vietnamese enterprises comply with global trade standards, they will continue to have the opportunity to participate in global investment and trade. However, if they do not comply, they will face difficulties, especially when European countries currently consider green standards as number one, quality as number two and price as number three. Therefore, if enterprises do not comply, they will lose orders. Climate-related risks are ranked by financial institutions as the biggest risk and have a direct impact on production of enterprises.

In reality, many regulations and requirements on green development and a circular economy are still quite unfamiliar to Vietnamese enterprises. What should domestic enterprises do?

As most of Vietnamese enterprises are small and medium size, so the green transformation and circular economy will also encounter many difficulties. The transformation is not only the social responsibility of enterprises, but also a business strategy that enterprises must implement in order to achieve the goal of participating in global trade and investment.

To implement this content, financial institutions around the world and major countries have also designed policies to support developing countries. Enterprises need to record carbon emission reductions from the pre-stage of projects to the completion of the projects, so that the efforts of enterprises in green transformation and emission reduction will be recorded. These things will help enterprises form carbon credits. Carbon credits are priced by valuation companies around the world based on the input costs, including corporate social responsibility, improvement of labourers’ working conditions, reduction of carbon emissions and improvement of living conditions for residents in the production area. Global financial institutions have been designed to have the input costs for green transformation and emission reduction to be fully offset through the sale of these carbon credits.

Therefore, enterprises need to conduct ESG reports, sustainable development reports and emission reduction reports in accordance with global standards to be recognised and recover their investment in the environment protection and emissions reduction. Enterprises need to consider it as an investment, not an expense. If an enterprise does not comply with global regulations, the input costs will not be recovered and it will be a loss for the enterprise.

Currently, popular standards in the world have been converted into Vietnamese standards, making it easy for Vietnamese enterprises to implement. However, it is necessary to have supports from the Government and associations. Besides, enterprises also need to support each other to minimise costs.

How do you assess the awareness of Vietnamese enterprises in green transformation?

The awareness of the Vietnamese business community in implementing emission reduction and impact of climate change on life has increased significantly. However, many domestic enterprises are still doing it in a way that is like doing ‘charity’, and are not fully demonstrating the responsibility of enterprises to society. Enterprises also do not have a standard method according to the international reporting standards to perform work and to benefit from their actions.

If businesses comply with the standards and regulations required by the world and developed countries, the input costs of enterprises will become recoverable investments.

The Ministry of Natural Resources and Environment, the Government as well as relevant agencies will make efforts to raise the awareness of enterprises, guide enterprises and associations to have solutions that adapt to new regulations of global trade and investment. — VNS