Vietnam: the ESG investment case

Vietnam is one of the countries most vulnerable to climate change. Increases in annual maximum and minimum temperatures are expected to be higher than the global average while the country’s low-lying coastal and river delta regions are exceptionally vulnerable to rising sea-levels.

According to the World Bank, depending on the emissions pathway, between six and 12 million people will be affected by coastal flooding by 2070-2100, unless effective mitigation efforts are realised.

BlackRock records third consecutive month of redemptions

At last November’s COP26 Summit, Prime Minister Pham Minh Chinh set ambitious targets for Vietnam to be carbon neutral by 2050 and to phase out all coal power generation by 2040.

This January, the Vietnamese government published eight areas of focus (see box below) and throughout this year will provide a timetable for work with foreign investors and governments.

The UK has identified Vietnam as an important partner with which it can do ‘green business’ following its exit from the European Union.

In December 2020 the UK Department for International Trade announced the UK Vietnam Free Trade Agreement (UKVFTA) which covers £4.8bn in trade.  

The UK prime minister’s trade envoy for Vietnam, Graham Stuart, who was appointed this February, said: “We’re looking to partner with Vietnam in a way which is beneficial both to the British and Vietnamese people, and that will deliver moral purpose. Aligning the UK government and the commercial sector with the Vietnamese government can ensure a greening of both countries’ economies.”

Since signing UKVFTA, trade revenue between Vietnam and the UK climbed to $6.6bn in 2021, a rise of 17.2% year on year.

Renewable energy

In 2021, Vietnam’s ministry of industry and trade released a draft of its eighth national power development plan (PDP8) for 2021-30, which includes a vision for 2045, with renewables at the core building on the earlier successes.

According to a research report from McKinsey, since 2018 Vietnam has added almost ten gigawatts of capacity from renewable power plants.

McKinsey reports that 45% of the renewables growth is from purely private investments (both foreign and domestic), while 35% of capacity growth involved foreign direct investment (FDI), either alone or in partnership with local companies and governments.

More FDI  is needed to keep up with Vietnam’s energy demand which is projected to increase by 9% annually to 2025.

Inflows to global ETFs slowed in April

The ministry of industry and trade forecasts it needs $128.3bn to develop Vietnam’s electricity industry in the 2021-2030 period, representing a significant opportunity for sustainable investors.

In response, last December the National Assembly Standing Committee discussed amending the Electricity Law to make it easier for private investors to support the sector. If approved, all economic sectors, including foreign investors, can invest in developing transmission lines.

Digital transformation

Last year the Vietnamese government published its first digital strategy which “will help accelerate digital transformation through changes in awareness, enterprise strategies, and incentives towards the digitalisation of businesses, administration, and production activities”.

The World Bank says if Vietnam expands its digital sectors by about 10% every year, the cumulated monetary gains for the economy will exceed $200bn over 2021-45, or about the size of the country’s current GDP.

The World Bank says that not only will the digital sectors gain importance, but the use of computers, information technology tools, and digital platforms mean a more productive economy. These gains would exceed the $35bn needed over the next two decades.

A digital transformation also presents social benefits. The World Bank says In theory, the digitalisation process will create seven times more jobs than jobs it destroys. By 2045, an estimated 10 million net new jobs would have been created.

Again, to realise digital ambitions FDI is needed and the UK is primed for partnership.

Heather Wheeler, parliamentary secretary in the cabinet office with a special focus on digital services, said: “The Vietnamese government’s first strategy for digital echoes the outcomes that the UK is striving for including better public services, increased efficiency, and improved public engagement.”

Ample opportunities

While still vulnerable to climate change, Vietnam appears to show resilience and ingenuity across all three pillars of ESG.

Yet, if the country is to meet its green and digital transformation goals, private investment is paramount.

Policymakers must build on the positive momentum while asset owners embrace the ample sustainable investment opportunities Vietnam presents.

Dominic Scriven OBE is co-founder and executive chairman of Dragon Capital