[Podcast] The Impact of ESG on the Value of Listed Companies on the Vietnamese Stock Market

Keywords: ESG, corporate value, social responsibility, sustainable development, Vietnam

The period 2021-2024 can be considered the "rising" period of sustainable, green, circular value chains, and especially ESG standards. The number of businesses committed to integrating ESG into their operating models in Vietnam has increased dramatically in recent years. Realizing the importance and market trend of these standards, the stduent research group from University of Economics Ho Chi Minh City conducted the project "The Impact of ESG on the Value of Listed Businesses on the Vietnamese Stock Market" to consolidate the scientific basis and encourage Vietnamese businesses to implement ESG.

Amid growing calls for sustainable development in the post-COVID-19 pandemic, ESG standards have emerged as an important assessment metric for investors, customers and governments, which go beyond conventional financial metrics. Realizing the necessity and importance of ESG, many large companies and corporations in the world in general and Vietnam in particular have been implementing and encouraging ESG towards a green and sustainable economy. The research aims to intensively discover the impact of ESG information disclosure on Vietnamese corporate value. Thereby, investors, business owners and regulatory agencies can provide strategic direction, investment decisions and appropriate policy frameworks to promote a sustainable and responsible business environment nationwide.

What is ESG?

The ESG measurement standard stands for 3 factors Environmental - Social - Governance in business operation. ESG is a framework that helps stakeholders recognize and measure the sustainability of an organization's operations.

*Environment - E measures the amount of energy a business uses (i.e., land, water, electricity, etc..) and the amount of waste produced (i.e., exhaust gas, wastewater, etc.) or the amount of natural resources needed for business operations.

* Society - S measures the health of relationships and the reputation built through a business's activities in the communities where it operates. The Social factor in ESG covers relationships internal and external to the business.

*Governance - G measures the mechanisms that monitor the controls, processes and practices necessary for corporate governance and effective decision making for the overall benefit of the company. This factor relates to the effectiveness of management processes, transparency, and ethical values.

Why is a company's ESG disclosure important?

Corporate ESG disclosures include measurements of emissions, resource use, the environment and natural resources of the business, labor and human rights policies, occupational health and safety, anti-corruption, and community investment, etc. The importance of ESG disclosure is of increasing interest to investors when this information is related to operational efficiency and risk management. Therefore, ESG disclosure can provide relevant information to support financial and investment analysis, affecting the value of the business in the long term.

Additionally, many businesses voluntarily disclose ESG information in addition to their financial reports to provide information about the assessment of the business's financial and non-financial performance (Eccles and Saltzman, 2011). Environmental and social disclosure is a means to show transparency to investors and accountability to regulators. Furthermore, it is helpful for investors and stakeholders to make appropriate decisions. Previously, some studies tended to prove that corporate value and social responsibility have a positive correlation (Wang et al., 2018). Therefore, it is seen that the transparency of ESG information has a positive impact on firm value. Investors believe that ESG information can bring long-term profits to businesses and that ESG information is reliable, timely and comparable. Thus, ESG plays an important role in business value and investment decisions.

The impact of ESG on the value of listed companies on the Vietnamese stock market

The study analyzes the impact of ESG on the value of businesses listed on the Vietnamese stock market in the period 2016-2021. This is considered a period of strong development of the policy on sustainable development and green growth proposed by the Government and the data at this stage will not be subject to fluctuations from events such as pandemics or political conflicts.

After analyzing the data, the authors found the following empirical evidence:

All initially proposed research hypotheses are statistically significant, meaning that the variables including Corporate social responsibility, Time to implement ESG; Rate of return on total assets; Enterprise scale; Asset-to-revenue ratio; Debt-equity ratio; Advertising costs and investment capital for research and development all have impacts on the value of businesses, in which:

• Corporate social responsibility positively impacts corporate value. This shows the more the business promotes the implementation of sustainable development policies in protecting the natural environment and optimally using natural resources and transparent salaries, bonuses, insurance for employees and support for social security campaigns that spread to the community, the higher the value of the business in the market.

• The time to deploy and implement ESG policies positively impacts corporate prices. If a business implements an ESG policy over a long period of time and applies it effectively, the value of the business is enhanced.

• Implementing ESG over a long or short period of time will show whether the sustainable development strategy and solutions to reduce natural resource consumption are truly effective or not and lead to an impact on the value of the business. In this research, the authors found that the longer the period of time to deploy and implement ESG policies, the more business value will be promoted.

• In addition, Return on total assets, Enterprise size, Assets to revenue ratio, and Investment capital for research and development also have a positive impact on the value of businesses while Debt-to-Equity Ratio and Advertising Expenses negatively affect the value of the business.

