Why Vietnamese Boards Can No Longer Treat ESG as a Reporting Exercise, and a Practical Framework for What Comes Next

Gautam Gupta – Published in partnership with the Vietnam Independent Directors Association (VNIDA) 2026

The Numbers Look Good. The Reality Does Not.

According to KPMG’s Survey of Sustainability Reporting (2022), the majority of Vietnam’s 100 largest listed companies now produce some form of sustainability or ESG report. That is a number the market can be proud of. It puts Vietnam alongside the Philippines and ahead of several larger economies in the region.

Vietnam also ranks last among countries assessed on the 2024 Environmental Performance Index (Yale Centre for Environmental Law and Policy).

Both things are true at the same time. And that contradiction tells you everything you need to know about the state of ESG in Vietnam: the reporting exists, but it is not connected to what is actually happening.

Look beneath the headline number and the picture sharpens. The UNDP-UK Vietnam ESG Readiness Report (2022) found that 76 per cent of Vietnamese businesses surveyed have no clear ESG governance structure. Sixty-five per cent do not involve the board of directors in ESG matters at all. In most Vietnamese listed companies, ESG is a section in the annual report written by someone in communications or investor relations. It is not a board conversation about risk. It is not a strategic input into capital allocation. It is a compliance exercise, treated as such by the people who produce it and the people who sign off on it.

This article argues that this approach is running out of road. Three forces are converging to make ESG a board-level strategic issue whether Vietnamese boards are ready for it or not: domestic regulation with real financial consequences, foreign capital that is conditional on ESG governance, and global supply chains that are exporting ESG obligations directly into Vietnamese operations. The companies that recognise this shift early will attract capital and market access. The companies that do not will lose both.

The Regulatory Baseline: Where Vietnam Stands Today

Vietnam’s ESG regulatory framework is more developed than it often gets credit for. It is not comprehensive, but the foundations are in place and the trajectory is clear.

Circular 96/2020 requires all public companies to include a sustainability section in their annual reports, covering environmental impact, labour practices, community responsibility, and governance. This is a meaningful step from its predecessor, Circular 155/2015, which was weaker and produced, predictably, weaker disclosures. Research on 170 listed companies under the old regime found environmental disclosure was shallow and mostly narrative, with little quantitative data. Circular 96 was designed to fix that.

The Environmental Protection Law 2020 introduced stricter environmental impact assessments, periodic reporting for high-impact sectors, and, at Article 139, a mandate to establish a domestic carbon market. Decree 06/2022 identified the sectors subject to mandatory greenhouse gas inventories and set the carbon market timeline: a pilot phase from 2025 to 2028, with full implementation from 2029. Decree 119/2025, effective August 2025, updates the detailed rules.

Vietnam committed to net-zero emissions by 2050 at COP26. That commitment has been translated into specific policy instruments: PDP8 caps coal power and eliminates it entirely from the energy mix by 2050, the green growth strategy sets sector-level decarbonisation targets, and the forthcoming green taxonomy under Decision 21/2025 will define what qualifies as “green” for bonds, loans, and investment classification.

This framework exists. But there is a difference between having rules that require disclosure and having boards that treat the disclosed information as strategically important. Most Vietnamese companies are at stage one: they file the report. They think they are done.

They are not.

Three Forces That Change Everything

Regulation Is Hardening

The shift that most Vietnamese boards have not yet absorbed is that ESG regulation in Vietnam is moving from soft guidance to hard financial exposure. The trajectory is one-directional, and it is accelerating.

Consider the carbon market. The pilot phase under Decision 232/QD-TTg began in 2025, with emissions trading tested across high-emitting industries. From 2029, participation becomes mandatory. Decree 119/2025 adds detailed cap-and-trade rules and stricter penalties. For companies in energy, cement, steel, and chemicals, greenhouse gas emissions are no longer a CSR metric reported in the back pages of the annual report. They are becoming a regulated financial exposure with a price attached.

PDP8, the national power development plan approved in May 2023 (Decision 500/QD-TTg), caps coal power capacity and sets a zero-coal target by 2050. Offshore wind is targeted at around 6,000 MW by 2030. The DPPA framework under Decree 80/2024 enables large electricity consumers to purchase renewable power directly. For companies in the energy value chain, or any large industrial consumer, transition risk is now policy. It is not a scenario in a consulting presentation. It is the law.

