By Thomas Fugelsang, Managing Director, Entoro Capital, LLC
The voluntary carbon market has spent a decade trying to make the credit better. A project can be real, additional and independently verified and still be difficult to finance at institutional scale if the thing it produces cannot move through the legal, custody and settlement systems institutional capital already uses. Verification asks whether the environmental outcome occurred. Finance asks who owns the claim, who owes what, when delivery is due, what happens if it fails and what an investor can enforce. Securitization matters because it makes those questions part of the instrument rather than an afterthought.
The asset is not the instrument
Mortgages offer the obvious precedent. The house did not change when mortgage loans were pooled; the form in which investors owned the cash flow did. The SEC describes mortgage-backed securities as claims on cash flows from pools of mortgage loans. Standardization made those claims easier to analyze, distribute and trade through capital-market infrastructure.
Environmental outcomes face the same distinction. A verified tonne is the underlying result. A registry credit is one way to evidence it. A security is a way to finance contractual rights associated with it. Securitization does not make a weak project good. It can change how a good project is funded, documented, transferred and held.
Sovereign authorization changes the claim
For carbon, one of the most important changes comes before securitization: sovereign authorization. Under Article 6, a host country can authorize the international use of mitigation outcomes, with corresponding adjustments used to prevent the same mitigation from being counted toward more than one national claim. UNFCCC guidance makes that accounting function central to the system.
Authorization does not create private-law title by itself and it does not guarantee delivery. It does something narrower but critical: it adds a sovereign accounting decision to a claim that otherwise rests primarily on a private registry with no say in the actual underlying rights.
The next step is to put enforceable contractual rights around that authorized outcome: delivery obligations, representations, covenants, remedies, and payment mechanics. Sovereign authorization strengthens the underlying claim; securitization gives investors an instrument through which to finance it.
What the security changes
The game changer is not the word “security” on the cover. It is access to a financial system already built to diligence, custody, value, transfer, and regulate financial claims. A properly structured instrument can provide defined ownership and payment rights, standardized offering materials, regulated distribution, and established settlement processes. Those are familiar inputs for investment committees, counsel, compliance teams and custodians.
That framework is not a government guarantee. The advantage is not regulatory endorsement; it is a legal and operational format that a much larger segment of institutional finance already knows how to evaluate.
Topic 818 changes the accounting picture. Under the new U.S. GAAP guidance, an environmental credit is recognized as an asset when it is probable that the entity will use it to settle an environmental-credit obligation or transfer it in an exchange transaction. Credits acquired solely for voluntary use generally do not meet that recognition test, and their costs are expensed as incurred. Securitization therefore does not matter because it magically puts carbon on a balance sheet. Its advantage is compatibility: a properly structured security can fit more naturally within the mandates, custody arrangements, valuation processes, reporting systems and risk controls institutions already use for financial assets. That can broaden the potential buyer universe, although eligibility and accounting treatment ultimately depend on the structure of the instrument and the holder.
The cost of capital is the real prize
A conventional voluntary project often asks capital to fund development, monitoring, verification, and issuance years before the ultimate buyer appears. Until then, the developer carries project risk, methodology risk, delivery risk, carbon-price risk and liquidity risk at the same time. If repayment depends on selling future credits into a discretionary spot market, capital has to price all of that uncertainty.
A security cannot erase those risks, but it can separate and allocate them. Contracted offtake can reduce price uncertainty. Reserve accounts can support scheduled payments. Collateral and covenants can define remedies. Insurance can address specified political or non-delivery risks where coverage is available. A special-purpose issuer can isolate cash flows. Increased disclosure standards can make risks easier to compare. None of those features guarantees a lower cost of capital, but each can reduce uncertainty that would otherwise be embedded in the required return. The economics become meaningful quickly: on $50 million of five-year debt, a three-percentage-point reduction in financing cost—from 12 percent to 9 percent—would reduce annual interest from $6 million to $4.5 million, or $7.5 million over five years before amortization. Those rates are an illustrative sensitivity, not a market-wide benchmark, but they show why even a modest reduction in the risk premium can materially improve project economics.
Lower financing friction leaves more project economics available for development and expansion, while a familiar instrument can make the opportunity accessible to investors that could not or would not buy a bespoke registry unit. The result is not automatically liquidity, but it creates more of the conditions from which liquidity and price discovery can develop.
The Bottom Line
The voluntary market has spent years improving the integrity of the certificate while leaving the financing architecture around it relatively primitive. That work was necessary, but it was not sufficient. Better methodology does not create a financing waterfall, an enforceable remedy, institutional custody or a broader investment mandate.
That is the opportunity: not to disguise a carbon credit as a bond, and not to claim regulation eliminates risk, but to stop asking a voluntary registry unit to perform a job it was never designed to do. If natural capital is going to be financed at institutional scale, the market needs more than a better credit. It needs an instrument built for capital markets.
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.
