Vietnam’s Growth Scorecard Needs to Count the Environment

Can Vietnam sustain the rapid growth needed to become a high-income economy by 2045? Debate has focused on familiar constraints such as investment, infrastructure and productivity. However, the environmental costs of Vietnams’ growth pursuit, and the value of sustainability in its economic system, have received much less attention.  

Vietnam does not lack environmental rules. The first Law on Environmental Protection was adopted in 1993, and the legal framework was subsequently strengthened. Nor does Vietnam lack environmental indicators. Provincial environmental performance has been assessed since 2019, most recently through the Provincial Environmental Protection Index (PEPI).

The harder problem is making environmental performance count.

Consider the choices presented to a province trying to attract investment. A new factory immediately and tangibly brings capital, jobs and tax revenue.  The factory’s environmental costs may emerge slowly or affect communities beyond provincial boundaries. For 2026, the government has set explicit economic growth targets for individual provinces, including 13–13.5 per cent for Hải Phòng and 10 per cent for Đồng Nai. Environmental performance is also assessed through the Provincial Environmental Protection Index (PEPI), but it remains unclear how much weight these results carry in evaluating provincial officials.

The problem has institutional roots. Provincial authorities are strongly pressured — and amply resourced — to drive growth and investment. But their capacity to deliver on environmental goals can be constrained by limited enforcement resources and overlapping responsibilities, compounded by inadequate coordination. As a result, economic development may receive priority even where environmental regulations are well established.

Environmental costs are substantial. According to the World Bank, air pollution is associated with approximately 71,000 premature deaths annually, with economic and welfare costs estimated at USD13.3 billion, equivalent to 3.9 per cent of Vietnam’s 2020 GDP. The Bank estimates the broader costs of environmental degradation at 6.9 per cent of GDP using a market-based approach, rising to 10.3 per cent with the inclusion of wider welfare losses.

Biên Hòa 1 Industrial Park in Đồng Nai illustrates the long-term costs of delayed environmental action. Founded in 1963 and now surrounded by urban development beside the Đồng Nai River, the industrial park contributed significantly to industrialisation but became a pollution concern because of ageing infrastructure and inadequate wastewater treatment. Although its relocation was proposed more than two decades ago, implementation proved difficult and has advanced substantially only in recent years. The site is being repurposed for urban, administrative and commercial uses.

Two developments in July 2026 suggest an opportunity to change the incentives underlying such problems.

On 9 July 2026, the government issued Decision 1248/QĐ-TTg establishing criteria for assessing industrialisation and modernisation at national, sectoral and local levels. Unlike PEPI, which assesses environmental protection performance separately, the new framework places 11 environmental indicators alongside broader economic and social development criteria. This potentially brings environmental outcomes into mainstream development assessment, although their influence will depend on how the results are used.

Later that month, the Communist Party issued Conclusion 75, linking environmental protection more closely to development quality and competitiveness. It calls for stronger governance, monitoring and resources, including allocating at least 2 per cent of annual state budget expenditure to environmental protection activities. Together, the two measures could strengthen both the institutional priority given to environmental protection and its place in development assessments.

However, neither automatically changes the incentives facing provincial leaders. Vietnam’s drive for double-digit economic growth could reinforce pressures to prioritise investment, particularly when environmental measures impose immediate costs. At the same time, cleaner production and stronger environmental governance are becoming increasingly important for competitiveness and access to international markets.

The central challenge is turning environmental assessment into accountability. The 2016 Formosa industrial waste pollution incident showed that serious failures can carry political consequences. In 2017, senior officials, including former Hà Tĩnh provincial leader faced disciplinary action over failures associated with the project’s approval and environmental oversight. Yet accountability after a major incident is different from routinely rewarding good environmental performance and correcting poor performance before damage occurs.

The real test of the 2026 reforms will be whether they move Vietnam beyond measuring the environmental costs of growth towards changing the incentives that produce them.

Recent reforms to Vietnam’s cadre evaluation system offer a potential mechanism. New Party guidance links quarterly assessments of officials’ assigned tasks to decisions about their career progression and reassignment. If environmental objectives were incorporated into these assessments, provincial leaders could face stronger incentives to deliver environmental results, rather than merely report them.

Such accountability would need to be credible and fair. Environmental indicators should inform provincial development assessments, investment approvals and resource allocation, supported by relevant and independently verified data. Provinces should be judged on outcomes they can reasonably influence. Stronger interprovincial coordination and central oversight would enable pollution-reducing efforts across administrative boundaries. Assessments should also recognise that environmental improvements may take years, even when corrective action begins immediately.

Stronger environmental protection can involve short-term adjustment costs for businesses, workers and communities. But these costs must be weighed against the long-term damage that pollution and resource degradation impose on health, productivity and economic competitiveness.

Vietnam’s next environmental challenge is not only to write stronger rules or develop better indicators. It is also to make environmental performance matter within the machinery of economic decision-making. The real test of the 2026 reforms will be whether they move Vietnam beyond measuring the environmental costs of growth towards changing the incentives that produce them.

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