Integrating ESG into contracts: An inevitable trend and implementation potential in Viet Nam

Integrating ESG (Environmental, Social, and Governance) considerations into contracts between parties is a strategic and necessary step in the context of globalization and sustainable development. This not only ensures compliance with legal regulations and international environmental and labor standards but also helps parties effectively manage risks from the impact of climate change to social concerns or poor governance. Stipulating ESG obligations in contracts also demonstrates a clear commitment to social and environmental responsibility, thereby enhancing brand credibility, facilitating investment attraction, and meeting the demands of customers, employees, and the broader community. More importantly, ESG fosters alignment of objectives between parties, minimizes disputes, and lays the foundation for a sustainable partnership, contributing to long-term positive impacts on society and the environment. This article will focus on clarifying why ESG clauses should be included in contracts and identifying key legal tools to address this issue. 

1. Drivers for ESG implementation in contracts 

a) Stakeholder demands 

The inclusion of ESG-related provisions in contracts is increasingly driven by stakeholder demands for enhanced sustainability data collection and reporting. Companies across various markets and industries are facing growing pressures from stakeholders (including investors, customers, partners, and employees) to disclose ESG information in their annual reports. For instance, both individual and institutional investors are increasingly using ESG metrics to assess long-term value and investment risks, often relying on ESG ratings built from company-disclosed or publicly available data. Likewise, customers and suppliers require ESG information for due diligence and sustainability assessments of procurement and collaboration decisions, though concerns remain over data leaks and a lack of transparency during information exchange. Employees, too, are not only concerned about compensation but also seek to work for organizations with strong environmental and social commitments and transparent governance. As such, they demand corporate commitments on issues such as fair labor conditions, gender equality, and occupational safety – clearly expressed through internal policies and contractual agreements. 

Given the above, integrating ESG into contracts is essential to meet stakeholders’ demands amid rising market standards for corporate social responsibility. From investors and clients to internal personnel, all expect companies to demonstrate concrete and transparent commitments on environmental, social, and governance matters. Contracts provide a clear legal instrument to record and bind such obligations. 

b) Impact of policies and legal regulations 

A significant driver for ESG integration into contracts in Vietnam is the gradual development of international, regional, and domestic regulatory frameworks. Although current domestic legislation does not mandate the inclusion of ESG clauses in contracts, it indirectly imposes obligations on enterprises to implement ESG-related measures in business operations. Notable legal instruments include: 

• Law on Environmental Protection 2020: Encourages businesses to adopt environmentally friendly technologies and use resources efficiently and sustainably (Article 4), while requiring environmental impact assessments and commitments to reduce greenhouse gas emissions (Articles 30 and 91). These obligations may be contractually embedded by requiring partners and suppliers to comply with environmental laws, such as committing to the use of eco-friendly materials or disclosing greenhouse gas emissions. 
• Data Law 2024: Effective from July 1, 2025, this law establishes personal data protection principles to enhance legal frameworks for sensitive data issues. As virtually all businesses process personal data, contracts offer an accessible mechanism for parties to formalize agreements on data sharing, use, and processing in a compliant and effective manner. 
• Circular No. 96/2020/TT-BTC on disclosure of information in the securities market: Requires listed companies to disclose information in accordance with principles of accuracy and transparency (Article 4). To meet this requirement, companies may contractually require investors or clients to provide information, while also committing to lawful and purpose-specific data usage, in compliance with data protection regulations. 
• Decision No. 1658/QD-TTg approving the national strategy on green growth for 2021 – 2030 with a vision to 2050: Aims to restructure the economy and promote green transition by reducing greenhouse gas intensity, leveraging digital and scientific technologies, and building sustainable green infrastructure and lifestyles – while ensuring inclusive and equitable transition principles. 

Although these regulations do not explicitly require ESG clauses in contracts, they create a legal context that increasingly supports or even necessitates such integration to ensure compliance and align with sustainable development goals. 

2. Legal tools for ESG integration in contracts 

Integrating ESG into contracts not only affirms a business’s commitment to sustainability but also serves as a legal risk management tool, ensuring enforceability of responsibilities and protecting long-term business interests. The following contractual tools may be flexibly applied depending on the contract type to operationalize ESG objectives: 

a) Representations & Warranties and Covenants – for Commercial Agreements 

In commercial agreements such as Memoranda of Understanding (MOUs), Term Sheets, or Framework Agreements, ESG elements may be embedded through Representations & Warranties (for present or past facts) and Covenants (for future conduct), thereby creating enforceable rights and obligations. For instance, a supplier may warrant that it has not violated environmental laws or exploited labor in its supply chain, and may covenant to maintain ESG audits or comply with labor standards throughout contract performance. 

These clauses may be paired with remedies such as indemnification or penalties, to establish legal accountability in case of ESG breaches. Clearly defining legal consequences for misrepresentation or covenant breaches enhances transparency and accountability. 

b) Notification and access rights – for agreements involving information or assets 

For contracts involving access to assets or information such as leases, service agreements, or research collaborations, ESG integration can occur through notice obligations and data access rights. For example, a lessee may require the lessor to promptly report serious environmental contamination. Likewise, a party may be granted access to ESG-related data such as production processes, waste control procedures, or human resources policies. 

These tools are particularly useful in transactions requiring periodic ESG monitoring or evaluation. Businesses may establish ESG reporting duties, specifying format, content, and frequency, and may also incorporate third-party audit mechanisms to verify compliance and data reliability. 

c) Risk allocation mechanisms – for high-risk commercial agreements 

For high-risk agreements such as goods supply contracts, construction agreements, or technical service contracts, ESG can be integrated via indemnity, termination, or force majeure clauses. For example, if a party breaches its commitment not to use child labor or causes excessive pollution resulting in administrative penalties, the other party may claim damages for reputational harm, delays, or termination by third parties. 

Termination clauses may be expressly defined to cover material ESG violations, providing legal grounds for contract termination and incentivizing compliance. Additionally, force majeure clauses should be expanded to include ESG-related events such as climate change disasters, pandemics, or sudden regulatory changes, thus allowing parties to be exempt from liability in uncontrollable circumstances. 

In conclusion, these legal instruments not only facilitate the practical incorporation of ESG standards into contractual relationships but also empower businesses to establish compliance mechanisms, allocate risks, and protect interests in increasingly complex commercial environments. Depending on contract type and ESG commitment level, businesses should select suitable tools to ensure enforceability, transparency, and legal certainty of ESG provisions. 

3. Challenges to ESG integration in contracts in vietnam 

While ESG integration into contracts offers numerous benefits, it also presents several challenges for Vietnamese enterprises. First, Vietnam’s ESG legal framework remains fragmented, lacking specific guidance on how to incorporate ESG terms into contracts, which complicates implementation—especially for small and medium-sized enterprises. Second, ESG data collection requires close collaboration with partners, many of whom may lack the technological capabilities, personnel, or awareness necessary to provide timely and accurate data, hindering reporting and compliance processes. 

Furthermore, data security concerns pose a significant barrier when sharing ESG data between parties. The absence of robust transparency and protection mechanisms for sensitive data may lead to hesitancy in cooperation and erosion of trust. ESG implementation, such as investing in green technology, upgrading governance processes, or improving labor conditions, often entails substantial costs, imposing financial pressure – particularly on smaller or highly competitive businesses. Additionally, discrepancies between Vietnamese and international ESG standards (e.g., EU or U.S. requirements under GRI, TCFD, or IFRS frameworks) complicate contract alignment and increase negotiation complexity. This necessitates stronger internal capacity and results in greater implementation costs and lead times. 

Date Written: 20/07/2025

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