Effects of Global ESG Regulations on Vietnam's Manufacturing Sector
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The worldwide shift towards sustainability is reshaping Vietnam's manufacturing and related real estate industries.
Rising Awareness and Regulatory Demands
The global emphasis on sustainability is prompting manufacturers to adopt eco-friendly practices, significantly affecting Vietnam's manufacturing and real estate sectors.
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Corporate Sustainability Reporting Directive (CSRD):
- Introduced by the European Union (EU) in 2023, this directive mandates companies to disclose their ESG (Environmental, Social, and Governance) information.
- CSRD has expanded its coverage from 11,000 businesses in 2023 (under the old non-financial reporting directive, NFRD) to approximately 50,000 in the EU by early 2024.
- This change is particularly relevant for Vietnam, given its substantial economic ties with the EU.
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Economic Ties with the EU:
- Vietnam was the EU’s sixteenth largest trading partner and eleventh largest exporter in 2022.
- By the third quarter of 2023, Vietnam had received over 2,000 projects and investments totaling USD 22 billion from the EU.
- The EU's Carbon Border Adjustment Mechanism (CBAM), effective from 2026, will impose a carbon tax on imports based on their emissions intensity, impacting Vietnam's exports of iron, steel, aluminium, cement, and fertilizer.
Vietnam must proactively adopt sustainable practices to integrate into the global value chain and maintain business relationships, especially with EU partners.
Transformations in the Manufacturing Sector
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LEED-Certified Projects:
- Data shows that most of LEED-certified projects in Vietnam are industrial factories, indicating that manufacturers are leading the sustainability journey.
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Foreign Direct Investment (FDI):
- EU-based companies like Heineken, Nestlé, and Tetra Pak have embraced circular economy principles in Vietnam to reduce waste and pollution.
- These companies demonstrate their sustainability commitments through public reports, highlighting initiatives like packaging recycling, wastewater treatment, and renewable energy use.
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Vietnamese Companies:
- Local firms such as Hoa Phat Steel and Duy Tan Plastics are adopting eco-friendly production practices.
- They are transitioning to sustainable energy sources, optimizing operations to reduce CO2 emissions, and implementing efficient water usage cycles.
Implications for Real Estate Developers
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Green Assets:
- The increasing demand for ESG compliance is driving real estate developers in Vietnam to invest in green assets.
- Developers like LOGOS, SLP, Emergent, and Frasers are incorporating energy-saving measures such as solar energy and efficient lighting to make their buildings greener.
- Many developers are obtaining green certifications like LEED, Lotus, and Edge for their facilities.
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Sustainable Ecosystems:
- Industrial park developers are striving to build sustainable ecosystems rather than just green buildings.
- Leading developers like DeepC and VSIP are incorporating eco-friendly practices such as renewable energy, plantation areas, and water conservation techniques (rainwater harvesting, water recycling, advanced irrigation systems, etc.).
Driving Forces Behind ESG Adoption
Regulatory requirements such as CSRD and CBAM are compelling manufacturers to adopt sustainable practices to maintain international business relationships. Embracing ESG practices not only benefits manufacturers and developers by enhancing market appeal, reducing costs, and avoiding penalties but also helps them stay relevant and succeed in an increasingly sustainability-driven world.
Source : JLL
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