The State Bank of Vietnam has built a green banking regime through a series of directives, decisions, and circulars stretching from 2015 to 2024. By the targets embedded in these instruments, 100 per cent of banks should have internal environmental and social risk regulations integrated into their credit assessment processes. As of early 2024, green credit outstanding had reached approximately VND 500 trillion, about 4.5 per cent of total bank credit, growing at roughly 22 per cent annually (State Bank of Vietnam). That is not window dressing. The central bank is building environmental risk into how lending works.

And the recent updates to Vietnam’s Corporate Governance Code introduce a dedicated section on sustainable development, explicitly linking ESG integration to the country’s capital market upgrade ambitions.

Boards that still think ESG regulation is “coming” are behind. It is here. The financial teeth are being added now.

Foreign Capital Is Conditional

Foreign investors account for roughly 10 per cent of trading value on the Ho Chi Minh Stock Exchange. That sounds modest. But they are price-setting at the margin for large-cap stocks, and their allocation decisions send signals that the rest of the market follows.

These investors are not passive. According to Dragon Capital’s 2024 Stewardship Report, the firm conducted dozens of targeted ESG engagements with companies in its top investment universe, using a proprietary tracking system to monitor ESG performance, engagement, and voting outcomes. This is not a box-ticking exercise. It is active ownership with specific expectations attached.

The development finance institutions have gone further. IFC structured Vietnam’s first local-currency sustainability-linked bonds for BIM Group subsidiaries, approximately VND 2.333 trillion, with explicit water and energy performance targets and EDGE green building certification triggers. Together with AIIB, IFC supported SeABank’s $150 million green and blue bond issuance, requiring adherence to ICMA Green Bond Principles and IFC Performance Standards. These are not suggestions. They are contractual obligations with monitoring requirements.

Then there are the withdrawals. In 2018, Standard Chartered pulled out of the $1.87 billion Nghi Son 2 coal plant financing consortium after campaigns highlighting conflicts with the bank’s own climate commitments. In 2020, investors managing $3.6 trillion in assets wrote to sponsors and financiers urging withdrawal from the Vung Ang 2 coal project. In 2021, Mitsubishi Corporation exited the 2,000 MW Vinh Tan 3 coal plant, explicitly citing climate concerns and investor pressure. Dragon Capital fully divested from Hoang Anh Gia Lai after NGO engagement on land-grabbing and deforestation concerns.

Walking away from billion-dollar deals over ESG is not theoretical. It has happened. Multiple times. In Vietnam.

Vietnam’s FTSE Emerging Market reclassification, expected to take effect in September 2026, will bring new passive index flows into the market. But that capital comes with ESG screening built in. The question for boards is not whether foreign investors care about ESG. It is whether your company’s governance is ready for the scrutiny that comes with their money.

Global Supply Chains Are Exporting ESG Obligations

This is the force that affects Vietnamese companies regardless of whether they have foreign investors on their shareholder register.

The EU Corporate Sustainability Reporting Directive was originally scheduled to apply to non-EU companies with more than EUR 150 million in EU turnover from 2028, though the EU’s Omnibus simplification proposals in 2025 may delay or modify this timeline. Regardless of exact timing, the direction is clear: assured sustainability reporting under European standards will be required for large non-EU companies with significant EU operations. The EU Corporate Sustainability Due Diligence Directive requires large EU companies to conduct human rights and environmental due diligence across their global value chains, which means EU buyers will demand ESG data and risk management from their Vietnamese suppliers.

The EU Deforestation Regulation targets coffee, rubber, and timber, three of Vietnam’s significant export categories to Europe, worth more than $2.5 billion annually. It requires farm-level geolocation and proof of non-deforestation. For Vietnamese coffee cooperatives and rubber plantations, this is a market access requirement, not a nice-to-have.

