Credit Institutions’ Role in Carbon Market: Global and Vietnam context

The carbon market is where activities take place to exchange units representing reduced, avoided, or permitted greenhouse gas emissions. This is an economic mechanism that allows businesses flexibility in complying with emission reduction targets, while also helping to mobilize financial resources for green activities.

Currently, the global carbon market operates based on two main pillars: the compliance market and the voluntary market. The compliance market serves as the mandatory legal framework, operating through the Emission Trading System (ETS). Here, businesses must strictly adhere to the permitted emission limits, creating direct pressure to cut emissions to avoid financial penalties.

In parallel, the voluntary market offers a more flexible space, allowing organizations to proactively participate through carbon exchanges and domestic credit offset mechanisms. To ensure transparency and global value, these transactions are often referenced against prestigious international standards such as Gold Standard (GS) or Verified Carbon Standard (VCS). Notably, the formation of the credit exchange and offset mechanism under Article 6 of the Paris Agreement has opened the door for international cooperation, helping to optimize resources and promote climate change mitigation efforts on a global scale.

The carbon market creates a new channel for transmitting risks and opportunities for credit institutions, not only through direct financial transactions but mainly through indirect impacts on the risk profile of borrowers and the bank's investment strategy.

When the carbon pricing mechanism is established and operational, the cost of emissions becomes a tangible economic factor, directly affecting the cost structure, cash flow, and profitability of businesses, especially high-emission industries. This increases credit risk for banks if customers fail to adapt in time to compliance requirements and emission reduction roadmaps.

Besides, credit institutions also face the level of exposure to transition risk, which depends entirely on the adaptive capacity of customers to emission reduction roadmaps and the volatility of carbon prices in the market. In addition to affecting risk, carbon price signals also directly influence the investment decisions of credit institutions. The allocation of capital, asset valuation, and the development of long-term investment strategies are increasingly tied to the level of emissions and the transition roadmap of businesses. International practice shows that many banks have integrated the carbon factor into their risk governance framework and lending decision-making process, which demonstrates an inevitable requirement to ensure the safety and transparency of the green financial system.

In the carbon market, financial supervisory and regulatory bodies prioritize identifying risks arising from carbon pricing mechanisms, including credit risk, customer transition risk, and concentration risk in the investment portfolios of credit institutions, especially for high-emission sectors and businesses.

At the same time, regulatory bodies focus on enhancing the quality and availability of data on emissions, carbon costs, and the transition plans of borrowers, ensuring consistency between financial data and the measurement, reporting, and verification (MRV) system. Promoting standardized climate and carbon-related information disclosure is a crucial foundation for reducing information risk and supporting the transparent and effective operation of the carbon market.
 

In the context of Vietnam's gradual establishment and operation of a carbon market, the coordination role of state management agencies is decisive for the stability and transparency of the market. The State Bank of Vietnam plays the role of policy orientation and connecting the national emissions data system with the banking sector, thereby supporting credit institutions in assessing climate risks and transition risks in lending activities. Simultaneously, the Ministry of Agriculture and Environment is responsible for managing the carbon registry system and the measurement, reporting, and verification (MRV) system, ensuring the integrity, transparency, and reliability of issued and traded carbon credits.

Besides the management role, the Ministry of Finance plays a pivotal role in building the trading infrastructure and financial framework for the carbon market, including the quota auction mechanism, related financial rules, and tax policies, thereby gradually recognizing carbon as a liquid financial asset. Based on this foundation, commercial banks participate with the role of providing capital and financial services, contributing to promoting the development of carbon projects and supporting businesses in implementing low-emission transition roadmaps. The synchronized coordination among these entities is a prerequisite for the carbon market in Vietnam to operate effectively and sustainably.
 

- Minh Hung -