Appetite for ESG-related stocks grows

Thursday, Nov 09, 2023 06:31

The bull statue displayed in front of the headquarter of the Hà Nội Stock Exchange (HNX) in Hoàn Kiếm District, Hà Nội. — VNS photo Ly Ly Cao

After Việt Nam delivered a clear ambition to bring net emissions to zero by 2050, money flows of investment funds have begun to target stocks with sustainable factors, especially Environmental, Social, and Governance (ESG). The presence of these stocks in investment portfolios of foreign funds is becoming increasingly evident recently.

A more sustainable appetite

As of September 30, in the top ten largest investments accounting for 45.8 per cent of the net asset value of Dragon Capital's DC Dividend Focus Equity Fund (DCBC), up to seven stocks were among the top 20 symbols with the best sustainable development index (VNSI) on the Hồ Chí Minh Stock Exchange (HoSE), data published on Dragon Capital’s official website showed.

These stocks include FPT Corporation (FPT), Vietcombank (VCB), Mobile World Investment Corporation (MWG), VPBank (VPB), Phú Nhuận Jewelry JSC (PNJ), MBBank (MBB), and Vinamilk (VNM). They are all leading companies in sustainable development in Việt Nam.

The fund's goal is to pursue long-term profit through capital growth and dividends by investing in stocks of top firms in important areas of the Vietnamese economy. The fund's principal investing theory is fundamental analysis, which is used to evaluate the investment's potential for growth, sustainability, and risk.

Similarly, the top ten equities in the portfolio of the VinaCapital Equity Opportunity Fund (VINACAPITAL-VEOF) in September featured six firms from the VNSI basket, according to its latest report.

Moreover, a survey of the investment portfolios of other foreign investment funds injecting capital into the Vietnamese stock market showed that stocks in the VNSI basket are dominating their portfolios.

This is an important indicator reflecting the sustainability of businesses listed on the country’s stock exchange, including 20 stocks periodically evaluated and announced by HoSE in July every year.

The preference for stocks in the basket demonstrates a commonality in the investment appetite of these funds, which is gradually moving towards sustainable development.

"Many institutional and individual investors are paying attention to ESG-related stocks these days. This was motivated by the sustained trend, particularly in the wake of the COVID-19 pandemic," Lê Xuân, a HCM-based independent trader, told Việt Nam News. "Notably, the issue of clean energy is being strongly promoted by major countries such as the US, Europe, and China."

At the annual Việt Nam National Market Practice Group 2023 – the 10th Working Group Meeting in HCM City held last month, representatives of investment funds also clearly expressed their appetite and the trend of ESG investment in the Vietnamese stock market in the near future.

Experts believe that ESG investment in Việt Nam is not as developed as in other countries at the moment, but it is considered to have great potential for attracting capital in this field, as the Government has shown strong determination in promoting the green transition process.

In particular, following the strong commitment of Prime Minister Phạm Minh Chính at the 2021 United Nations Climate Change Conference (COP26) to achieve net-zero emissions by 2025, the trend of investing in sustainable stocks is becoming more obvious in the country’s stock market.

For example, the Singapore-based UOB Asset Management Group (UOBAM) launched a specialised ESG fund certificate product in the Vietnamese market, known as the United Vietnam ESG Equity Fund (UVEEF), in November 2022. This is also the first open-ended fund in the Vietnamese financial market to apply ESG rating alongside conventional fundamental analysis standards for stock selection.

Trương Minh Hùng, Head of ESG Investment, UOBAM Vietnam, said that UVEEF is an open-ended fund product that applies an integrated ESG investment strategy. The stocks in the portfolio are evaluated and selected based on fundamental factors, good growth prospects and ESG criteria.

In addition, the fund's portfolio does not invest in stocks from certain industries that have a highly negative impact on the environment, such as coal mining or coal-fired power generation.

Challenges remain

Building wind turbines in Ninh Thuận Province. — VNA/VNS Photo Minh Hưng

Don Lam, CEO and Co-Founder of VinaCapital Group, said that many banks and international investment funds now share the view that the ESG framework is increasingly important in their investment decisions.

This means that projects and enterprises that do not meet ESG requirements will have a tough time accessing funding in the near future. Furthermore, consumers are increasingly willing to purchase products from sustainable and transparently developed companies.

A recent survey by PwC on the level of ESG commitment disclosed by listed companies shows that consumers, investors, and employees are the main driving forces behind the implementation of ESG commitments. Listed companies also face more pressure from investors and stakeholders than other businesses.

However, there are still many barriers for listed companies to participate in ESG, trader Lê Xuân said, referring to the abundance of information and regulations related to ESG.

"It is quite challenging to meet the ESG standards, as it requires going through multiple stages, processes and transparent and timely information. Currently, there are relatively few companies in Việt Nam that meet the necessary criteria," Xuân said.

According to PwC's survey, up to 73 per cent of participants believe that the lack of transparency regulations is a major challenge for integrating ESG into risk management frameworks.

Particularly, in many listed companies, the implementation of ESG commitments lacks the attention of top-level leadership. About 64 per cent of companies mentioned a lack of active engagement and transparent governance of the board of directors in the ESG agenda, while 44 per cent do not have clear ESG leadership.

PwC believes that this poses a significant challenge as the board of directors plays a crucial role in monitoring ESG factors and integrating sustainability into long-term decision-making and growth strategies.

On the other hand, the majority of listed companies studied in Việt Nam announced their short- and mid-term ESG goals. But less than half (48 per cent) disclose long-term goals, which are over five years, and only 8 per cent disclose net-zero goals, the survey showed.

In addition, data on ESG in Việt Nam is still quite limited. This has led to confusion among many listed companies in reporting ESG indicators, said Hùng from UOBAM Vietnam, adding that companies use different reporting frameworks, leading to a lack of standardised ESG data collection.

Thus, regulatory agencies need clear guidance on ESG reporting issues to foster the development of the ESG market. There should be standardised data gathering standards, industry-specific indicators for simple comparison, and tracking.

Xuân believes that the trend of investing in ESG will increase in the future if Vietnamese companies pay attention to it and have a demand for sustainable and affordable capital.

"Companies need to prepare well and meet ESG standards in order to capitalise on this trend." — VNS

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