Vietnam catches up with global ESG trends
The past decade has seen a palpable rise in demand for businesses to be transparent about their environmental, social and governance (ESG) performance, including their contributions to local economies. In Vietnam, the framework with regards to environmental, social, and other sustainable development issues is fairly new, especially for businesses. However, Vietnam is catching up with global ESG trends and is implementing new laws to tackle ever increasing environmental, social, and governance challenges.
The Vietnamese government recently approved a detailed national strategy on “green growth” up to 2030, with a vision to 2050. Also, the new law on investment from June 2020 describes how to achieve ESG policy objectives for foreign direct investments but also includes guidelines on disclosure of information on the securities market, which sets out certain ESG reporting requirements for public and listed companies in Vietnam.
In parallel with the developments in the state legislation, numerous state bodies, especially the State Securities Commission of Vietnam, as well as non-governmental organizations in Vietnam, have worked gradually to introduce guidance and policies to raise awareness and to enhance the ESG practices of Vietnamese businesses. In July 2017, the Ho Chi Minh City Stock Exchange launched the Sustainable Development Index (VNSI) on HOSE. Hereby, all listed companies on the exchange are required to either produce a separate sustainable development report or to include this information in their annual report.
The continuous improvements in ESG legislation, policies, and corporate governance have been attracting investment into Vietnamese companies from foreign investors, such as the AFC Vietnam Fund, who take into account ESG criteria when investing in local companies.
“Green bonds” have also become increasingly popular among Vietnamese issuers. As of 2020, Vietnamese companies have issued four green debt issues with an aggregate value of nearly USD 284 mn. Most of the proceeds from green bond issues (57%) are used for renewable energy development – the main industry of Vietnam’s interest, along with the waste treatment and agriculture sectors. In 2021, BIM Land Real Estate, a member of BIM Corporation, successfully completed the issuance of USD 200 mn worth of green bonds that have subsequently been listed on the Singapore Exchange, with the proceeds being used for its greater excellence-certified real estate projects and those of a green and environmentally friendly nature.
The biggest difference between now and a few years ago is that ESG was once a mere cost item in the perception of local businesses but now they have seen the fruits of their investments. Many Vietnamese listed companies have made a strong commitment to ESG and are focusing on the transition to embrace renewable energy, to continuously improve social standards, and to improve corporate governance. The popularity of ESG-focused investment will raise ESG awareness among local businesses and Vietnamese companies will be incentivized to move towards more sustainable development and growth. Companies with strong sustainable values and robust ESG standards will have much better access to capital in the future.
Vietnam is one of two key partners of Japan in ASEAN in terms of implementing climate change response strategies. At the end of July 2022, the Vietnamese Prime Minister Pham Minh Chinh signed a memorandum of understanding with JBIC (Japan Bank for International Cooperation) to support with capital, technology, human resources, and governance for Vietnam’s development of its energy industry.
Enterprise earnings growth on track
So far, about half of all companies listed on the Ho Chi Minh Stock Exchange have published their results and around 98% of those companies were profitable in 1H/2022.
We continue to focus on insurance companies which are expected to benefit from an increasing interest rate environment and consumer companies from a strong post COVID-19 recovery. We also see a great opportunity now in the banking sector after most stocks have corrected by around 40-50%. Many bank stocks are now trading at book value (P/B ratios of around 1x) and forward 2022 P/E ratios of around 5x. As mentioned in our last report, LPB particularly stands out, after the stock corrected and is now trading at around 51% of its peak from June 2021 and at a 7.3x (forward P/E 4.0x) and P/B ratio of 1.1x. LPB just reported its results with impressive earnings growth of 76% in the first half of 2022.