As Vietnam accelerates its transition to a low-carbon economy and deepens trade integration through agreements like the EU-Vietnam FTA and CPTPP, the pressure on small and medium-sized enterprises (SMEs) to meet international ESG standards is mounting.
But while environmental and social initiatives often take center stage, it is the neglected governance pillar that may ultimately determine whether Vietnam’s SMEs can remain competitive in global supply chains.
Highlights
The Governance Gap: A Strategic Blind Spot
Governance structures — clear accountability, transparent reporting, and responsible decision-making — remain underdeveloped across Vietnam’s SME landscape.
According to Mickaël Driol, CEO of Mekong Partners, many SMEs are preoccupied with survival, not sustainability reporting. “Terms like ‘double materiality’ or ‘carbon disclosure’ are not just foreign — they’re irrelevant to the day-to-day pressures these businesses face, from cash flow to labor shortages,” he said.
This lack of structural readiness is compounded by a fragmented regulatory environment and the absence of a standardized ESG roadmap tailored to SMEs. Consequently, businesses tend to focus on visible, buyer-facing ESG components — like reducing plastic use or promoting local produce — while bypassing the foundational elements that require longer-term strategic thinking.
Many SMEs struggle to meet all three ESG pillars simultaneously. In practice, many SMEs prioritize cost-neutral initiatives — such as reducing plastic use, adjusting packaging, or sourcing locally — because they can act quickly without derailing core business plans.
Why Governance Matters Most
While these eco-conscious actions are commendable, experts argue they often lack staying power without a governance foundation. “For early-stage businesses or SMEs, the first practical investment should be in Governance — not because it’s the flashiest, but because it’s the foundation,” Driol explained.
RSM research supports this view: effective governance enables goal-setting, consistency, and transparent ESG tracking. Moreover, ESG-linked metrics — from emissions data to circular economy practices — are increasingly essential for export access, preferential financing, and B2B procurement contracts.
“For firms that can’t show energy efficiency or emissions reductions, the risk is existential,” Driol added. “Governance should not be viewed as the most expensive pillar, but the most multiplying. It supports the other two.”
The Role of Support Systems
Unclear guidance and capacity limitations magnify compliance hurdles. SMEs in global supply chains often face overlapping ESG rules from multinational buyers.
According to Driol, this top-down pressure often exceeds the current capacity of local firms and underscores the urgency for sector-specific, compliance-ready infrastructure. “We need more provincial business support centers, trade associations, and digital platforms to act as localized ESG enablers,” he emphasized.
Quyen Nguyen, Director at CEL Consulting, said businesses should complement the effort with digestible materials like “short guides, videos, or visual checklists” to help SMEs align with market goals and state-mandated ESG frameworks.
Financing also remains a constraint. So far, banks and financiers have reserved climate-linked guarantees and ESG loans for large corporations. Driol advocates for co-lending mechanisms, partial risk guarantees, and tax incentives to make green capital accessible to SMEs, especially in priority sectors like agriculture, textiles, manufacturing, and logistics.
A Governance-First Mindset: Practical Steps
Improving governance doesn’t have to be complicated. “It’s about how companies make decisions, keep records, and manage risks,” said Driol. Even simple actions — developing a code of conduct, assigning compliance roles, transparently recording transactions — can elevate a firm’s ESG credibility.
Sreelakshmi S. Menon, Senior Specialist in Corporate Sustainability at AD Ports Group, recommends SMEs adopt the SMART framework — Specific, Measurable, Achievable, Relevant, and Time-Bound — to shape incremental but clear sustainability goals.
Firms should begin by identifying the ESG areas most material to their sector, value chain, and target market. For some, that may mean focusing on emissions tracking; for others, it could be supply chain labor standards or data governance. Meanwhile, transparency and traceability in sourcing, labor, and environmental practices will be key for building investor and buyer trust.
“Digitizing supplier records, documenting sourcing processes, or creating internal checklists around labor, safety, and environmental compliance — these systems don’t have to be complex, but they need to be consistent,” Driol emphasized.
Executive Action Points: Building ESG Governance in SMEs
For business leaders and policymakers, the question is not whether SMEs should act, but how they can act effectively within their constraints. The following priority actions outline a governance-first pathway that balances practicality with long-term competitiveness:
- Prioritize governance as the entry point to ESG compliance
- Advocate for sector-specific guidelines and localized support infrastructure
- Deploy low-cost tools: codes of conduct, traceability systems, compliance checklists
- Enable inclusive green financing for SMEs through targeted fiscal instruments
- Focus ESG efforts on business-relevant and buyer-driven metrics
The Bottom Line: Governance as the Key to ESG Success
Though Vietnam’s SMEs face limited resources, ESG misconceptions, and policy ambiguity, a governance-first approach — combined with tailored public support and SME-centric tools — can anchor credible, scalable sustainability transformations.
By filling the governance gap, SMEs can not only meet tightening regulations but also boost investor trust, access green finance, and enhance their role in the global value chain.
Editor’s Note:
This article was contributed by NewInAsia editorial fellow Le Ha Phuong (Nora), a freelance podcaster and former radio producer who creates current affairs content blending expert insights with engaging storytelling.
In this piece, she examines how Vietnam’s SMEs are navigating ESG pressures, highlighting why governance remains the missing link in sustainability readiness and what practical steps businesses and policymakers can take to close the gap.
To pitch your story or share reflections on sustainability, ESG practices, green finance, or the future of business in Asia, contact the NewInAsia editorial team.
Highlights
Read the Chinese article here.
