By Thomas Fugelsang, Managing Director, Entoro Capital, LLC
When a house changes hands, a title insurer stands behind the deed. When a trade settles on an exchange, a clearinghouse guarantees the other side of it. When a bond is sold, the offering documents carry representations and warranties, and someone with a balance sheet is on the hook if those turn out to be false. Every functioning financial market has an indemnity chain: a named party, holding capital, who absorbs the loss when a claim fails.
The voluntary carbon market (VCM) has a disclaimer.
For two decades that distinction sat in the footnotes, interesting to lawyers and almost nobody else. It does not sit there anymore. Carbon credits have been written into sustainability-linked bonds and transition-linked debt, into corporate emissions disclosures filed with regulators, into environmental, social, and governance (ESG) fund classifications, into sovereign debt frameworks, and into public company filings. Somewhere upward of ten billion dollars in labelled bonds has been structured on top of them. And all of it rests on units that, in most cases, cannot be exclusively claimed, cannot be subtracted from any recognized ledger, and cannot be enforced against anyone if they fail.
A mitigation unit that cannot be subtracted from a national inventory, cannot be exclusively claimed, and cannot be enforced contractually is not a financial asset. It is a legal orphan.
A registry is not a register of title
The VCM presents itself as a market. It has registries, third-party verification, issuance methodologies, ratings, price curves, and a professional intermediary class. It even borrowed the vocabulary: credits have “vintages,” as though they were bonds with maturities. But a vintage in carbon implies nothing about settlement, and most units carry no transfer enforcement and no connection to ledger-based accounting at all. It is not maturity. It is marketing.
Registries are the clearest example. They do not establish ownership. They operate as unregulated metadata libraries that track the movement of labels rather than the movement of legal rights. Credits are issued not by sovereigns or financial authorities but by private organizations applying methodologies they wrote themselves. The registries disclaim liability, offer no representations and warranties, no indemnification, and no delivery enforcement. When a credit is later challenged for reversal, non-additionality, or double counting, the buyer’s remedy is a disclaimer and a counterparty shrug.
What has grown up in place of legal structure is a methodology arms race. Providers now market units as premium based on marginal improvements in baseline logic or buffer pool design. Developers compete on co-benefit scoring. Buying a mitigation unit on methodology alone is like buying a television because the box says 4K, then discovering at home that the resolution is worse than advertised, the features are missing, and the operating system will not connect. The buyer did not merely overpay. The buyer received something that does not do what it said it would do, and no one in the chain is accountable for the gap between the sale and the delivery.
The standards already changed
None of what follows requires a future decision. It is in effect now.
In early 2025, the Science Based Targets initiative (SBTi) issued guidance reasserting that unadjusted credits cannot be used for Scope 3 disclosures, even high-quality ones, unless the underlying outcome has been removed from the host country’s inventory. That aligns SBTi, the most widely adopted corporate climate accounting framework in the private sector, with what the International Sustainability Standards Board’s IFRS S2 climate standard and the EU’s Corporate Sustainability Reporting Directive (CSRD) already required: that emissions reductions be verifiable, exclusive, and auditable.
In May 2025 the Supervisory Body of the United Nations Framework Convention on Climate Change (UNFCCC) established that any mitigation outcome used in finance or markets must carry sovereign authorization and be transparently recorded in the host country’s national inventory. Two months later, in July 2025, the International Court of Justice issued an advisory opinion concluding that Paris Agreement delivery, including a country’s Nationally Determined Contribution, is a matter of binding legal obligation linked both to treaty law and to human rights. In May 2026, the UN General Assembly backed that advisory opinion, calling on Member States to comply with their international legal obligations, follow through on existing Paris Agreement commitments, and take steps to avoid significant harm to the climate system.
An advisory opinion is not a judgment, and it enforces nothing by itself. What it does is settle the interpretive question underneath every future case. Read alongside the UNFCCC decision, it moves climate delivery out of voluntary policy and into territory where double claiming stops being a disclosure weakness and becomes a potential breach of international obligation, with sovereigns and corporates both exposed. Financial supervisors have been arriving at the same place from a different direction: the U.S. Commodity Futures Trading Commission (CFTC) warned in 2024 that voluntary carbon markets may carry systemic risk because of absent delivery enforcement, unregulated counterparties, and misalignment with jurisdictional accounting.
Most credits in circulation today do not meet these tests. They were never assigned exclusively, never subtracted from a sovereign inventory, and never reconciled against a jurisdictional monitoring, reporting, and verification (MRV) system.
