“We are a long-term investor, and responsible investing helps us select quality companies with sustainable business models and identify and manage potential risks in our portfolio.” – Sean Hurst, Chair of VNH’s ESG Committee
Over the last year, Vietnam Holdings (VNH) has established itself as a leader in responsible investing activities in the Southeast Asian country. VNH received five-star scores for its 2021 PRI reporting, which is the largest global reporting project on responsible investment. The carbon footprint of VNH’s 2021 portfolio, meanwhile, is 67.5% lower than the Vietnam All Share Index (VNAS) benchmark, while also outperforming the VNAS index on a year-on-year basis. This can be attributed to sector allocation – with a focus on less carbon-intensive non-manufacturing sectors – as well as stock selection, featuring best-in-class companies actively pursuing emissions reduction initiatives.
Over the last 12 months, Dynam Capital, VNH’s investment manager, has also been active in company engagement through both private meetings and collaborative engagement. In March, for example, Dynam hosted a webinar for 50 companies operating in Vietnam to talk about how to increase the accuracy of carbon footprint reporting. This was organized together with Vietnam Energy and Environment Consultancy JSC.
ESG, short for Environmental, Sustainable, and Governance, is an increasingly common phrase in the corporate and investment sectors, but it is not without its critics. Hurst acknowledged these issues, while also affirming that VNH is extremely careful in approaching the topic. “There is a growing concern among some investors about the practice of ‘greenwashing,’ a fear that ESG has somehow gone too far,” he said. “For VNH, we look at each sector separately, and the ‘E’ is increasingly important, and we were one of the first funds in Vietnam to estimate the carbon footprint of our portfolio.”
Carbon footprint reporting is still new in Vietnam, with less than ten listed companies disclosing emissions data in their annual reports. VNH, for its part, uses an external professional firm to help estimate the annual footprint of each portfolio company. “But we have seen greater interest in and willingness to do so from companies in the next few years,” said Craig Martin, Chairman of Dynam Capital. “Especially since Prime Minister Pham Minh Chinh announced at COP26 that Vietnam will make efforts to achieve its net-zero targets in 2050.” This serves as crucial context for VNH’s responsible investing efforts, as the fund announced its own net-zero goals just before COP26, aligning with the Vietnam’s government’s agenda.
Officials have taken several steps down this path in the months since the climate summit. In January, a new decree outlined regulations on the reduction of greenhouse gas emissions and protection of the ozone layer. Then, in June, a circular development scheme was approved. It aims to, among other goals, reduce the intensity of greenhouse gas emissions per GDP by at least 15% by 2030. Perhaps most noteworthy is the Power Development Plan 8 (PDP8), which will guide Vietnam’s energy policy until 2030 with a vision to 2045. While the plan has not been finalized and is overdue, drafts have outlined a continuation of the country’s strong renewable energy development in recent years, especially in terms of solar and wind. The most recent PDP8 draft envisions a power mix of 50.7% wind and solar by 2045, with possibly just 9.6% of power coming from coal. Offshore wind, which remains largely untapped, is expected to be a major generator of electricity in the future.
To be sure, these are hugely ambitious goals that will require massive financial investments, but the guidelines are promising, and both investors and private companies have important roles to play.“After COP26, the government’s efforts in changing its energy strategies and relevant policies have shown the country is willing to address climate change,” Martin said. “We think institutional investors in the Vietnamese market have a role in encouraging change, alongside the government and business. Some investors are also specifically looking to invest in companies that provide low-carbon solutions and technology to help the country speed up its decarbonization journey.”
Writing credit Michael Tatarski