[Podcast] Associate Professor, PhD. Mai Hoai: The fact that the planet’s tolerance limit has been surpassed, businesses that ‘go first’ and ‘do the right thing’ in solving challenges will have an advantage.

“Transforming a business model from traditional to sustainable is no longer an option; in fact, this is a mandatory requirement. However, challenges comprises opportunities and businesses that “go ahead” and “do it right” will have an advantage” – Associate Professor, Dr. Bui Thi Mai Hoai, Director of the Institute of Sustainable Finance.

In the book “Green Giants”, Author E.Freya Williams mentions the view that has existed for decades that “Sustainability and social benefits are fundamentally opposing forces against self-interest or profit”. This is even deeply ingrained in the minds of the vast majority of leaders in the business world.

However, everything is changing. Integrating sustainable development goals into production and business activities not only demonstrates social responsibility to the community but also is the key towards ensuring the long-term survival and the business sustainability.

Being both a researcher and consultant for businesses, Associate Professor, PhD. Mai Hoai shared her views on the importance and the advantages that businesses can gain upon converting from traditional business models to sustainable business models, especially in the context of raised  awareness of people, customers, and society regarding sustainable development that are changing drastically.

The Earth’s tolerance limit has been exceeded

*Which numbers indicate that sustainable development is becoming a mandatory requirement for countries around the world in general, and Vietnam in particular?

Associate Professor, PhD. Mai Hoai: I think that this fact stems from the risks and challenges we are facing. One research by Bell (2016) demonstrates that if we continue to produce and consume as we are doing currently, we, by 2050, will need approximately 2.3 Earths to maintain resources, energy and waste treatment for a population of 9 billion people. On the other hand, in reality, we only have one Earth!

The consequence of pushing the limits of our planet’s tolerance is that we are taking on more and more risks. The economic impact of climate change alone, even calculated according to the average scenario, is absolutely worrying.

Vietnam is not an exception. In accordance with the World Bank’s 2022 report, Vietnam is one of the five countries most affected by climate change. Calculations illustrate that Vietnam will lose 10 billion USD in 2020, equivalent to 3.2% of GDP due to these impacts. Without appropriate adaptation and mitigation measures, it is estimated that climate change will cost Vietnam approximately 12% to 14.5% of GDP each year from 2050.The consequences of climate change could cause 1 million people to fall into extreme poverty by 2030. The sectors and the regions in Vietnam that are mostly seriously affected are agriculture, transportation, and trade and industry in addition to the Mekong Delta region and central coastal region.Without effective adaptation measures, a temperature increase of 1°C and 1.5°C could cause annual losses of approximately 1.8% of GDP and 4.5% of GDP, respectively, in the 2025-2030 period (AFD, 2021).Climate change not only causes economic damage but also takes the lives of many people. It is worrying that information regarding human and property damage caused by extreme weather events is becoming more and more frequent.

*How has the awareness of people, businesses and governments regarding sustainable development changed?

Associate Professor, PhD. Mai Hoai: I completely like this quote from Victor Hugo: “We can fight an invading army; nevertheless, we cannot fight a mature ideology”. Sustainable development is no longer an ideal or a choice; rather, it is a necessity as most activists in the society have realized that the planet’s tolerance limits have been surpassed by our species and the consequences that we have to endure will become increasingly severe. Therefore, the attention of the whole society from the government, intergovernmental organizations, non-governmental organizations, investors, businesses to consumers towards sustainable development is becoming stronger and stronger. The trend of sustainable investment/impact investing, sustainable production and sustainable consumption is increasing strongly.

For businesses, converting traditional business models to sustainable business models presents not only challenges but also opportunities. Therefore, whichever business goes first and does what it takes to solve challenges and to seize opportunities will have an advantage.

Choices of survival *Can you share how businesses perceive how to build sustainable business models?Associate Professor, PhD. Mai Hoai: In accordance with the data I have access to, businesses globally, even those in Vietnam, are increasingly paying more attention to sustainable production. The number of businesses committed to implementing and integrating sustainable development goals into their production and business activities is increasing. However, the level of interest varies between countries and geographical regions as well as sectors of activity.

For example, one research by Lan Song et al. (2022) concludes that 304 out of 500 corporations in the Fortune Global Top 500 have presented content that integrates SDGs goals into business activities on their websites. Those Europe-based corporations are leading the way in engaging with the SDGs, while other companies based in the United States and China are less interested. SDG 8 (Stable work and economic growth) and SDG 13 (Climate action) receive the most attention from these initiatives whereas SDG 2 (Non-hunger) and SDG 14 (Living underwater) is of little interest to them. The level of participation is also uneven across business sectors, in which the corporations in the information sector and technology sector largely participate in the SDGs, in contrast to that of the healthcare sector.

Or GRI’s 2020 Report, based on analysis of a sample of more than 200 companies around the world, indicates the following results: • 83% of the companies state that they support the SDGs, recognizing the value of aligning their reporting with the SDGs; • 69% of the companies state the SDGs are most relevant to their business, in which 61% of which state how their actions support the SDGs; • 40% of companies set measurable commitments on how they will help achieve the SDGs while the other 20% provide evidence to evaluate their positive impact.             In Vietnam today, in addition to businesses that must carry out sustainable development reports in accordance with the State regulations, there are also many businesses that are not required to do so proactively.

