In the context of globalization where sustainable development has become an inevitable trend, the legal framework for ESG (Environmental, Social, and Governance) assessment and sustainable business practices in Vietnam is being comprehensively developed and refined. This article provides an overview of the current regulatory system governing ESG activities while evaluating the effectiveness and feasibility of these regulations in practical application within Vietnamese enterprises.
1. Understanding sustainable development and ESG
ESG and sustainable development are two concepts that have become increasingly significant in today’s modern business landscape. ESG (Environmental, Social, and Governance) represents a comprehensive set of standards for evaluating business operations based on three pillars: environmental stewardship, social responsibility, and corporate governance. This framework has evolved beyond a mere trend to become an essential prerequisite for businesses seeking growth and integration in the global economy.
The environmental aspect of ESG focuses on assessing a company’s impact on the natural environment, encompassing issues such as climate change mitigation, carbon emissions management, renewable energy utilization, and waste management protocols. The social dimension examines the organization’s relationships with its workforce, communities, and stakeholders, while the governance component addresses corporate management practices, transparency measures, and accountability mechanisms.
According to the United Nations’ definition, sustainable development refers to development that meets present needs without compromising the ability of future generations to meet their own needs. In the business context, sustainable development translates to creating long-term economic value while simultaneously protecting the environment and making positive social contributions. ESG serves as a crucial tool enabling businesses to measure and evaluate their sustainable development progress.
Circular Decree 13/2023/TT-BKHDT has established a comprehensive legal framework for sustainable business, defining three main complementary and closely interconnected models: the Circular Economy Model, the Inclusive Business Model, and the ESG Business Model. While each model aims toward sustainable development, they maintain distinct focal points.
The Circular Economy Model emphasizes resource optimization and production process efficiency, demonstrated through the application of recycling, reuse, and waste minimization principles. This model particularly aligns with current global trends in green development and environmental protection.
Meanwhile, the inclusive business model demonstrates a company’s vision of social responsibility by creating opportunities for low-income segments of society. This approach not only contributes to reducing social inequality but also generates sustainable economic value for businesses through the expansion of value chains and markets.
Finally, the ESG business model is considered the most comprehensive as it integrates all three aspects: environmental, social, and governance. This model requires businesses to balance economic development goals, environmental protection, climate change response, social welfare assurance, and effective corporate governance. It represents a holistic approach that reflects the sustainable development trends of businesses in the modern era.
In Vietnam, ESG implementation not only helps businesses enhance their reputation and competitiveness in the international market but also serves as a prerequisite for accessing capital sources and business partners with sustainable development orientations. Particularly, in the context of Vietnam’s commitment to achieving net-zero emissions by 2050, ESG adoption has become increasingly urgent for the business community.
2. Assessment framework for sustainable business models under current Vietnamese law
Circular 13/2023/TT-BKHDT has established a comprehensive legal framework for evaluating sustainable business models, marking a significant milestone in standardizing assessment criteria in Vietnam. Compared to other developing countries in the region such as Indonesia and Malaysia, Vietnam’s legal framework demonstrates greater coherence and detail in specifying evaluation criteria.
Regarding structure and methodology, the assessment framework is built on the principle of quantifying evaluation criteria through specific scoring systems and weightings. This aligns with international practices, particularly the International Organization for Standardization (ISO) standards for sustainable development assessment. However, a distinctive feature is that Vietnam’s framework offers higher adaptability to small and medium-sized enterprises’ conditions, which constitute a significant portion of the economy.
In terms of regulatory authority, Vietnam implements a decentralized management model, where regulatory powers are distributed between central and local authorities. The advantage of Vietnam’s model lies in its flexibility in application, accommodating the specific characteristics of different regions and industries. The framework’s implementation process is designed with four key steps: consultation, legal review, public disclosure, and feasibility assessment.
Notably, the framework’s flexibility is ensured through mechanisms allowing adjustments based on each entity’s practical conditions while maintaining consistency in basic legal principles. This creates a balance between the uniformity of the legal framework and adaptability to specific implementation contexts, representing a significant advantage compared to similar frameworks in the region.
3. Assessment framework for circular economy business models
The assessment framework for circular economy business models, as stipulated in Article 5 of Circular 13/2023/TT-BKHDT, establishes a comprehensive legal framework to evaluate the implementation of circular economy models in businesses. This framework encompasses three main criteria groups, reflecting the entire business operation cycle from strategic orientation to specific activities in the production and business process.
First, regarding strategic orientation, businesses must clearly demonstrate their commitment to implementing the circular economy model by integrating these principles into their organizational vision and mission. This extends beyond mere directional statements and must be translated into specific, feasible, and measurable objectives, strategies, and action plans.
Second, during the production and pre-production phase, the framework establishes three crucial criteria groups: (i) Resource use optimization through minimizing non-renewable resource extraction, efficient material utilization, and energy conservation; (ii) Extension of material, equipment, and product life cycles; and (iii) Environmental impact control and mitigation through waste management measures, hazardous chemical use restriction, and promotion of green procurement.
