Green growth is a topic of concern not only in developed economies but also in countries like Vietnam. The benefits and bright prospects of green investment, green transition, and ESG (Environmental, Social, and Governance information disclosure) are widely communicated, while gray areas are still limited.
With the goal of net zero greenhouse gas emissions by 2050, according to estimates by Governments and Central Banks, 9,200 billion USD is needed for green investments, but the question " Where does the money come from?” is often avoided.
An obvious example is that since 2009, the goal of providing financial resources for climate change of 100 billion USD/year to rich countries has not been achieved and will be abolished in 2025.
THE PRICE OF GREEN TRANSITION
The transition to green growth is a challenging requirement for developing economies because green infrastructure does not yet exist, and the proportion of GDP used for green investment will have to be higher than in developed countries. A report by the London School of Economics and Brookings Institution said climate change-related investment should be at least 2% of GDP per year and should be more in low-income countries.
"Green growth and green investment are trends in emerging economies like Vietnam with much promise. One estimate shows that the contribution of the green economy to Vietnam's GDP by 2050 is 300 billion USD However, governments, businesses, and investors need to have more perspective and be alert to the shimmering of this trend.
Sustainable development and green growth are the wishes and responsibilities of all stakeholders, but the Government and businesses should carefully calculate their benefits/costs and resources. Because otherwise, you will accidentally fall into debt "traps" and lose development opportunities."
Cutting emissions for developing economies also puts these countries in a dilemma: reduce fossil fuel use or have regulatory tools such as carbon taxes. But both options can increase people's living costs, increase production costs, and thereby reduce competitiveness in the global value chain.
In addition, the pressure to convert to green energy means the closure of many coal-based power plants while only using part of the plant's life cycle. On average, coal power plants in the US or EU have been in use for 30-40 years, while plants in ASEAN+3 countries are only about 10 years old. In terms of exploitation efficiency and depreciation, the disadvantage belongs to developing countries. In addition, the transformation will also have socio-economic impacts on people in the region, especially employment.
ESG IS NOT JUST IN PINK
Along with the trend of green transformation and green growth, interest in ESG and green investment has also spread from developed markets to emerging markets. Businesses pay more attention and invest in ESG to attract investment capital flows that prioritize ESG.
However, the lack of transparency in assessment methods and the lack of commonly agreed standards among ESG rating organizations has made the market increasingly skeptical about assessment results. This affects investors' decision-making because the valuation of stocks and bonds is disturbingly disturbed. A recent Bloomberg survey showed that 55% of ESG-affiliated investors are pessimistic about the investment performance of ESG funds compared to the market and the majority believe that ESG is a temporary trend.
When MSCI decided to update its evaluation method, the ESG scores of 31,000 investment funds were immediately affected. Current ESG rating organizations still rely on the approach of the impact of changes on businesses' profits (single materiality) and not vice versa. Many investment funds are classified as ESG and have high scores but invest heavily in companies related to fossil fuels, tobacco, or even weapons production.
Some people advocate for ESG in an extreme way, considering ESG as a magic wand that both maximizes the benefits of shareholders (corporate profits) and increases social values. However, in reality, at some point, there must be trade-offs and priority choices, or in the direction of making the cake more prominent so that the benefits of the business and the benefits of society increase together.
In addition, even in E, S, and G, the internals of these pillars do not always complement each other, but sometimes even hinder each other. Normally, G is to serve shareholders, aiming at the profit of the business, and ES is to serve stakeholders such as the community and employees. When a business optimizes profits, it can harm the interests of employees and the environment by not complying with requirements on working conditions or environmental protection.
FIND A HARMONY BALANCE POINT
A business can create a good environmental impact such as closing a polluting factory, but it creates social problems when people in the area lose their jobs and livelihoods. Or vice versa, expanding an industrial park to create more jobs but disrupting the ecological balance of a locality.
From a business perspective, too much focus and investment in ESG can also affect the increase in value and development of the business. Because many other non-ESG factors such as strategy, productivity, innovation, and capital use... have a great impact on the value of the business in the long term.
Green growth and green investment are trends in emerging economies like Vietnam with many promises. One estimate shows that the contribution of the green economy to Vietnam's GDP by 2050 is 300 billion USD. However, governments, businesses, and investors need to have more perspective and be alert to the shimmering of this trend.
Sustainable development and green growth are the wishes and responsibilities of all stakeholders, but the Government and businesses should carefully calculate their benefits/costs and resources. Otherwise, you will accidentally fall into debt "traps" and lose development opportunities.
As for investors, while ESG has not yet proven its effectiveness and ESG rating organizations have not been convinced about the methods and evaluation criteria, they should not go all-in. -in) into this trend.
It is difficult to find the optimal balance for the green growth problem, but with considerations and priorities, a harmonious decision by the Government, businesses, and investors is possible.