*Which benefits will businesses receive when integrating sustainable development into their business model?Associate Professor, PhD. Mai Hoai: I believe that businesses have many reasons to change from traditional business models to sustainable business models. First, this conversion can come from complying with the laws of the host country and relevant partner countries.Second, in the growing global trend of green transformation, businesses following a sustainable path also helps them attract investment capital from impact investment funds and international financial institutions at low cost. The capital usage fees are lower than that of the market. This opportunity is of increasing concern as the size of the global impact investing market is growing rapidly over time.

Statistics illustrate that that the impact investment capital in 2017 was 228 billion USD while this figure increased to 420.91 billion USD in 2022, 495.82 billion USD in 2023 and is estimated to reach 995.5 billion USD in 2027 at an increasing rate of the annual growth as 17.8%.Besides, a sustainable business model helps businesses receive “priorities” from customers. A Deloitte (2023) survey on consumer behavior in 23 countries found that most consumers affirm that businesses’ commitment to sustainability influences their trust in those businesses.

The report found that a third (34%) of consumers affirmed their trust in a brand would improve if it were recognized by an independent third party as an ethical/sustainable supplier. A similar proportion (32%) stated their trust in the brand would improve if the brand had a production and supply chain that was transparent and socially and environmentally responsible. In particular, many consumers are considering durability and repairability as well as whether the products are labeled as responsibly sourced or produced or support biodiversity upon their purchasing.In Vietnam, a survey of 792 people aged 18-49 conducted by Q&Me demonstrated that 100% of survey participants were concerned regarding the environment, especially 84% of respondents stated that their level of concern was increased significantly compared to that of a year ago. With the increased interest, their consumption behavior has changed significantly, 66% of the survey participants have chosen to buy environmentally-friendly products, to reuse old products and to buy new products. Those products that can be used multiple times account for 41% and 38% of those people surveyed. Other surveys around the world also share similar results.

In addition, pursuing a sustainable business strategy helps businesses improve corporate governance and manage financial risks caused by climate change better. Indeed, many studies and practical evidence have presented that ESG factors help businesses improve governance, save costs and better manage financial risks. All of the above motivations lead to the following results proven by many empirical studies: Businesses that practice sustainable business strategies will have better long-term financial results (Friede et al., 2015).For those reasons, going in a sustainable direction not only demonstrates the social responsibility of businesses but also is a vital choice, ensuring a sustainable future for the business itself.

Identifying and evaluating business challenges*What should businesses need to do so as to successfully solve the problem of corporate profits and sustainability?Associate Professor, PhD. Mai Hoai: As I stated above, sustainable development is no longer an option; acctually, this is a necessity. The circular economy is the key to realizing the goal of sustainable development. It is a wise choice for businesses to convert to a sustainable business model and to apply circular economy to production and business activities as soon as possible.

On the other hand, to be successful, businesses need to identify and to evaluate the challenges, the risks and the opportunities associated with their industry and their specific business. From this foundation, it is to build appropriate conversion scenarios. The number of specific scenarios depends on goals as well as costs. Usually, there exist 3 following scenarios for 3 situations: the best scenario, the worst scenario and the situation where the probability of occurrence is the highest.At this time, calculating costs and benefits does not stop at financial costs and benefits; in fact, it must be integrated benefits. The goal is to achieve optimal integrated benefits (IV) with IV = FV (pure financial benefits) + EV (environmental benefits) + SV (social benefits).

Businesses also need to apply an ecological design perspective to the production process, which means having life-cycle thinking in product design. During product development, designers will pay attention to the environmental impact of each stage of the product’s life cycle: from which raw materials to choose, how to produce materials from raw materials, manufacturing techniques for converting materials into parts, assembling these parts into products, distributing and packaging the product, the use phase; finally, once the product is used and recycled: how to recycle and to reuse? We must consider and calculate how to coordinate with other relevant parties in order to ensure a closed production and supply chain in a sustainable loop.

In addition, the remuneration of business executives needs to be established on the foundation of evaluating medium and long-term results. Thanks to this, will they boldly carry out conversion activities. In addition, applying digital transformation to collect and to analyze ESG data so as to make sustainable management decisions is also an issue that businesses need to pay attention to.One risk that businesses must face may come from a lack of clarity and consistency in state policies. Therefore, the public sector governance of countries around the world, as a guide, has made changes to carry out the role of the State in implementing sustainable development goals in a much better manner.

Author: Assoc. Dr. Mai Hoai – Head of Institute of Sustainable Finance, University of Economics Ho Chi Minh City (UEH).

This is an article in a series of articles spreading research and applied knowledge from UEH with the message “Research Contribution For All – Research For The Community”, UEH respectfully invites dear readers to look forward to the upcoming UEH Research Newsletter Insights #126 .

News and photos: Author, UEH Department of Marketing and Communications