In manufacturing, the pressure comes through the supply chain itself. Samsung, Intel, Foxconn, and major EU and US retailers require Vietnamese suppliers to comply with labour standards, environmental management systems, chemical restrictions, and increasingly Scope 3 emissions reporting and renewable energy sourcing. Vietnam’s DPPA framework under Decree 80/2024 was explicitly designed to help manufacturers meet these corporate renewable energy mandates. The EU’s Ecodesign Regulation, Digital Product Passports, and Extended Producer Responsibility rules will add further layers.

A Vietnamese furniture manufacturer that exports to Germany, or a garment factory that supplies H&M, is already subject to ESG obligations stricter than anything in Vietnamese domestic law. Boards that do not recognise this are exposing their companies to market access risk that no amount of domestic compliance can offset.

The Board-Level Gap

If regulation is hardening, capital is conditional, and supply chains are exporting obligations, where does that leave Vietnamese boards? Mostly unprepared.

The UNDP Readiness Report data is worth restating. Seventy-six per cent of Vietnamese businesses surveyed have no clear ESG governance structure. Sixty-five per cent do not involve the board. Governance was identified as a top ESG priority by 62 per cent of respondents, but the structures to deliver it are absent.

VNIDA’s surveys of public company boards paint a consistent picture. Many companies lack independent directors entirely or appoint only the legal minimum. In the banking sector, where independent directors are legally required, the average share is just 11.8 per cent (VNIDA-FiinGroup surveys). VNIDA’s own Independent Director Competency Framework, published in 2023, explicitly calls for independent directors to build knowledge of sustainable development and ESG indicators, which tells you where the current level of expertise sits.

Compare this to ASEAN peers. Thailand, Singapore, and Malaysia all have exchange-level rules that assign sustainability oversight to the board, mandatory or comply-or-explain TCFD-aligned reporting, and higher rates of external assurance of sustainability data. Vietnam’s existing Corporate Governance Code and the IFC-SSC Corporate Governance Manual encourage boards to consider sustainability, but they stop short of mandating board-level ESG structures.

The pattern across most Vietnamese listed companies is familiar. ESG reporting happens in the investor relations or CSR department. The board receives and signs off on the annual report. Nobody challenges whether the metrics are meaningful, whether the targets are credible, or whether the company’s strategy is aligned with the risks those metrics reveal. The board is a signatory, not an owner.

I want to be careful about tone here. Vietnamese companies have made real progress. The jump from minimal disclosure to 87 per cent of the top 100 reporting is genuine. But the gap between current practice and what the market will demand over the next two to three years is wider than most boards realise. Closing it requires structural changes, not better annual reports.

Greenwashing: The Risk Nobody Is Pricing

As ESG reporting increases without corresponding governance or verification, the risk of misleading claims grows. Vietnam has no mandatory ESG assurance requirement. Circular 96 requires disclosure but says nothing about verification. Only a handful of companies, voluntarily obtain limited assurance on selected ESG metrics.

Vietnam has no standalone anti-greenwashing statute, but existing advertising, consumer protection, and competition laws contain provisions against misleading claims that apply to environmental statements. A leading airline’s “Green Friday” promotion was banned by Singapore’s Advertising Standards Authority for unsubstantiated environmental claims. The ruling was in Singapore, but the signal is clear: Vietnamese companies whose marketing reaches foreign markets are subject to foreign regulators’ standards.

The international direction is toward mandatory assurance. The EU’s CSRD requires assured sustainability information. Companies with international exposure will face these standards regardless of what Vietnamese domestic law requires.

Companies that get ahead of this voluntarily build credibility with the investors who matter most. Companies that wait will face harder questions when the rules tighten. And for boards, the underlying issue is simpler than it sounds: if you do not know whether your company’s ESG data is accurate, you cannot make decisions based on it, and investors cannot trust it. That is a governance failure, not a reporting problem.

What Boards Should Do

Establish ESG Oversight at Board Level

This is the foundational step, and in most Vietnamese companies it has not happened. Either create a dedicated Board Sustainability or ESG Committee, or assign an explicit ESG mandate to the existing Risk or Audit Committee. Define the mandate in the committee charter: oversight of ESG strategy and targets, approval of materiality assessments, oversight of ESG reporting quality, and supervision of management’s environmental and social risk management.

