What do investors want from carbon projects?

The carbon market offers a way to turn emission-reduction results into financial resources. But a "green" project is not necessarily an attractive carbon project.

Four conditions that determine access to capital

Drawing on real-world investment experience in Vietnam, Nguyen Ngoc Tung, CFA, Director of the VinaCarbon Climate Impact Fund under VinaCapital, said international investors typically weigh four main groups of factors when choosing carbon projects.

The first is credit quality. Investors need to know what activity generated the credit, what measurement methodology was used, and whether it meets recognized standards and has undergone independent assessment and verification. This determines whether a credit genuinely represents greenhouse gas emissions reduced or removed from the atmosphere.

If the crediting methodology is unreliable, the baseline is unclear, or emission-reduction results cannot be verified, the credit will carry low commercial value, or may not qualify for trading at all. Compatibility with specific markets also matters greatly: a credit recognized in the voluntary market may not be accepted in compliance markets or eligible for international transfer under Article 6 of the Paris Agreement. That's why, from the design stage, businesses need to clearly define the standard they will follow, their potential buyers, and their target market.

The second factor is project efficiency and sustainability. Carbon credits should be viewed as supplementary revenue, not the sole source of financing sustaining a project. For waste treatment projects, investors will examine whether revenue from waste processing, power generation, or material and product recovery is sufficient to keep operations running on its own.

If a project can operate only through credit sales, risk runs high, since carbon prices can fluctuate, standards can change, and the volume of credits issued may fall short of projections. The stronger the underlying business, the better carbon credits can serve their proper role as added value from emission-reduction results.

Forest carbon projects present a more complex challenge. Investors must clarify land-use rights, forest management rights, rights to benefit from carbon absorption and storage services, and decision-making rights over the credits themselves. If forest boundaries overlap, land records are inconsistent, or benefit-sharing rights remain unclear, disputes can arise and due diligence can stall.

Forest projects must also manage the risk of deforestation, forest fires, degradation, or unplanned logging, since these risks can release stored carbon back into the atmosphere and directly affect credit value. Investors therefore look not just at forest area, but at protection, monitoring, and maintenance plans that can sustain results over many years.

The third factor is profitability after accounting for all costs. Revenue from credits does not belong entirely to the project owner. Implementation involves numerous expenses: surveys, documentation, applying methodologies, measurement, reporting, assessment, verification, registration, and periodic monitoring.

For forest projects, costs also include forest protection, restoration, and development; risk management; and benefit-sharing with residents, communities, forest owners, and other stakeholders. After deducting all costs and required benefit-sharing, the remaining revenue must still be attractive enough for investors to commit capital and stay engaged long term.

Project scale therefore becomes an important factor. According to Tung, under VinaCarbon's assessment model, forest carbon projects need to cover roughly 5,000 hectares or more to achieve economic viability. Smaller areas tend to generate few credits, while documentation, assessment, verification, and management costs don't shrink proportionally.

He noted, however, that 5,000 hectares is only a reference threshold within VinaCarbon's investment model, not a universal legal requirement. Actual viability also depends on forest type, carbon stock, absorption growth rate, management costs, crediting methodology, and expected sale price.

The fourth factor is the implementing organization's operational capacity. A project may look attractive on paper but still fail if the implementing entity lacks the personnel, technology, financing, or ability to coordinate with local authorities, communities, and regulators.

A carbon project's work doesn't end once it's registered. Project owners must sustain measurement, reporting, assessment, data management, risk monitoring, and proof of emission-reduction results period after period. For projects spanning decades, the ability to maintain the organization and resources matters just as much as the initial potential to generate credits.

Investors therefore tend to assess management team experience, internal control systems, data quality, financial capacity, and the ability to fulfill commitments to stakeholders all at once. A company's reputation and track record also directly shape investment decisions.

According to Tung, businesses should not view carbon credits merely as a revenue stream. A project becomes genuinely attractive only when it rests on a solid economic foundation, produces verifiable emission-reduction results, distributes benefits transparently, and can sustain operations long term. Only when these conditions come together do carbon credits become true added value, helping a project attract sustainable capital.

Compliance pressure is opening new markets

According to Associate Professor Nguyen Dinh Tho, Deputy Director of the Institute of Strategy and Policy on Agriculture and Environment, Vietnam holds an advantage from having committed early to net-zero emissions by 2050 and gradually building out the legal foundation for a carbon market.

The 2020 Law on Environmental Protection, together with regulations on greenhouse gas inventories, emission reduction, quota allocation, and credit trading, has created a basis for businesses to participate in the domestic market and connect internationally. Vietnam has also received support from the World Bank, the International Finance Corporation, and other development partners in building policy, strengthening capacity, and implementing projects.

Even so, businesses face significant pressure from the EU's Carbon Border Adjustment Mechanism (CBAM) and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). CBAM directly affects high-emission sectors such as iron and steel, cement, aluminum, electricity, fertilizer, and hydrogen, requiring businesses to inventory, report, and reduce emissions throughout production.

In aviation, CORSIA is expected to drive up demand for eligible credits. According to estimates presented at a recent discussion forum, Vietnam could face a shortfall of about 2.3 million credits, equivalent to USD 92 million at USD 40 per ton.

Compliance pressure is also opening new opportunities. Businesses that prepare data, emission-reduction plans, and credit projects early will gain an advantage in accessing green capital and meeting international requirements. Carbon credits should therefore be viewed as added value on top of a project with a solid economic foundation, transparency, and long-term operating capacity.

From an investor's perspective, the key message is that businesses shouldn't start by asking how much money credits can be sold for. The better question is what environmental problem the project solves, how it generates emission reductions, whether it can sustain itself through its main revenue source, and what benefits it brings to the community.

When a project has a solid economic foundation, transparent data, clear rights, and a capable team, carbon credits become genuine added value, the real basis for turning environmental obligations into investment opportunities and sustaining projects over the long term.