Ms. Chi, ESG Manager at Dragon Capital

Background

Ms. Chi, ESG Manager at Dragon Capital. Her current responsibilities are to oversee the ESG integration into investment of both public and private equities as well as ESG compliance to international standards.

Her background is environmental science with a Master Degree on Environmental Engineering and Management. Her career and research interest focuses on sustainability, carbon market, air quality modeling and greenhouse gas emission inventory.

Before joining Dragon Capital, she had 8 years acting as an environmental and social consultant, providing environmental and social impact assessment for different types of projects, e.g. thermal power plant, transmission line, substation, wind farm, real estate development, and chemical manufactures. In middle of consulting career, she pursued the postgraduate degrees in Asian Institute of Technology in Thailand. In there, she had several peer-reviewed papers in international journals about air quality modeling and greenhouse gas emission, as well as participated into research projects over Southeast Asia countries, e.g. Thailand, Vietnam, Myanmar, Maldives, etc.

To provide insights into “Vietnam Now: Exploring New Opportunities in New Frontiers,” Tim Langdon, publisher of Eco Voice, had the pleasure of facilitating a Q & A with Nguyen Nhat Ha Chi, ESG Manager at Dragon Capital, Vietnam.

Q1. What opportunities are there in Vietnam in terms of sustainability-focused investments?

Vietnam’s government has recently placed a strong emphasis on green development, which presents numerous opportunities for sustainability-focused investments in the country. Here are some key areas:

 Renewable Energy: Between 2016 and 2020, the Vietnamese government introduced significant incentives to promote renewable energy (RE) investments. This led to a substantial increase in installed RE capacity. In 2015, renewable energy accounted for only 2-3% of the total installed power generation capacity, but by 2020, this figure had surged to 16%. While the rapid expansion has faced challenges due to transmission line capacity, the recently approved Power Development Plan (PDP8) in 2023 aims to address these issues by promoting wind power, rooftop solar, and hydrogen energy in a more technically sustainable manner. PDP8 also establishes that no new coal-fired thermal power plants (TPPs) will be approved after 2030, with existing plants to be phased out starting in 2045. By 2050, renewable energy is expected to contribute 50% of the national power generation. This creates significant investment opportunities in Vietnam’s green energy sector.

 Green Infrastructure and Energy Efficiency: There are opportunities for investments in sustainable cities and transportation systems, such as electric vehicles (EVs) and smart city technologies, as well as improvements in energy efficiency across the manufacturing and construction sectors. In 2018, the Prime Minister issued Decision No. 950/QD-TTg, which outlines a development plan for smart and sustainable cities through 2025, with a vision toward 2030. Since then, many cities have prioritized enhancing IT applications across various sectors of the economy. Investments in public transportation, urban energy efficiency, and industrial energy-saving measures are also highlighted in the country’s legal framework, positioning green infrastructure as a significant investment area.

 Carbon Projects: Under the Paris Agreement’s Article 6.2 and 6.4, mechanisms for trading emission reductions/carbon credits—known as Internationally Transferred Mitigation Outcomes (ITMO)—have been established to help countries meet their Nationally Determined Contributions (NDCs). Vietnam and Singapore, for example, have signed a bilateral agreement allowing Vietnam to sell carbon credits to Singapore to meet the latter’s climate goals. Vietnam has significant potential for carbon projects, such as forest management, blue carbon initiatives (mangrove forests), waste management, and rice paddy field projects. Moreover, Vietnam plans to launch a compliance carbon market in 2028, which would allow a 10% offset from carbon projects. With more channels becoming available for carbon credits, investment opportunities in this sector are likely to grow.

Q2. Why is it important to consider Environmental, Social, Governance (ESG) when investing in Vietnam?

Incorporating ESG factors into investment decisions involves both negative and positive screening approaches, each of which plays a crucial role in identifying sustainable opportunities while mitigating risks.

