Green transition pivotal for FDI gains

As the global economy pivots towards sustainability, the country is now positioning itself not only as a manufacturing hub but also as a responsible, future-ready investment destination. The green transition is no longer a peripheral policy goal, but instead it has become a central pillar in the country’s strategy to attract high-quality foreign direct investment (FDI) in the new era.

Vietnam’s commitment to green growth is grounded in both domestic necessity and international responsibility. The net-zero by 2050 target has since been reinforced through a series of national strategies and legal reforms, most notably the national green growth strategy for 2021–2030. This strategy outlines Vietnam’s roadmap for reducing greenhouse gas emissions, improving energy efficiency, and encouraging sustainable urban development.

The country has also made significant strides in transitioning its energy sector. Vietnam is gradually reducing its reliance on coal and expanding its renewable energy portfolio, with solar and wind power projects gaining momentum across provinces such as Binh Thuan, Ninh Thuan, and Tay Ninh. The Power Development Plan VIII, approved in 2023, prioritises clean energy sources and sets clear targets for renewable energy integration into the national grid.

Legal and institutional reforms have accompanied these efforts. The revised Law on Environmental Protection, effective since 2022, introduces stricter environmental impact assessment procedures, mandates corporate sustainability reporting, and incentivises green technology adoption. These measures reflect a broader shift in Vietnam’s development philosophy, one that seeks to harmonise economic growth with environmental stewardship.

Role of the green transition

This green transition is increasingly viewed as a strategic asset in attracting foreign investment. As global investors place greater emphasis on environmental, social, and governance (ESG) criteria, countries that demonstrate a clear commitment to sustainability are gaining a competitive edge. Vietnam’s proactive approach to green growth sends a strong signal to the international business community: the country is ready to host responsible investments.

This shift is already influencing investor behaviour. In recent years, a growing share of FDI inflows has been directed towards sectors aligned with green development. Renewable energy projects, sustainable manufacturing facilities, and eco-industrial zones are attracting billions of US dollars in capital.

For instance, Lego’s $1 billion investment in a carbon-neutral factory exemplifies the type of high-quality, ESG-compliant investment Vietnam seeks to attract. The facility, powered entirely by renewable energy, reflects both the investor’s sustainability goals and Vietnam’s readiness to accommodate such projects.

Moreover, multinational corporations are increasingly demanding that their suppliers meet ESG standards. Vietnamese firms that can demonstrate compliance with these standards are better positioned to integrate into global supply chains and secure long-term investment.

Financial institutions are also reinforcing this trend. Banks such as HSBC and Standard Chartered have introduced green financing packages that offer preferential interest rates to companies meeting sustainability criteria. These incentives reduce the cost of capital for green projects and encourage broader adoption of environmentally responsible practices across the business community.

Vietnam’s green transition presents a wide array of opportunities for both the country and foreign investors. Firstly, green FDI tends to be more stable and long-term in nature. It often involves significant technology transfer, which can help Vietnam move up the value chain and reduce its reliance on low-cost, labour-intensive industries. By attracting such investment, Vietnam can accelerate its industrial modernisation and enhance its global competitiveness.

Secondly, the adoption of green technologies and practices can spur innovation and improve productivity. This makes Vietnamese enterprises more competitive in international markets and better equipped to meet the demands of increasingly sustainability-conscious consumers.

Thirdly, the development of green industries creates new employment opportunities, particularly in areas such as renewable energy, environmental engineering, and sustainable agriculture. These jobs are typically higher-skilled and better-paid, contributing to human capital development and inclusive growth.

Vietnam’s participation in new-generation free trade agreements further reinforces the importance of sustainability. These agreements include provisions related to environmental protection and labour standards, which align closely with Vietnam’s green transition goals.

By meeting these standards, Vietnam not only fulfils its international obligations but also gains preferential access to premium markets, enhancing its export potential and investment appeal.

Challenges on path to green FDI

Despite the promising outlook, Vietnam faces several challenges in fully leveraging its green transition for FDI attraction. One of the most pressing issues is the inadequacy of infrastructure to support large-scale renewable energy integration and sustainable logistics. While Vietnam has made progress in expanding its energy grid and transport networks, further investment is needed to ensure reliability and efficiency.

Regulatory complexity also poses a barrier. Investors often encounter bureaucratic hurdles and inconsistent enforcement of environmental laws. Streamlining administrative procedures and improving transparency will be essential to build investor confidence.

Another challenge lies in the limited capacity of domestic enterprises to meet ESG standards. Many small and medium-sized enterprises lack technical expertise and financial resources to implement green technologies or produce sustainability reports. Without targeted support, these firms risk being excluded from global supply chains and missing out on investment opportunities.

Balancing economic growth with environmental preservation is also a delicate task. Rapid industrial expansion, if not properly managed, could undermine Vietnam’s green goals and lead to unintended consequences such as pollution and resource depletion. Policymakers must ensure that development is guided by long-term sustainability principles rather than short-term economic gains.

To address these challenges and fully capitalise on the potential of green FDI, Vietnam must adopt a comprehensive and coordinated approach. Strengthening the ESG regulatory framework is a critical first step. This involves integrating sustainability criteria into investment laws and establishing clear guidelines for project approval. Enforcement mechanisms must be robust and consistent to ensure compliance and build trust among investors.

Developing green infrastructure is equally important. Investments in smart grids, eco-industrial parks, and sustainable transport systems will provide the foundation for green industries to thrive. Public-private partnerships can play a key role in mobilising the necessary capital and expertise for these projects. Supporting domestic enterprises through technical assistance, tax incentives, and access to green financing will enable them to meet ESG requirements and participate in global value chains.

Educational institutions should also align their curricula with the needs of green industries, offering vocational training in areas such as renewable energy, environmental management, and sustainable agriculture. This will help cultivate a workforce equipped to meet the demands of a green economy.

Vietnam should also leverage its trade deals to encourage environmental standards and attract responsible investors. These agreements can serve as filters to exclude polluting industries and incentivise green innovation. Finally, a targeted communication strategy is needed to boost Vietnam’s green brand internationally. Success stories should be highlighted to showcase the country’s commitment to sustainability and its readiness to host high-quality investment.

Vietnam’s green transition is more than an environmental commitment, it is a strategic lever for economic transformation. By embedding sustainability into its development model, Vietnam is positioning itself as a premier destination for responsible, future-oriented FDI.

The journey will require vision, coordination, and persistence, but the rewards, economic resilience, technological advancement, and global leadership, are well within reach.