What Businesses Operating in Vietnam Can Do about Climate Risk
Just last October, two mega-typhoons flooded communities, displaced families, and took lives in what is becoming an all too familiar pattern. In fact, Vietnam is one of the world’s areas most affected by climate variability and extreme weather in the past two decades, according to The Global Climate Risk Index 2020.
The financial impacts from climate change are also severe in Vietnam. Infrastructure disruptions from climate change cost businesses in Vietnam an average of US$280 million each year.
Heavy rainfall can lead to flooding and landslides, shutting down roads and airports while damaging or destroying company facilities. Major storms like Typhoon Damrey in 2017 left an estimated US$1 billion in economic losses for Vietnam. In 2020, business interruptions from climate change affected thousands of local enterprises due to manpower shortages, scarce input material supplies, or damage to facilities.
Climate projections indicate Vietnam will experience more intense extreme weather events in the future. By 2030, major cities such as Ho Chi Minh could experience an increased chance of extreme heatwaves, diminishing worker productivity in sectors from agriculture to construction to logistics.
Hanoi could experience heavier rainfall, straining urban wastewater systems and exposing coastal development to storm surges. The implications are wide-ranging, from increasing pest prevalence that limit crop yields to worsening the spread of vector-borne disease to deepening the economic hardship of at-risk communities.
How Businesses in Vietnam Can Prepare for Climate Risks
Fortunately, there are ways businesses in Vietnam can reduce their climate risk. To better prepare for the reality of climate change, businesses can build resilience: to anticipate, absorb, accommodate, and recover from relevant impacts. To do this, companies need to systematically explore where and how the business environment may change in the future. Scenario analysis is a commonly used process to explore different plausible futures. This tool allows companies to “stress-test” strategies and ensure adequate preparation for a range of potential outcomes.
For businesses in Vietnam, BSR has crafted three scenarios in English and in Vietnamese, describing plausible future business environments in 2030, that differ on climate severity and socioeconomic development. The physical impacts from climate change are inevitable and may vary in different scenarios. Layered on top of that, there will be interconnected impacts from a potential transition to a low-carbon economy as well as socioeconomic developments. These three scenarios uniquely explore different plausible futures:
- Inequitable Expansion: Vietnam and the global community have largely transitioned towards low-carbon economies, but societal development has lagged and seen greater urban inequity.
- Braving the Heat: Climate change is no longer debated globally, and the international community focuses on sustainable development. However, Vietnam sees comparatively limited progress.
- Acute Fragmentation: Intensifying climate change has worsened country relations, leading many states like Vietnam to emphasize energy security through extractive resource and protectionist policies.
How Climate Scenarios Help Business Prepare for the Future
These three scenarios are not predictions of the future in 2030. Rather, they are tools that can be used to explore critical uncertainties about the future, challenge assumptions, and identify blind spots related to disruptive change. They are meant for companies to use in internal workshop settings, where key participants from diverse business functions can actively discuss risks and opportunities that arise from climate change and prioritize core topics for appropriate action.
In this scenario analysis exercise, for example, workshop participants could imagine linkages between prolonged dry spells and food availability and the direct impact these may have, not just on the bottom line but also on employee well-being.
Or a business could explore the impact of supply chain disruptions due to submerged road networks and also consider blind spots from a resurgence of infectious diseases that thrives in warmer climates. After more than a year in the ‘black swan event’ that is COVID-19, companies cannot avoid discussions of preparing for shocks to the system.
From here, enterprises can decide how to leverage a range of risk interventions to address impacts from climate change and find new opportunities for business growth—from offering disaster risk reduction training to employees and enhancing employee health coverage, to investing in both green and gray infrastructure to climate-proof facilities, to offering new products or services that can help others build climate resilience.
Building Climate Resilience
It’s undeniable that climate change negatively impacts Vietnamese businesses. However, most companies are relatively optimistic about opportunities in the context of natural disaster risk and climate change, according to an Asia Foundation survey conducted in August 2020 of more than 10,000 enterprises across the country. They see opportunities for restructuring, overhauling production methods, and creating new markets for products and services. They are willing to invest in environmental compliance, good local labor quality, and vocational education for their workforce.
Actively enhancing climate resilience would meaningfully build off this energy and prepare businesses and the communities they operate in for addressing the complex challenges of climate change. To further help equip enterprises in Vietnam with business-relevant climate knowledge, BSR has also compiled a handbook of tools and resources in English and in Vietnamese.
BSR conducted this project in collaboration with Winrock International’s Private Investment for Enhanced Resilience (PIER) project, which aims to increase the awareness and capability of the private sector in Vietnam to address the physical impacts of climate change across the value chain in the country.
Eileen Gallagher guides companies to integrate sustainability into business strategy and take action on climate change. Eileen leads BSR’s climate change practice in Asia, working closely with companies to assess and disclose climate risk in alignment with the Task Force on Climate-related Financial Disclosures, set science-based targets to reduce greenhouse gas emissions, and build climate resilience throughout the value chain. Before joining…
Jonathan works with member companies on sustainability strategy, focusing on environmental, social, and governance (ESG) integration, impact investing, and risks posed by climate change. Prior to joining BSR, Jonathan worked at Civic Exchange, an environmental policy think-tank, as a researcher, focusing specifically on ways to modernize Hong Kong’s water management. In this role, he designed and analyzed public opinion surveys on local…