 Negative Screening: This approach is essential for avoiding investments in activities that pose significant risks to the environment and society. Such risks can damage not only the surrounding communities and ecosystems but also the investor’s reputation. Given that Vietnam is still considered a frontier market, the availability and quality of information disclosure, especially regarding sustainability-related data, are limited. Therefore, employing robust ESG screening and rating methodologies during both the pre- and post-investment phases can help investors reduce exposure to potentially harmful or controversial activities. Since 2016, Dragon Capital has adopted ESG integration in its investment process, which has proven effective in screening out activities that may be detrimental, thus protecting the integrity of its investment portfolio.

 Positive Screening: In addition to avoiding harmful activities, ESG considerations can also help investors identify projects that offer positive impacts on the environment and society. This approach allows investors to actively seek out opportunities aligned with sustainability goals, such as renewable energy, green infrastructure, and carbon projects. By focusing on projects with strong ESG performance, investors can contribute to Vietnam’s sustainable development while also generating financial returns.

Overall, integrating ESG factors into investment decisions in Vietnam helps mitigate financial and reputational risks while unlocking new opportunities for long-term, sustainable growth. Furthermore, as global demand for ESG-compliant investments continues to rise, companies with strong ESG credentials are likely to have a competitive edge, making them attractive to both domestic and international investors.

Q3. Is ESG compliance with international standards becoming more prevalent in Vietnam?

Yes, ESG compliance with international standards is becoming increasingly prevalent in Vietnam. As the country opens its markets and seeks more collaboration and investment from international institutions, Vietnamese corporations are undergoing a transition to adopt and align with global ESG standards.

Many listed and private companies in Vietnam are adopting internationally recognized ESG frameworks. For instance, the Global Reporting Initiative (GRI) and the Sustainable Development Goals (SDGs) are among the most commonly used standards by listed companies. In the private sector, the International Finance Corporation (IFC) performance standards are frequently considered to guide ESG practices.

Notable examples include Vinamilk, Vietnam’s leading dairy company, and FPT, the country’s top information technology company, both of which are pioneers in making net-zero commitments with clearly defined timelines. This indicates a growing trend among prominent businesses to align with global sustainability goals.

Moreover, the number of companies producing stand-alone sustainability reports is steadily increasing. In 2022, 19 listed companies issued sustainability reports, growing to 21 in 2023 and reaching 29 in 2024. This rise in ESG reporting reflects a broader trend of companies in Vietnam striving to meet international sustainability standards and enhance transparency.

Q4. Is ESG reporting important?

Yes, ESG reporting is crucial as it enhances transparency and disclosure of a company’s performance in ESG practices. This information enables investors to assess and rate a company’s ESG score, helping them make informed decisions regarding potential or ongoing investments.

For example, at Dragon Capital, if a company faces an ESG controversy—such as environmental pollution, negative impacts on communities, or health and safety incidents—and fails to disclose corrective actions, the company is rated as “needing improvement.” This rating acts as a caution flag, potentially triggering further engagement with the company. If the controversy escalates to a major level, the rating could be marked as ‘Inadmissible’, disqualifying the company from investment. Therefore, the more comprehensive and transparent a company’s ESG reporting, the better it can be rated, ultimately improving its attractiveness to investors.

It is also important to note that Dragon Capital maintains regular engagement with companies, typically once or twice a year, which helps that the ESG information is up to date. However, foreign investors who cannot engage frequently rely heavily on ESG reports for screening. Poor or incomplete disclosure can lead to a lower ESG score, which might restrict a company’s access to investment from these investors.

In short, ESG reporting plays a pivotal role in opening doors to a broader pool of foreign investors. A company with strong, transparent ESG reporting is more likely to attract sustainable, long-term investments.

Q5. What are some of the issues to look out for when investing sustainably in Vietnam?

One of the main challenges is the evolving nature of Vietnam’s sustainability regulations is regulatory uncertainty, which can lead to uncertainty or lack of clarity in enforcement. For instance, the new environmental law and its guiding decrees outline specific timelines for companies to conduct greenhouse gas inventories and disclosures. These measures are designed to help the government establish a baseline for a compliance carbon market. However, the absence of detailed enforcement mechanisms has resulted in many companies being unprepared or slow to comply with these regulations.

