Practicing sustainable finance at enterprises: Accelerating digital transformation and enhancing consumer awareness

With the Fourth Industrial Revolution and pressure from stakeholders, digital transformation and sustainable business have become the main development path for enterprises in the modern economy. Digital transformation will support enterprises to make sustainable investment decisions and develop ESG data. In which enterprises' profits have been impacted by ESG information disclosure in the short and long term. Circular 155/2015/TT-BTC implemented in Vietnam requires listed companies to publish sustainable development goals and report environmental and social-related impacts. In this sharing, UEH experts have in-depth interviews with several enterprises in the top 10 and top 100 with the best sustainability reports to show the motivations for sustainable financial practices, the factors affecting the level of digital transformation, and sustainable financial practices of Vietnamese.

Digital transformation and sustainable business – The development path for enterprises in the modern economy

Digital transformation in the financial sector refers to the integration of big data, artificial intelligence (AI), mobile platforms, blockchain, and the Internet of Things (IoT) in the provision of financial services, decision-making, and investment decisions (Oertli, 2020). Sustainable Finance refers to the investment decision-making process. In which ESG factors (Environment, Social, Governance) are carefully evaluated with the orientation of increasing long-term investment in projects and sustainable economic activities (Schoenmaker, D.; Schramade, W.; 2019). When combining digital transformation and sustainable financial practices, businesses can take emerging technologies’ advantages to collect and analyze data; therefore, they can make financial and investment decisions to ensure the enterprise's business goals while integrating social and environmental objectives (Oertli, 2020).

Enterprises take advantage of emerging technologies to collect and analyze data to make financial & investment decisions

Spending on ESG data continues to increase rapidly as customers’ demand becomes more complicated. The poor quality and reliability of ESG data and analysis remains the most critical barrier to the growth of sustainable finance

Thus, for a successful digital transformation that results in sustainable business operations, the critical question that every enterprise must address is what prerequisites and objectives digital transformation will assist companies. Answering this question will help enterprises prioritize and map out a step-by-step implementation roadmap in line with financial capabilities and human resources. In addition, leveraging Gatner's SASE model (which can integrate Security into SD-WAN features and deliver them under a single service) to help remove financial and human barriers in the digital conversion process is also a suggestion. In particular, it must aim to create a lot of necessary and valuable data for enterprises and their customers. In the process of digital transformation, each business also needs to consider selectively "partners in sharing resources and shared data" to save costs and reach more customers. Facebook and Google are good examples of this aspect.

Applying digital transformation to sustainable financial practices: Efforts from enterprises are not enough!

Efforts from only one side (enterprises) are not enough. To succeed in applying digital transformation to sustainable financial practice in Vietnamese enterprises, support from many sides is required.

In the current context, raising people's awareness about climate change and sustainable finance is probably still the root of the problem. Because among the two motivations for enterprises to digitally transform and practice sustainable finance: (1) performing social responsibility towards the community, and (2) being a business situation, the motivation (2) is more "fundamental" and substantial. Many of the companies assessed for good sustainable financial practices have strategic shareholders from developed countries, or their products are primarily exported to developed countries (Europe, Switzerland, and the USA), where consumer awareness of climate change and green consumption is already high. Currently, Vietnamese consumers' understanding of climate change and sustainable finance practices is not high; but they will increase their “green” consumption rates as their awareness grows. They are more interested in choosing environmentally friendly products not only in the product but also in considering whether the production process of the enterprise and the whole supply chain of the product is harmful to the environment and the public health. If implemented on a large scale, this change will encourage enterprises to practice sustainable finance and apply digital transformation to capture and meet customers' "green" consumer tastes.

Besides consumer awareness, the awareness and determination of business leaders about digital transformation and sustainable finance are also important issues. Surveys from VCCI, the Ministry of Industry and Trade, and Cisco show that over 80% of Vietnamese enterprises are not adequately aware of digital transformation. Our in-depth interview process also gave similar results. In particular, the interview results show that enterprises that have successfully implemented the digital transformation process and applied a digital transformation to practice sustainable finance have confirmed: "the awareness and determination of the leaders play a pivotal role”.

In addition, at Agenda 21 of the Earth Summit (1992), senior leaders of countries also acknowledged that most environmental and sustainable development challenges all have their origins in the activities of each country, each locality, and each field. Therefore, localization and domainization of sustainable development goals will attract the participation of local stakeholders in the implementation of sustainable development goals.

The role of the Government, local authorities and departments in promoting the application of digital transformation to sustainable financial practices

With the above analysis, to promote enterprises to apply digital transformation in sustainable financial practice, it is necessary to have appropriate policies of the Government, local authorities and departments. Specifically:

First, the Youth Union uses the crowd effect of social networks to deploy propaganda programs, persuading people to change their living habits and practice "green" consumption. In the long term, climate change and social issues must be trained in preschool, primary, and general education curricula.

Second, the banking system can also make an essential contribution to raising public awareness of climate change and encouraging enterprises to practice sustainable finance. However, the integration of promoting sustainable development must not distract or prejudice the main task of the central bank. It must ensure the "win-win" status of credit institutions because credit institutions themselves (except for policy banks) still have to realize their profit targets.

Third, the government and local authorities should make proactive statistics and compare business results before and after applying digital transformation into sustainable financial practices of successful enterprises to provide digital evidence, raise awareness, and the determination to transform business leaders digitally.

Fourth, the Government and local authorities need to concretize sustainable development goals associated with each locality's characteristics and field. At the same time, allocate budget according to the outlined objectives; policies to encourage the business community and residents to work towards these specific goals through their investment and consumption activities.

Fifth, encourage research institutions and enterprises to develop ESG data. At the same time, the Government and local authorities themselves need to systematically collect data on sustainable development because in the absence of data, stakeholders cannot know what to do to achieve the goal.

Sixth, arrange and exploit resources, use them effectively to provide technical support for digital transformation, support the development of digital platforms for enterprises. In particular, programs and projects to support enterprises in digital transformation must go into reality. Funds must be used for practical support instead of formal activities such as ceremonies, announcements, meetings, etc.

Finally, a large-scale survey should be carried out to develop a policy framework and appropriate solutions to successfully deploy and establish Vietnam's "green bond" market.

In short, applying digital transformation to sustainable financial practice is a necessary and "long-term investment" path for enterprises. See the entire research paper "Digital transformation, consumer awareness on climate change and sustainable financial practices" here. (Author: Assoc. Prof. Dr. Bui Thi Mai Hoai – Director of Sustainable Finance Institute (SFI) – UEH)

It is an article in a series of articles that share research and applied knowledge from the University of Economics Ho Chi Minh City. Readers are warmly welcomed to the 6th edition of ECONOMIC Knowledge Newsletter “A panorama of digital currency (part 1): Trends of the times”.

News, photos: Assoc. Prof. Dr. Bui Thi Mai Hoai, Department of Marketing and Communication.