Third, for the post-sale phase, the framework focuses on evaluating activities related to logistics, product usage, and post-consumption management. Specifically, businesses must demonstrate commitment through: (i) Implementing renewable energy and establishing after-sales services such as repair and maintenance; (ii) Developing effective product recovery and recycling systems; and (iii) Controlling the use of non-biodegradable materials such as microplastics.
These criteria are designed to ensure comprehensive evaluation, aligning with global sustainable development trends and meeting environmental protection requirements under Vietnamese law. The application of this framework not only helps businesses self-assess their circular economy model implementation effectiveness but also guides future improvements and sustainable development.
4. Assessment framework for inclusive business models
The assessment framework for inclusive business models, as stipulated in Article 6 of Circular 13/2023/TT-BKHDT, establishes a comprehensive legal framework with four main criteria groups. While implementing these criteria offers numerous advantages, it also presents significant challenges for businesses.
- Regarding inclusive business orientation: Businesses need to integrate inclusive business philosophy into their vision, mission, and operational strategy. This advantageously helps businesses establish clear and consistent direction. However, the challenge lies in translating orientation into specific actions, particularly in establishing scientifically sound and feasible impact measurement indicators.
- Regarding commercial viability: This criterion requires balancing commercial objectives with social impact. The advantage is helping businesses maintain financial sustainability while ensuring sustainable development goals. The main challenge is high compliance costs, especially in simultaneously meeting requirements for labor, environment, and sustainable development.
- Regarding social impact: This criteria group evaluates both the breadth and depth of social impact, along with scalability and spillover potential. The advantage is creating measurable and systematic social value. However, accurately measuring and quantifying social impact, especially long-term and indirect impacts, presents a significant challenge for businesses.
- Regarding innovation: This requirement drives businesses to continuously improve their processes, technologies, and business models. However, businesses face substantial investment costs for research and development and risks in testing new solutions.
5. ESG business model assessment framework
The ESG business model assessment framework, as stipulated in Article 7 of Circular 13/2023/TT-BKHDT, establishes a comprehensive legal framework to evaluate the implementation of environmental, social, and governance criteria within enterprises.
Regarding environmental aspects, businesses must demonstrate strict compliance with environmental protection regulations, including controlling and minimizing environmental impacts throughout the supply chain. This is demonstrated through the application of environmental standards for suppliers, efficient resource management including materials, energy, and water, biodiversity conservation, emissions and waste control, and the development of environmentally responsible products.
In terms of social aspects, businesses need to establish a fair and sustainable working environment through professional employment policies, labor relations, and human resource management. Special attention is given to occupational health and safety, human resource development through education and training, ensuring diversity and equal opportunities, respecting trade union rights, and strictly prohibiting child labor and forced labor. Additionally, businesses must focus on local community development, applying social standards to suppliers, ensuring customer health and safety, implementing responsible marketing practices, and protecting customer information.
Regarding governance, businesses must demonstrate strong commitment to ESG implementation and sustainable business practices through establishing effective governance structures, including clear functional delineation of the Board of Directors, Members’ Council, or Board of Management. Simultaneously, businesses need to develop mechanisms for stakeholder engagement, ensure operational transparency, establish effective control environments, and protect shareholder rights for listed companies.
6. Challenges in implementing ESG assessment model
The implementation of the ESG assessment framework in Vietnam currently faces significant challenges across three main dimensions. In terms of governance, Vietnamese businesses, particularly unlisted companies, lack professional governance structures for effective ESG implementation and struggle with ensuring transparency and information disclosure, especially in reporting and internal control activities. Regarding environmental aspects, many businesses face dual challenges: the pressure to comply with stringent environmental standards in waste and emissions management, coupled with the financial burden of investing in green technologies and environmental management systems. On the social front, businesses must invest substantial resources to meet labor standards, occupational health and safety requirements, and employee benefits, while striving to balance profit objectives with social responsibilities.
Compared to other ASEAN countries, Singapore and Malaysia have developed more comprehensive ESG legal frameworks, with mandatory reporting systems and clear financial incentive mechanisms. Meanwhile, Indonesia and the Philippines, although facing similar challenges as Vietnam, have made notable progress in developing national ESG roadmaps. To overcome these challenges, Vietnamese businesses need to develop appropriate implementation roadmaps, invest resources adequately, and strengthen internal capabilities. Additionally, support from state regulatory agencies in providing guidance and creating favorable conditions plays a crucial role in this transition process.
Conclusion
The legal framework for ESG assessment and sustainable business in Vietnam is gradually being refined and developed, as evidenced by the issuance of Circular 13/2023/TT-BKHDT. This represents a significant step forward in promoting Vietnamese businesses towards sustainable development while facilitating deeper integration into global value chains.
Despite numerous implementation challenges, particularly regarding financial resources, governance capacity, and ability to meet international standards, the application of ESG criteria has been bringing positive impacts to businesses. It not only helps companies enhance their competitiveness but also contributes to building sustainable brand images, attracting investment, and expanding market presence.
To promote more effective ESG implementation in the future, close coordination among stakeholders, including government, businesses, and supporting organizations, is essential. Additionally, learning from ASEAN countries’ experiences and developing an implementation roadmap suitable for Vietnam’s practical conditions will be key to ensuring success in achieving sustainable development goals.
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Disclaimers:
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