First Published in the Vietnam Investment Review‘s Magazine: Sustainable Development 2021: Leaving No One Behind in December 2021.
The global business community is clearly shifting gears on sustainability, seeing it for the strategic imperative that it is. By learning from the path taken by sustainability leaders elsewhere and integrating sustainability deeper into business models, there is a window of opportunity for Vietnamese businesses to leapfrog towards sustainable profitability.
COVID-19 has deeply impacted our communities both here in Vietnam and around the world. One of the emerging themes of the pandemic is how interconnected we are. What impacts in one end of the world has a ripple effect elsewhere. The decisions we make and how we work together will influence all ways of working, including sustainability.
We know that working in silos and assigning responsibility for a company’s sustainability agenda to one person, one department is no longer effective. The agenda is too big, too all-encompassing to marginalise it to a select few people.
A company will make the greatest difference when business integrates sustainability into its business model. This means that sustainability goals become business goals and sustainability informs economic activities in every aspect of the value chain. Those that understand this connection will pave the way. Those that do not will be left behind.
Let us go back to the basics and what sustainability means for companies. Sustainability principles are about delivering long-term value for people, planet, as well as profits. To achieve lasting value, you have to understand the future – how society is evolving – and incorporate all three pillars of environment, social, and governance (ESG). This is a more all-encompassing approach.
Another clarification is in terms of approach. In the last year, there has been a noticeable increase in events in Vietnam that introduce sustainability through varying communication formats. This has created more confusion than clarity.
While there is a strong sustainability red thread in all of them, the difference is in organisation. Examples are companies and investors. Companies can integrate sustainability to include it in their management processes, communications, and reporting among other business activities. This is often communicated as “sustainability”, “corporate social responsibility” (CSR), or “corporate responsibility”. Investors have put ESG as a requirement and communicated it as ESG investing and ESG reporting. Knowing the differences also means understanding the connections.
The final point on defining sustainability is that an ESG rhetoric or a single charity initiative is not enough to communicate that you do “sustainability”. It has to be more. Embedding sustainability into business strategy is the “more”.
THE STATE OF INTEGRATION
If Vietnam is to “leapfrog” into corporate sustainability and apply learnings from other markets, let us briefly move to the Nordics – a region often cited at the top of sustainability rankings. Published last year, sustainability consultancy Purple IVY’s The State of Integration surveyed sustainability leaders in Sweden on the integration of sustainability into their business. The report identified four overlapping themes that influence how a company prioritises and manages sustainability. It all begins with what is driving their sustainability engagement.
Strategic enabler. The companies that see sustainability as a strategic enabler and essential to achieving business aims and delivering on company mission and vision. For example, in transitioning to being a green energy company, Vattenfall – one of Scandinavia’s largest energy providers – mentions how they pivoted their business strategy to make sustainability its starting point.
Investor expectations. Investors are also getting louder on ESG. They want to bet on companies that will succeed with both business and sustainability because it makes sense in the long term. To capture these opportunities, investors expect that companies have a strategic response to all three pillars of sustainability. When a strategy is shaped by growing investor expectations, companies strongly focus on increasing transparency on risks and business opportunities.
Creating lasting value. When companies align their purpose to their sustainability goals, they are not only maximising their opportunity to create lasting value, it supports the question “why a company exists”. It helps the organisation develop and innovate services and products that make a tangible difference to the world around them. It is about staying relevant not only short-term but also long-term with both the challenges and opportunities linked to ESG.
Building trust. And finally, businesses are increasingly understanding the connection between building trust and engagement in the sustainability agenda. This means addressing not only their positive impacts, but also the negative ones. To continually build trust, companies need to increase transparency in ways that go beyond complying to increased sustainability legislation. They understand the impacts of their business better, through improved data collection and life-cycle analysis, among others in order to meet the widening group of stakeholder expectations.
RELEVANCE TO VIETNAM CONTEXT
How is all of this relevant to Vietnamese companies? The many points already raised are not so dissimilar to the themes communicated here. Whether you are a multinational company in Vietnam, a Vietnamese company or a small- and medium-sized one, sustainability is not going to go away. The question of yesterday was – do you engage in sustainability? The question of today is – if you do not, why not?
There are multiple examples of this push forward. Vietnam is identified by the Intergovernmental Panel on Climate Change (IPCC) as one of the regions most at risk of climate change, from extreme weather to salinity intrusion. This will have a negative effect on the country’s development and economy.
Another momentum is coming from the Vietnamese government. It has adopted the amended Law on Environmental Protection 2020 which gives a legal framework on Extended Producer Responsibility. This requires companies to find solutions and take responsibility for their plastic consumption and production.
In addition to ESG investors already mentioned, there is a rise in the ranks of impact investors. They finance companies that align their positive and sustainable impact with traditional financial returns. AVPN, the largest Asian network of social investment funders, has pinpointed Vietnam as one of the most vibrant impact investing hubs in Southeast Asia.
More and more consumers expect brands to deliver quality products and services without creating a negative impact. One of the most vocal consumers are the youth and they are increasingly worried about the state of the world that they will inherit.
FUTURE-PROOF YOUR BUSINESS
How do companies future-proof their business, build resilience, and integrate sustainability into their business strategy? The concept of sustainability can sometimes feel foreign in Vietnam and not Asian enough. The exciting part is not in the terminology, but in the process. To own your strategy, you need to own your process.
The process of integrating sustainability starts with intent to think, plan, and understand what is material – or most relevant – to your company. The sustainability agenda is incredibly complex and spans over a huge number of themes. Purple IVY suggests a process where you identify what sustainability issues (environmental, social, and governance) are most crucial to your company’s ability to create value. You prioritise what is most essential to your business by understanding the internal and external impacts of both the present and future. Take into account both risk and opportunity. It is important to continuously collaborate with stakeholders to exchange knowledge and to create a reinforcing culture. Set an audacious vision with targets and strengthen it by collecting data on impacts and measuring progress along your value chain. Make sure actions are comparable year-to-year and are aligned with existing frameworks – and engage and motivate all along the way, making sure it is business strategic and future-focused.
As we pivot out of COVID-19, we will have to rethink how we conduct business and what businesses’ role is in achieving a more sustainable society. Learning from those that have already taken the trodden path will ensure that Vietnam can leapfrog and jump over certain hurdles and continue its energetic, vibrant, and resilient journey.
The journey forward for business is in integration where business goals are sustainability goals.
First Published in the Vietnam Investment Review’s Magazine – Sustainable Development 2021: Leaving No One Behind in December 2021.