The IFC-SSC Corporate Governance Manual 2025 and VNIDA’s own competency frameworks already envision independent directors with ESG responsibilities. This is best practice today. It will be expected practice within two years.

Conduct a Vietnam-Specific Materiality Assessment

Not a generic matrix copied from a global consulting template. A genuine assessment of which ESG issues create financial exposure for your specific company in Vietnam’s specific context.

For climate, this means physical risks like flooding, heat stress, and Mekong Delta salinisation, alongside transition risks from coal phase-out, carbon pricing, and shifting energy policy, alongside opportunity in renewables, direct power purchase agreements, and green bonds. For social issues, it means workplace safety (727 workers died in occupational accidents in 2024, with economic losses exceeding VND 43 trillion, per MOLISA), labour standards compliance, and supply-chain human rights exposure under CSDDD and EUDR. For governance, it means board independence, Related Party Transactions oversight, and beneficial ownership transparency.

Circular 96’s disclosure template and the Vietnam Sustainability Index criteria provide a starting checklist. But boards should move toward double-materiality assessment aligned with GRI and, where relevant, TCFD and ISSB standards.

Embed ESG into Risk Management and Strategy

ESG should not sit in a separate silo labelled “sustainability.” It should be integrated into the enterprise risk management framework, the same way credit risk or operational risk is managed.

For banks, this means aligning with the State Bank’s environmental and social credit guidelines, linking high-risk sector exposures to enhanced due diligence, and building the data infrastructure to report green credit accurately. For manufacturers, it means mapping ESG requirements from key customers and treating compliance as market access rather than overhead. For energy-adjacent companies, it means aligning capital planning with PDP8 trajectories and preparing for carbon market participation.

And one step that tends to get deferred: introducing ESG-linked KPIs into executive remuneration. If management is not measured on it, it will not get managed. That is true for ESG the same way it is true for everything else.

Upgrade Reporting in Three Stages

Most Vietnamese companies need a roadmap that starts from where they actually are, not where global best practice says they should be.

Stage one: do Circular 96 well. Most companies are at this stage but executing it poorly. Fix the basics. Describe clear governance structures in the report. Conduct a basic materiality assessment. Report quantitative KPIs rather than narratives. Cross-check against Vietnam Sustainability Index criteria to catch obvious gaps. None of this is hard. Most of it is not being done.

Stage two: adopt GRI Standards as the primary reporting framework and consider publishing a standalone sustainability report. For financial institutions, align with the SBV-GIZ-UNEP FI climate risk guidance and begin reporting TCFD-style climate metrics. Start limited external assurance of high-priority metrics: emissions, safety performance, and key social indicators. This is where the investment begins to pay off in investor credibility.

Stage three: international investor-ready. For companies with EU or US exposure, or overseas listing ambitions, align climate disclosure with TCFD and ISSB standards, map disclosures against CSRD and ESRS requirements, and prepare for domestic carbon market participation. 

The roadmap is sequential. A company at stage one should not try to jump to stage three. But it should know where it is going and why.

The Window Is Open. Not Indefinitely.

Vietnam’s FTSE Emerging Market upgrade, expected to take effect in September 2026, will bring new capital, but it will also bring new scrutiny. ESG-integrated institutional investors do not just read reports. They examine governance structures, board-level oversight, data quality, and assurance. Companies that can demonstrate genuine ESG governance will be positioned for inclusion in ESG-screened indices and mandates. Companies that cannot will be filtered out before the analyst even opens the annual report.

The regulatory direction is set. Carbon markets, green taxonomies, stricter environmental reporting, supply-chain due diligence laws. These are not theoretical. They are on specific timelines with specific implementation dates.

For boards, the question is not whether ESG matters. That debate ended a while ago. The question is whether they will treat it as a strategic function of the board or keep delegating it to the communications department. I think the companies that figure this out first will have a real competitive advantage in the capital markets Vietnam is trying to enter.

Gautam Gupta is a risk management and governance professional with experience across banking, insurance, and financial services in Asia. He is a member of the Vietnam Independent Directors Association (VNIDA). This article was developed in partnership with VNIDA as part of its thought leadership programme on corporate governance in Vietnam.