What the market is missing
The problem is not that the VCM lacks methodologies, ratings, verification, or standards. It has spent two decades building them. What it has not built is the infrastructure financial markets normally put first: defined ownership, enforceable transfer, reconciliation, and clear accountability when delivery fails.
That matters as carbon moves into regulated disclosures, sovereign accounting, compliance markets, and financial instruments. A credit can be environmentally credible and still be financially incomplete. If the same mitigation outcome can be claimed by more than one party, or its transfer is never reconciled against the host country’s accounting system, methodology alone cannot solve the ownership problem.
If it can be claimed by more than one party, it cannot be reliably priced by any party.
The next stage of carbon markets will therefore look less like a competition over ratings and more like the construction of financial-market infrastructure. Sovereign authorization governs transfer. Corresponding adjustments address double claiming. Serialized records and reconciled inventories create an auditable chain. Representations, warranties, and remedies determine who bears the loss when that chain breaks.
None of this is unusual in finance. Ownership precedes custody. Settlement precedes liquidity. Accounting precedes disclosure. The unusual part is that carbon markets attempted to scale before those foundations were consistently in place.
Higher-integrity methodologies, buffer pools, ratings, and verification can improve confidence that an environmental outcome occurred. They cannot, by themselves, establish who has the exclusive right to use it or who is accountable if the transaction fails.
The distinction is between verification and settlement: one asks whether the environmental outcome is real; the other whether the resulting claim can be owned, transferred, reconciled, and enforced.
Financial markets require both.
The Bottom Line
The VCM is not disappearing. But the model on which it was built is.
For two decades, the market treated a privately issued and voluntarily retired credit as though it could carry an exclusive claim on an emissions outcome. That assumption is now colliding with sovereign accounting, more demanding corporate disclosure and claims standards, Article 6 authorization, and the growing imperative to prevent double claiming.
A verified tonne is not automatically a transferable right. If the host country retains the right to count the outcome toward its own climate target, if the buyer cannot demonstrate exclusive allocation, or if nobody stands behind the transaction when the claim fails, the credit may still finance activity—but it cannot reliably function as a settled environmental asset.
That is the dividing line now emerging in carbon markets.
The future is not between “good” and “bad” credits. It is between units used as voluntary contributions to climate action and units intended to support an exclusive, auditable and enforceable claim.
The first may continue to play an important role in climate finance. The second requires what the legacy VCM never consistently built: sovereign authorization where relevant, reconciled accounting, contractual allocation and a credible liability chain.
Capital can price performance risk. It can insure delivery risk. It can finance mitigation.
But it cannot indefinitely finance the sale of a claim that two parties may be entitled to make—and for which no one is ultimately liable.
The legacy VCM was built to issue credits. The next market must be built to settle rights.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of Entoro, LLC, or any of their respective affiliates. This article is provided for general informational and educational purposes only and does not constitute investment advice, a recommendation, an offer to sell, or a solicitation of an offer to buy any security, financial product, or investment strategy. The information presented is believed to be reliable but is not guaranteed as to its accuracy, completeness, or timeliness. Any forward-looking statements or opinions are subject to change without notice.
Author Bio: Thomas P. Fuglesang is a Managing Director at Entoro Capital, LLC and Capturiant, LLC, with over 25 years of experience in energy, shipping, commodities, and real estate. He specializes in corporate finance, investment banking, private wealth management, and equity sales, with deep expertise in structuring transactions and developing international capital market solutions. At Entoro and Capturiant, he leads structuring, capital markets advisory, and business development for environmental and alternative investment products.
Previously, Thomas spent over 17 years as Managing Director at Absalon Capital Ltd, overseeing projects in oil services, shipping, and commodities, while holding multiple senior roles including Board Director and CFO. Earlier in his career, he held roles at Morgan Stanley (Private Wealth Management and Associate in Luxembourg), Credit Suisse (Investment Banking, Transportation/Shipping), and Pareto Securities (Equity Sales).
Thomas has extensive capital markets experience in capital raising, M&A, governance, advisory, and execution of large-scale international transactions. His leadership roles have included Board Director at CAPOL and Ascot Energy Services, CFO of Newport Shipping LLP, and Director at Ohlsson International Ltd and SeaHold Group.
He holds CFA Level I, the Investment Administration Qualification, and Capital Markets & Securities Analyst certification. His academic background includes an MSc in Shipping, Trade & Finance from Bayes Business School (London), and a BA in Business Economics from Vrije Universiteit Brussel (Belgium) and Augsburg University (Minneapolis).
Thomas is recognized for bridging traditional and emerging sectors and structuring innovative solutions for corporate and institutional clients globally.
