<p>Decarbonization outcomes often differ across regions despite similar levels of foreign direct investment (FDI), yet existing studies largely estimate average effects and provide limited explanation for why environmental responses vary across institutional and structural contexts. This study addresses this gap by examining whether the relationship between FDI and environmental performance reflects conditional system responses rather than a uniform association across regions. Using a balanced panel of 63 Vietnamese provinces over the period 2005–2023, we estimate fixed-effects, interaction, and quantile regression models to examine conditional associations across institutional contexts and emission regimes. Three consistent findings emerge. First, FDI is negatively associated with emissions per capita on average, although the estimated relationship is modest. Second, this association varies systematically with institutional coordination capacity. The interaction between FDI and the Provincial Competitiveness Index (PCI), used as a proxy for institutional coordination capacity, is negative and statistically significant, indicating that the association between FDI and lower emissions becomes stronger in provinces with higher coordination institutional capacity but remains limited where institutional coordination is weaker. Third, the estimated associations differ across the emissions distribution, becoming progressively stronger in higher-emission systems while remaining statistically insignificant at lower emission levels. These findings suggest that uneven decarbonization reflects heterogeneous and context-dependent system responses rather than a uniform relationship between FDI and environmental performance. By integrating institutional conditionality with distributional heterogeneity, the study offers a systems-based explanation for mixed empirical evidence and provides a conceptual framework to support adaptive environmental system design and decision-making under institutional heterogeneity.</p>