The concept of ESG stands for Environment, Social, and Governance as a trio of pillars to comprehensively evaluate the impact of an enterprise or organization on the community. As the world strives to achieve the Sustainable Development Goals by 2030 and comply with the Paris Agreement on climate change, enterprises are under pressure to not only perform well economically but also deliver benefits to society and the environment. In this context, many have turned to an ESG strategy to adapt to this growing pattern and seize competitive advantages. According to a KPMG survey, in 2021, 37% of CEOs surveyed in the US felt that implementing an ESG strategy was key to the company’s development and financial performance. By 2022, this figure had nearly doubled, reaching 70%.
Implementing an ESG strategy can in fact negatively affect a company’s short-term bottom line as they often have to invest in new systems, technologies, and employee training. However, in the long term, enterprises with good ESG practices are open to great opportunities.
- Enhanced reputation, brand image, and access to a larger customer base
As the concept of sustainable development gains traction, enterprises are facing ever-increasing expectations from customers. The modern consumers’ decision to purchase is not only determined by the quality of products or services and their affordability but also by the company’s social and environmental reputation. A KPMG survey in 2022 with 30,000 consumers found that 86% of respondents believe everyone should embrace sustainable habits, 69% are willing to pay more when buying from a company with principles that align with their own, and 64% want transparency about the environmental impact of products they buy. This shows that the effective implementation of an ESG strategy can significantly improve an enterprise’s reputation and brand image while also helping them reach a wider customer base.
- Improved business performance
In the long run, businesses can improve performance and reduce operational costs by investing in green transition measures, such as switching to more innovative technologies or using recycled materials to save energy, achieve better resource efficiency, and reduce input costs. Vinamilk, one of the leading companies in ESG practices in Vietnam, reported savings of 237 billion VND from 2014 to 2021 through the implementation of many circular economy approaches to save energy and improve resource efficiency. With a clear and robust ESG strategy, enterprises can create lasting impact throughout their supply chain by cooperating with partners who embrace sustainability and good practices. In this way, they gain greater resilience to supply chain disruptions and are less vulnerable to global economic and political instability. ESG practices also emphasize the role of good governance, integrity, and transparency – which are all essential to better performance.
- Access to sustainable financing
A 2022 global report by KPMG found that 87% of investors consider ESG investing as crucial to their portfolio strategies. Investing in companies with a long-term ESG vision tends to show better returns as they demonstrate greater potential for sustainable development compared to competitors and are less vulnerable to regulatory, socioeconomic, and environmental changes. In light of the growing landscape for sustainable investment and emerging mechanisms for green credit and green bonds, enterprises with ESG practices are open to great opportunities to attract funding and achieve exponential growth.
- Market expansion
Compliance with good environmental, social, and governance practices can also help businesses expand and compete in high-standard markets. Recently, the Carbon Border Adjustment Mechanism (CBAM), adopted by the European Union (EU), has officially come into effect in its transitional period. The system aims to put a fair price on the embedded carbon emissions of certain carbon-intensive products (cement, steel, aluminum,…) when imported into the EU market. The enforcement of CBAM poses a major challenge for enterprises, but also an opportunity for those willing to adopt ESG good practices. Given that companies set a clear vision toward ESG, they are well-positioned to meet stringent standards and enhance their competitiveness in the international market.