From the results found in the analysis of the impact of ESG on the value of businesses listed on the Vietnamese stock market, the authors suggest recommendations for businesses and state agencies as follows:

*For Businesses:

First, it can be easily seen that the implementation of ESG and the publication of reports on sustainable development or separate categories on social responsibility are not responded to by Vietnamese businesses, especially for small and medium enterprises. However, based on the research results, businesses should find opportunities to approach and implement ESG properly and as soon as possible. Because, in the short term, ESG from a business's perspective seems to be a cost, not highly profitable or can even reduce company value. However, implementing ESG is an inevitable trend that helps increase the competitiveness of Vietnamese businesses in the international market. They will become valuable long-term investments that increase business value in the future. Currently, awareness of social responsibility has been increasing, carrying great influence and receiving a large response around the world. Therefore, it is not too difficult to come to the conclusion that community value orientation positively reflects the business's status in terms of monetary value (Mervelskemper and Streit, 2017). In addition, publicizing social and environmental activities can attract qualified staff, enhance the company's interaction with stakeholders and enhance the business's reputation in the public.

The business's senior leadership can consider adjusting and initiating new business strategies to attract customers, thereby increasing the revenue growth rate and expanding the business scale. According to research results, high revenue and large enterprise scale will create a premise for positive changes in the rate of return on total assets as well as the internal financial potential of the enterprise. Based on that, businesses will have a more solid foundation and the ability to meet ESG standards to increase their market value.

Next, businesses with a high debt ratio in their capital structure can consider limiting their use of debt. The results of the study show that if financial leverage is high, the decision to invest in ESG implementation with the purpose of increasing the market value of the enterprise will not be as effective as expected and contains many risks.

Finally, businesses can cut a small amount of annual advertising costs and convert them into an amount dedicated to environmental protection or social and charitable activities to increase ESG scores in the evaluation standard set. The remainder of advertising costs that have a negative impact on business value can also be considered to be converted into investment capital for annual research and development, especially for the development of green products and technology towards sustainable development to create the core human values ​​of the business.

*For the Government:

In the context that the country's economy is facing enormous competitive pressures from other countries in the region and internationally, the Government needs to issue guidelines and disseminate more broadly and deeply the meaning and great benefits that ESG will bring to Vietnamese businesses in particular and the entire national economy in general. If necessary, the Government can issue general regulations requiring businesses with good financial foundations to implement ESG, publish annual sustainable development reports and create a separate category "Social esponsibility" on the company's official media channels. The Government can organize rewards and award certificates of merit to excellent businesses that complete green goals, contributing to building society and the country to encourage each business to strive to effectively implement ESG.

The research has explicitly contributed to SDG 8 - Decent work and economic growth, SDG 12 - Responsible Consumption and Production, and SDG 13 - Climate Actions. The entire research article The Impact of ESG on the Value of Listed Companies on the Vietnamese Stock Market can be found HERE.

Authors: Cao Phan Xuan Vi, Nguyen Thi My Hanh, Nguyen Anh Quy, Nguyen Ngoc Khanh Linh, Duong Nguyet Minh - University of Economics Ho Chi Minh City.

This article is in the Green Research Community series with the message "Research Contribution for UEH Living Lab Green Campus". UEH cordially invites the community to wait for the next Green Research Community issue 2.

*In order to maximally facilitate the development of the "UEH Green Researcher Community", community members can attend research methodology classes in the topic Living Lab, Green Campus. In addition, if the product meets the required standards, the research team will receive a Certificate from the UEH Sustainable University Project Board and financial support.

SDG 8 - Decent work and economic growth:

Goal 8 is to promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all. Maintain economic growth rates per capita in accordance with national circumstances and, in particular, achieving at least a 7% annual growth rate of gross domestic product, achieving higher levels of economic productivity through diversification, upgrading and innovation, and promoting development-oriented policies that support productive activities, creating sustainable jobs, entrepreneurship, creativity and innovation. In addition, improving global resource efficiency in production and consumption, protecting labor rights and promoting safe and secure working environments for all workers, strengthening the capacity of domestic financial institutions to encourage and expand access to banking, insurance and financial services for all. Developing and implementing a global youth employment strategy and implementing the International Labour Organization's Global Employment Pact,...

SDG 12 - Responsible consumption and production:

Ensuring sustainable production and consumption patterns is key to sustaining the livelihoods of current and future generations. Implementing the 10-year framework of programs on sustainable production and consumption, with all countries taking action, developed countries taking the lead, taking into account the development and capabilities of developing countries.

By 2030, sustainably manage and use natural resources efficiently, reduce by half global food waste per capita at the retail and consumer levels, and achieve the sound management of chemicals and all waste.

In addition, supporting developing countries in strengthening scientific and technological capacities to move towards more sustainable production and consumption patterns, building and deploying tools to monitor the sustainable development impacts of sustainable tourism.

SDG 13 - Climate action:

Taking urgent action to combat climate change and its impacts by strengthening resilience and adaptive capacity to climate-related hazards and natural disasters in all countries, integrating climate change measures into national policies, strategies and planning.

Improving education, raising awareness and enhancing the capacity of individuals and institutions on climate change mitigation, adaptation, impact reduction and early warning. Fulfilling the commitments of developed country Parties to the United Nations Framework Convention on Climate Change, promoting mechanisms to enhance the capacity for effective climate change planning and management in the least developed countries.

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