A Thai Recipe for Green Finance: What’s Cooking in the World of Sustainable Finance?

There is a lot cooking in the world of sustainable finance – from shifting reporting standards to new labels for green financial products to evolving taxonomies and green guarantee funds. In Thailand, authorities and market players are adding their own ingredients to the mix to take into account the environmental, social, and governance (ESG) factors when making investment decisions in the financial sector.

Thailand’s Sustainable Progress

The 2024 Global Progress Brief of the Sustainable Banking and Finance Network (SBFN) – a platform for knowledge sharing and capacity building on sustainable financing of which Thailand is a founding member – notes considerable progress in developing and implementing a national sustainable finance framework.

In line with trends across ASEAN, ESG risk management and disclosure has been recognized as key ingredients of sustainable finance – with the Thailand Public Debt Management Office (PDMO) first issuing the sustainable finance framework in 2020.

Since then, continued progress reflects a clear policy direction to promote sustainable finance in Thailand.

In 2021, the Bank of Thailand and the Securities and Exchange Commission (SEC), in collaboration with other agencies, established the Working Group on Sustainable Finance to implement the five key pillars of a sustainable finance ecosystem that supports a low-carbon and climate-resilient economy: taxonomy, data, products and services, incentives, and human capital.

In 2023, the Bank of Thailand issued the Policy Statement Environmental and Climate Change Aspects and has been collaborating with the World Bank team on the modeling of financial risks from flooding.

Taxonomy in Thailand

Marking another key milestone, Thailand introduced the Thailand Taxonomy Phase 1 in July 2023, covering the energy and transport sectors. A set of criteria that help investors determine whether and to what extent a financial asset will support given sustainability goals, we also saw the launch of the second phase of Thailand’s taxonomy, which extended the guidelines to new sectors earlier this year.  

A taxonomy adopts the traffic light approach spelling out what activities fall into fully ‘green’, transitioning ‘amber’ or ‘red’ categories. Challenges going forward for Thailand will be with implementation. More needs to be done on pinning down how to define transition activities for different hard-to-abate sectors and linking the taxonomy to disclosures and green financial products. Thailand will also need to establish a governance framework for updating taxonomies in line with climate science and international best practices.

Reporting and Real-World Outcomes

Sustainability reporting has also been making strides in Thailand. A study conducted by the World Bank and the Securities Exchange Commission (SEC) benchmarking the reporting of ESG factors by listed Thai companies found a good results for large and listed companies – particularly in relation to the governance, or ‘G’ indicators. Still there is a way to go, particularly in supporting reporting on climate issues by smaller firms and more generally in ensuring that corporate disclosures deliver or enable real world outcomes in relation to international and Thai sustainability goals.

Sustainable Bonds

Thailand ranks second in green and other labeled bond issuance among SBFN countries in ASEAN. The first Sustainability Bond was issued in 2020, and in 2022, Thai Union launched Thailand’s first Sustainability-Linked Bond. In 2021, Thai Foods Group launched its first social bond totaling 1 billion Thai baht (US $30.5m), which was the first social bond issued by a non-financial corporate issuer under the ASEAN social bond standards. These milestones are a testament to Thailand's commitment to sustainable finance. And there is still a lot of upside. There have only been around a dozen Thai issues of corporate labeled bonds to date with their annual issuance sitting at around 1 percent of GDP.

Going forward, what recommendations can green finance chefs recommend to add to the Thai recipe?

First, it's crucial for financial institutions to adopt standardized and comparable reporting and disclosure practices to promote transparency and accountability within the financial sector, according to the World Bank Unleashing Sustainable Finance in Southeast Asia report.

Second, with the framework for climate risk management already in place, the next step is rigorous implementation. This requires both regulatory and industry actions to develop practical guidelines, enhance enforcement, incentivize adoption, build capacity, and foster collaboration. One of the key challenges we heard from the Thai financial sector is the lack of capacity, both within institutions and market-level supporting entities. More can be done on the equity side with investment in climate technology lagging behind regional peers as seen in the charts below.

With its abundant natural capital, developed capital markets, credit enhancement tools and supportive policy direction, Thailand has all the ingredients to become as famed for its green finance as it is for its delicious green curries and national cuisine.  The World Bank team here in Bangkok look forward to working with our counterparts to deliver on the country’s green potential.