What governance principles should SMEs follow to ensure transparency throughout the entire cycle?

Recommended Governance Principles for SMEs

Small and medium-sized enterprises (SMEs) participating in the carbon market must adopt clear, transparent, and accountable governance mechanisms. This section outlines four key governance principles, applying ESG standards, establishing an independent internal audit system, ensuring transparent record-keeping, and engaging in learning networks, that can help SMEs build credibility and attract investors.

Applying the ESG principles (Environmental, Social, Governance)

ESG serves as a comprehensive framework for assessing an organization’s environmental performance (E), social impact (S), and governance capacity (G). In the carbon market context, integrating ESG principles into the project cycle ensures both environmental integrity and social accountability.

From an environmental standpoint, enterprises should honestly report emissions data, develop emission reduction plans, and ensure efficient use of resources. On the social side, businesses must commit to supporting local communities, uphold employee rights, and maintain transparency regarding social impacts. In terms of governance, enterprises should establish internal monitoring procedures, ensure transparency of credit ownership, and develop clear mechanisms for resolving conflicts of interest.

Establishing an independent internal audit system

An effective internal audit acts as the “second line of defense,” verifying that all data, procedures, and credit transactions comply with regulations and are conducted transparently. SMEs can either establish an internal audit department, if resources permit, or hire an independent third party to perform periodic audits, especially for MRV (Monitoring, Reporting, and Verification) activities.

Audits should cover input data (fuel and output), calculation tools, data storage systems, credit transaction ledgers, and all reports submitted to competent authorities. This not only guarantees data accuracy but also strengthens investor confidence in the enterprise’s governance system.

Transparent record keeping and disclosure throughout the cycle

Transparency requires that every step of the carbon credit cycle be recorded and verifiable. During the design phase, enterprises should maintain PDD documentation, additionality analyses, and risk assessments. In the operation phase, they should keep detailed MRV reports, operation logs, and measurement data. In the transaction phase, all credit sales contracts, registry confirmations, and ownership adjustments must be properly archived.

Public disclosure of selected information, via company websites, ESG reports, or annual sustainability reports, enhances trust with partners, aligns with international market requirements, and prepares the enterprise for listing its credits on carbon exchanges.

Participating in learning and cross-monitoring networks such as the Carbon Market Forum

Engaging with peer networks such as the Carbon Market Forum, the Vietnam Business Council for Sustainable Development (VBCSD), and the Partnership for Market Implementation (PMI) enables SMEs to update policies, learn best practices from successful projects, and connect with experts, verification bodies, and government agencies.

Participation in such networks also establishes a peer-review mechanism that helps detect ethical risks and prevent credit fraud, contributing to a more trustworthy carbon market ecosystem.

Illustrative Example

A notable example is an SME in Dong Nai Province producing non-fired bricks. By replacing cement with fly ash, the company participated in an emission-reduction program that fully integrated ESG principles. In its PDD documentation, the enterprise conducted environmental and social impact assessments and set out clear governance regulations on credit ownership between its parent company and branch.

Quarterly internal audits were carried out to review the amount of fly ash used, the production process, and operational logs. Emissions data were transparently published on the company’s website and reported to both the Ministry of Natural Resources and Environment (MONRE) and Korean investors. Moreover, the enterprise actively participated in the VBCSD network, sharing its experience at a national carbon credit workshop.

Because of its commitment to transparency, the enterprise’s project was highly valued by international investors, who purchased its credits at a premium price, 15 percent higher than the market average.