Weaving a Sustainable Future: Vietnam’s Textile Industry Transformation

Introduction: The Shift Towards Sustainability

With the growing demand of eco-conscious products, the textile industry in Vietnam is gradually embracing the idea of green innovations to align with the shift in consumers’ preferences. This makes the pivot towards sustainability a critical driving factor of growth in Vietnam’s textile and garment sector.

Adopting Eco-Friendly Manufacturing Practices

Vietnamese textile manufacturers are increasingly adopting eco-friendly practices to address the industry’s environmental challenges while aligning with stringent global regulations. By integrating practices such as water-saving dyeing techniques, renewable energy adoption such as solar and wind power, and wastewater recycling, manufacturers not only reduce their ecological footprint but also comply with requirements from major markets like the EU and US. This shift toward sustainability is further motivated by the growing appeal of eco-conscious consumers who are willing to invest in products that align with their values.

Another compelling incentive for manufacturers to embrace this eco-friendly transformation is the government’s emphasis on aligning with its development policy. Outlined in Decision No. 1643/QD-TTg, titled "Development strategy of Vietnam's Textiles and Clothing, Leather and Footwear industry to 2030, with a vision to 2035," the policy underscores the importance of greening production processes. It encourages domestic enterprises to obtain certifications for environmental protection, green growth, and sustainable development, adhering to international standards and the requirements of target markets. By doing so, Vietnam aims to establish its textile sector as a global leader in sustainability and become a prominent player in eco-friendly manufacturing.

Foreign Direct Investment: Fueling Sustainable Growth

This commitment to sustainability is not only transforming domestic operations but also making Vietnam’s textile sector increasingly attractive to foreign investors. As of May 2024, foreign direct investment (FDI) in the industry has reached over US$37 billion, according to the Vietnam Textile and Apparel Association (VITAS). By August 2024, Vietnam has hosted approximately 3,500 FDI projects in the textile and garment industry, contributing about 65% of the total export turnover of the entire industry.

This influx of investment highlights the sector's potential to lead in sustainable production. However, the green transition is no longer optional. To remain competitive in a world that increasingly prioritizes sustainability, businesses must strengthen their environmental, social, and governance (ESG) profiles. By doing so, they can obtain and maintain unrestricted access to global markets that are placing greater emphasis on sustainable practices.

Recognizing the importance of sustainability, Vietnam has introduced various incentive policies to attract investors offering environmentally friendly technological solutions. A key provision is outlined in Article 5 of Decree No. 23/2024/ND-CP, which states:

“Investors with solutions for applying advanced technology, high technology, or environmentally friendly technology, or utilizing the best available techniques to minimize environmental pollution for projects classified as having a high risk of adverse environmental impact under environmental protection laws, are entitled to a 5% preferential score when evaluating bidding dossiers.”

This incentive offers a 5% preference during the bidding evaluation process to investors who propose environmentally friendly solutions aimed at minimizing pollution for high-risk projects, as stipulated by Environmental Protection Laws. According Decision No. 1643/QD-TTg, , key regions have been identified as focal points for investment in the textile and garment sector, including:

·?????? Northern region (Nam Dinh, Hung Yen, Thai Binh provinces,...)

·?????? Central region (Thanh Hoa, Nghe An, Thua Thien Hue, Quang Ngai, Binh Dinh,...)

·?????? ?South (Binh Phuoc, Tay Ninh, Long An,...).

Expected to become keys point for attracting investment, these regions promise to become attractive destinations for foreign investors, with many possibilities supported by targeted investment programs and incentives. This can be integral to advancing the development policy’s objectives of greening production processes, fostering sustainable growth and aligning with international standards.

International Collaboration and Green Technology Support

This commitment to sustainability is further supported by international collaboration, which plays a pivotal role in Vietnam’s green transition. One notable initiative is the Green Tech Landing Pad supported by the German government, which aims to promote green technologies in Vietnam. On June 18, 2024, five pilot projects were launched in the country, including energy management solutions by IoTeamVN and sustainable fabric innovations such as pineapple-based fibers from ECOSOI. These projects are setting a high benchmark for sustainable manufacturing, aligning with European standards and fostering innovation that could transform the industry.

Adopting Circular Economy Practices

Vietnam is steadily adopting circular economy practices to reduce waste and extend product life cycles. Companies are utilizing recycled materials like polyester from plastic bottles and launching garment recycling initiatives to promote sustainability. In addition, there is a growing emphasis on designing products for longevity and repairability, ensuring that textiles stay in use longer and reducing the need for frequent replacements.

To stay competitive, the textile industry must upgrade infrastructure, adopt best practices, and implement Extended Producer Responsibility (EPR) protocols. Notably, Decree No. 08/2022/ND-CP, issued in 2022, outlines EPR requirements under the Law on Environmental Protection that explicitly defines the responsibilities of producers and importers regarding waste collection and treatment, as well as the recycling of products and packaging.

According to the Environmental Protection Law 2020, producers and importers have two responsibilities; the responsibility to recycle products and packaging for six groups of products and packing that are recyclable; and the responsibility to collect and treat waste for six groups of products and packaging containing hazardous substances, those that are difficult to recycle, or pose challenges in waste collection and treatment. This means that for the textile sector, active participation in these initiatives is key to aligning with Vietnam’s sustainable development goals.

Learning from other country’s Green Initiatives

Apart from the initiatives mandated by the Vietnamese government, Vietnam can draw valuable lessons from the sustainability innovations of other countries. For instance, Bangladesh has emerged as a global leader in sustainable production, with over 200 LEED-certified factories. By investing in clean technologies, strengthening supply chain transparency, and promoting renewable energy, Bangladesh has significantly enhanced its position in the global textile market.

Challenges Ahead

However, the path forward is not without challenges. Currency depreciation among competitors like Bangladesh and Indonesia threatens to undermine Vietnam’s price competitiveness, while rising wages, including a 6% minimum wage hike in 2024, place pressure on profit margins. Despite these challenges, the growing focus on green investments and government support positions Vietnam’s textile sector to overcome these obstacles and continue its leadership in sustainable manufacturing.

The Path Forward: Shaping the Future of the Industry

Vietnam’s commitment to sustainability is not just about meeting global standards—it’s about shaping the future of the textile industry. By fostering green innovation, supporting small businesses, and learning from global best practices, Vietnam’s textile sector can become a hub for sustainable manufacturing, boosting exports and driving long-term growth. If you wish to explore this promising sector, Viettonkin Consulting offers a full-service package for you to penetrate the Vietnam market and establish your business with ease.