Supply Chain Transparency is another issue. Ensuring that businesses maintain sustainable practices throughout their supply chains can be particularly challenging, especially in sectors such as manufacturing and agriculture. In Vietnam, small and medium enterprises (SMEs) make up about 85% of the total number of companies, and many of them play a key role in various supply chains. However, the information disclosure of these SMEs is still limited, creating gaps in transparency and accountability. This lack of visibility can pose significant risks to investors aiming to meet strict ESG criteria, as it becomes difficult to assess the sustainability practices of businesses throughout the entire supply chain.

Corruption & Governance Issues: Weak governance structures in certain sectors or regions may undermine ESG performance, leading to issues like corruption or non-compliance with sustainability standards. Investors should be cautious of these risks, especially in industries where governance practices may not be robust.

Q6. How can the investment community become more sustainable?

Many investment firms in Vietnam, including funds and banks, have recently adopted ESG standards and integrated them throughout their investment processes. However, the specific ESG indicators used by these firms often vary, which can create challenges for companies when preparing ESG reports or responding to due diligence inquiries. This highlights the need for a more unified approach to ESG standards, especially in emerging markets. Collaboration and support from the investment community are crucial to making these standards more practical and applicable across different markets.

Engagement also plays a vital role in fostering sustainability in emerging and frontier markets. For instance, Dragon Capital regularly engages with investee companies, not just for updates on ESG issues or controversies but also to share knowledge and encourage better ESG disclosure and performance. A notable example is Dragon Capital’s work with FPT, Vietnam’s leading information technology company. In 2022 and 2023, Dragon Capital recommended several ESG best practices, which led to FPT publishing its first stand-alone ESG report. This report included a comprehensive sustainable procurement policy that prohibits child and forced labor, as well as any form of bribery. It also revealed previously unpublished data on the company’s GHG emissions.

In addition, a group of investment firms in Vietnam, including Dragon Capital, is forming an ESG working group aimed at collaborating on engagements with companies. This initiative is expected to further promote sustainable practices and drive consistent ESG performance across industries.

Q7. How can publications, such as Eco Voice, play their part in promoting sustainability?

While companies like Vinamilk and FPT have made significant strides in improving their ESG performance, many Vietnamese companies, particularly SMEs, still require a push from stakeholders to enhance their ESG practices. Publications play a crucial role in promoting sustainability by raising awareness, highlighting success stories, holding companies accountable, and providing a platform for dialogue on ESG issues.

Vietnamese companies have significant potential for growth and are in need of additional capital to support that growth. Foreign investment, which often comes with stricter ESG requirements, can serve as a strong motivator for companies to improve their sustainability practices. Publications like Eco Voice can be instrumental in this process by serving as a bridge between responsible global investors and the Vietnamese market. By sharing success stories, best practices, and shining a light on companies that need improvement, Eco Voice can help elevate ESG standards in Vietnam and encourage companies to adopt more sustainable practices.

Through this platform, companies in Vietnam, particularly those seeking international capital, can be inspired and driven to improve their ESG performance, ultimately positioning themselves as attractive, sustainable investment opportunities.

ABOUT ECO VOICE

First published in 2003, Eco Voice is your go-to publication for sustainability news in Australia. Eco Voice prides itself as an independent news platform with a clear focus on sustainability, with articles coming from a diverse range of contributors – all levels of government, corporations, not-for-profits, community groups, small to medium sized businesses, universities, research organisations, together with input from international sources. Eco Voice values community, conservation and commerce. Eco Voice is a media partner of the prestigious Australian Banksia Sustainability Awards – The Peak Sustainability Awards.

ABOUT Dragon Capital

Founded in 1994, Dragon Capital is the largest and oldest Vietnam-focused fund manager with an AUM of $5.5bn. Established six years before the stock market was launched, the company has taken a pioneering role in building Vietnam’s financial infrastructure and capital markets. Dragon Capital offers international investors access to the Vietnamese capital markets via multiple investment vehicles including public equity funds, ETFs, and fixed income.

Vietnam Enterprise Investments Limited (VEIL), a Vietnam-focused investment company incorporated in 1995 is a London-listed closed-end fund with total NAV of £1.7bn. It is a FTSE 250 constituent and the largest single-country investment vehicle on the LSE. It is actively managed and invests in sectors such as retail, technology, banks, materials and real estate.

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