Many investors now believe that, rather than traditional financial indicators, ESG criteria will be used to prioritize investment trends.
ESG consists of three criteria: the environment, the social, and the governance. These indicators are intended to assist organizations and businesses in looking beyond profit goals to the broader agendas of climate, society, and governance.
ESG FACTORS IN INVESTMENT DECISIONS AND CAPITAL INJECTION FOR BUSINESSES
FPT Digital stated in a February 2023 DxReports report titled “ESG and Digital Transformation: A Prerequisite Direction in the Journey of Sustainable Development of Enterprises” that investment experts today value the importance of combining social and environmental values with corporate profits into investment selection rather than just considering the profitability or risk brought by investment opportunities.
This is understandable given that today’s consumers, particularly young people, are far more environmentally conscious than previous generations. As a result, companies that use green technology and clean energy will have an advantage when it comes to raising capital. Intangible asset values, such as long-term development strategies and corporate brands, are important in corporate valuation.
According to Mr. Mitsuhiro Henry Umebayashi, General Director of consulting firm Arthur D. Little (AdL), who was also mentioned in DxTalks (a series of “Digital transformation and sustainable development” talks organized by FPT Digital), businesses today must quickly transition to sustainable development, specifically ESG standards, for the following reasons
He mentioned public pressure as the first reason. As a result, businesses’ reputation and image will suffer if the ESG index is not improved. The second reason is that if the ESG index is not improved, the company’s ability to raise capital will suffer. Many investors are now thinking about incorporating ESG into their investment and capital allocation decisions. As a result, businesses that actively develop ESG strategies will have easier access to capital than others. ESG has gradually evolved into a success criterion for companies seeking capital from banks and domestic and international investment funds. In 2020, ESG impact funds received $51 billion in investments, accounting for more than half of all investments in a year.
Europe and the United States, on the other hand, have long promoted enterprise sustainable development, not only to achieve sustainable development but also to maintain companies’ competitive advantage. “Europe has established many rules for long-term development.” These rules frequently include a slew of requirements that non-European businesses find difficult to meet. This has given European firms an advantage in many areas and protected their position, at least in the domestic market,” explained Mitsuhiro Henry Umebayashi.
European countries and the United States have embraced the sustainable development strategy, transforming it into a competitive advantage, and it has been accompanied by mandatory rules and standards that make sustainability an unavoidable requirement for companies seeking to expand their business into Western countries. As a result, public opinion pressures, access to capital, and international standards regulations, particularly in the UK-US market, are the primary reasons why businesses must change and integrate sustainability into business and development.
APPLY DIGITAL TRANSFORMATION AS A “LEVER” TO ENACT ESG INITIATIVES
There are a number of pressing needs that necessitate the incorporation of ESG into development strategies. Experts provide guidance to businesses that are integrating through DxTalks. Particular emphasis will be placed on digital transformation as a means of achieving these goals. Many cities have used digital technology to more effectively manage energy use, and when businesses use it, it saves fuel, creates a green working environment, and optimizes resources.
According to Mr. Pham Ho Chung, Digital Transformation Consulting Director of FPT Digital, businesses must integrate ESG goals when developing a digital transformation strategy, with it serving as a lever for carrying out ESG initiatives. Digitizing and automating operations aids in the creation of long-term operations and processes that improve business resilience and endurance. Consequently, attracting the attention of customers, suppliers, or shareholders.
Combining human factors and sustainable business models in the development of digital products and services to create new distribution channels at a low cost can assist businesses in reducing emissions by 45%-70%. Furthermore, businesses that use new technologies (IoT, Blockchain, and Cloud) to monitor environmental and social impacts across the value chain can reduce energy consumption by 5%-10%.
When businesses use artificial intelligence (AI) technology and advanced data analysis to collect and analyze all data related to their environmental and social impacts in order to make improvements and appropriate approaches to market trends, it can help reduce capital costs, supply chain costs, and operations by 10%-30%.
Finally, by sharing data and ecosystems, businesses can create new models of collaboration across industries and sectors, solve environmental and social problems, gather resources, stay ahead of the competition, and enter new markets.
Furthermore, when developing a digital transformation roadmap, businesses must shift their mindset to see sustainability as a competitive advantage and an opportunity for growth, rather than as a requirement for ESG compliance.
As a climate-vulnerable region with rich cultural identities, it is critical that Vietnamese and Southeast Asian businesses collaborate to achieve long-term growth. These sustainability goals will be the driving forces behind growth in Southeast Asia and around the world, and Vietnam has a lot of potential to rise to the top, with digital technology and innovation playing a key role.
Watch the Dxtalks S2 Ep01 here.