Decision 21: A building block for Vietnam’s green taxonomy and sustainable finance

Vietnam is entering a pivotal stage of its green transition. As global markets intensify sustainability requirements and climate risks grow more complex, the country faces both pressure and opportunity to reshape how capital is mobilized and how investment projects are evaluated. Against this backdrop, the Government’s issuance of Decision 21/2025/QD-TTg marks a significant step forward. The decision introduces the first legal standard for determining whether an investment project can be classified as “green,” laying the groundwork for Vietnam’s Green Taxonomy 2025–2030 and strengthening its broader sustainable finance agenda.

Although the decision is concise, its impact is far-reaching. It introduces a unified reference point for regulators, investors, and financial institutions; reinforces environmental governance; and prepares the institutional ecosystem for more detailed technical screening criteria in the coming years.

A clear national standard for green projects

Before Decision 21, Vietnam lacked a consistent national definition of what constitutes a green project. Financial institutions, investors, and development partners used different frameworks- sometimes adopting international standards, sometimes applying internal guidelines. This fragmentation created uncertainty and hindered the growth of credible green finance markets. It also limited regulators’ ability to track green investment flows and detect unsubstantiated “green” claims.

Decision 21 addresses these challenges by establishing a core set of environmental criteria and a verification process for confirming the green status of projects. The decision links green eligibility directly to compliance with Vietnam’s environmental regulatory system, including environmental impact assessments, environmental permits, and relevant pollution-control requirements. This alignment anchors the concept of “green” within enforceable legal obligations, strengthening the credibility of green classification and reducing the risk of greenwashing.

Equally important is the decision’s introduction of a formal verification mechanism. Project owners must submit documentation; authorized state agencies or accredited independent bodies review compliance; and confirmed green status is issued based on clear criteria. This process brings Vietnam closer to international practices, where robust verification is widely recognized as essential for maintaining market integrity.

While Decision 21 does not yet provide detailed sector-by-sector technical criteria, such as emissions thresholds, it clearly establishes the conceptual and procedural framework from which such criteria will be developed. As a result, it functions as the first phase and structural blueprint for Vietnam’s Green Taxonomy.

Strengthening Vietnam’s ESG and sustainable finance landscape

Decision 21 comes at a time when Vietnam’s financial system is increasingly integrating ESG and climate-related considerations. Banks are under pressure to assess environmental risks, investors demand greater transparency, and regulators are moving toward more comprehensive sustainability requirements. In this context, Decision 21 serves as a strategic link between environmental regulation and sustainable finance.

For banks, the decision offers a consistent reference for classifying green credit portfolios, facilitating risk management and reporting. This supports the State Bank of Vietnam’s broader agenda for promoting green lending and developing a more climate-resilient financial system.

For corporate issuers, especially those planning green bonds, Decision 21 provides a transparent national benchmark for demonstrating project eligibility. This strengthens investor confidence and aligns with the government’s efforts to deepen Vietnam’s green bond market. Under existing bond regulations, issuers must substantiate the environmental benefits of financed projects; Decision 21 now provides the legally recognized basis for doing so.

Regulators benefit as well. With a unified classification standard, the government can better oversee green finance activities, monitor capital flows into green sectors, and evaluate the alignment of investment with national climate goals. As a result, the decision supports Vietnam’s transition from fragmented, voluntary sustainability practices to a coherent, regulated ESG framework.

Perhaps most importantly, Decision 21 reinforces the principle that environmental compliance is not merely a reporting exercise but a foundation for eligibility in sustainable finance. This helps integrate environmental governance into financial decision-making in a way that is both practical and enforceable.

Laying the foundation for Vietnam’s Green Taxonomy and future policy plans

Decision 21 is intended to evolve. The Government of Vietnam envisions a multi-stage development of its Green Taxonomy through 2030, with the decision functioning as the initial phase. Over the next several years, key ministries will collaborate to develop technical screening criteria for priority sectors such as renewable energy, transport, water, waste management, and agriculture. These criteria will provide quantitative performance benchmarks and specify which technologies and activities qualify as contributing to environmental objectives.

The taxonomy will also play an important role in Vietnam’s move toward ISSB-aligned sustainability reporting standards. As companies begin disclosing climate-related risks and sustainability impacts under IFRS S1 and S2, the taxonomy will serve as a reference for evaluating taxonomy-aligned revenues, investments, and operations. This integration will help ensure greater consistency in corporate sustainability reporting.

In parallel, the taxonomy is expected to strengthen Vietnam’s green credit and green bond markets by providing a transparent and nationally recognized eligibility filter for green financial products. Financial institutions and issuers will rely on it to structure offerings, identify qualified projects, and attract domestic and international investors.

Vietnam’s emerging domestic carbon market, expected to be fully operational after 2028, will also benefit. The taxonomy will help identify environmentally robust projects capable of generating high-quality emission reductions.

Moreover, the decision enhances Vietnam’s ability to access international climate finance, including support under the Just Energy Transition Partnership (JETP), multilateral development banks, and global climate funds. A standardized classification system makes it easier for international partners to assess project quality and align funding priorities.

Regionally, Decision 21 aligns Vietnam with the overall direction of the ASEAN Taxonomy, which provides a principles-based framework for sustainable finance in Southeast Asia. While Vietnam’s taxonomy remains at an early stage, its structure is broadly compatible with regional trends and helps strengthen the country’s position in attracting sustainable investment.

Overall, Decision 21/2025/QD-TTg is an important building block in creating a transparent, credible, and internationally compatible sustainable finance system. By defining what counts as “green,” linking financing to environmental outcomes, and supporting national climate goals, the decision is expected to shift investment flows and guide Vietnam’s transition toward a low-carbon economy. As Vietnam advances its taxonomy through 2030, the policy will shape financial markets, corporate strategies, and public investment, bringing the country closer to its net-zero ambition.

References:

1. https://vanban.chinhphu.vn/?pageid=27160&docid=214447
2. https://www.vietnam-briefing.com/news/understanding-vietnam-new-environmental-criteria-green-investment.html/
3. https://www.vietnam-briefing.com/doing-business-guide/vietnam/sector-insights/vietnam-s-national-green-growth-strategy-unpacked
4. https://onestopesg.com/esg-news/vietnam-to-overhaul-esg-disclosure-rules-to-align-listed-companies-with-global-sustainability-standards-1762704084226
5. https://vir.com.vn/vietnam-advances-in-asean-sustainability-reporting-shift-134311.html