Key policies and governance approach

Thailand’s financial sector has made considerable progress towards developing a sustainable finance ecosystem [1]. The Public Debt Management Office (PDMO), under the Ministry of Finance (MOF), has established the Sustainable Financing Framework to generate financing for sustainability commitments and ambitious targets related to climate change mitigation and adaptation. This includes green, social and sustainability bonds and loans as direct investment expenditures, as well as subsidies, fiscal measures, and operational expenditures [2]. In August 2020, the PDMO launched the Kingdom of Thailand’s inaugural sustainability bond, which was very well received from both local and international investors. The proceeds from the bond have been used to support the financing or refinancing of a clean transportation project to help reduce CO2 emissions, i.e., the Mass Rail Transit Orange Line (East), and an employment generation project as part of COVID-19 relief packages. The bond was later listed on Luxemburg Green Stock Exchange (LGX) and received pre and post issuance certification of government sustainability bond (for the MRT Orange Line) from the Climate Bonds Initiative. Since the inaugural issuance, the PDMO has continuously issued sustainability bonds to promote liquidity of the domestic ESG (Environmental, Social and Governance) bond market which is critical to providing a strong foundation for green and social investments in the future [3].

Additionally, Thailand’s Securities and Exchange Commission (SEC), as the capital market regulator [1], has laid out a roadmap for developing a sustainable finance ecosystem in the capital market which covers six foundation areas: the issuer, the investor, the product, the external reviewer, the information platform, and cooperation [3]. Moreover, the SEC’s collaboration with the Stock Exchange of Thailand (SET) and other stakeholders, has been instrumental in positioning Thailand among the recognised leaders in sustainable capital markets, not only in ASEAN but around the world. The SEC participates in the International Organization of Securities Commissions’ Sustainable Finance Network and Sustainable Stock Exchange initiative (Regulator Group) to share experiences and contribute to sustainable finance directions in international forums [1]. 

Leadership has also been shown in the banking sector. The Bank of Thailand has introduced its 3-year Strategic Plan (2020–2022): Central Bank in a Transformative World. Accordingly, financial institutions are encouraged to integrate ESG information into their business and operating models. The BoT is also a member of the Network for Greening the Financial System and subscribes to its key principles. In 2019, the Thai Bankers’ Association introduced Sustainable Banking Guidelines for Responsible Lending under the leadership of the BoT. Under the guidelines, Thai banks are required to establish internal policies and processes to address key ESG risks in their lending activities. Private banks in Thailand have led on green finance by issuing green and sustainability bonds to fund and refinance green assets. Thai banks that have issued green and sustainability bonds are TMB Bank and Kasikorn Bank, for USD160 million. Many banks are also providing green loans and other tools for green projects, i.e., renewable energy and energy efficiency [3].

Thailand’s Three Regulators Steering Committee was formulated by the BOT, SEC, the Office of Insurance Commission (OIC), and MOF in 2017. The Three Regulators Steering Committee is a non-statutory body that provides a regular platform for the three key financial regulators to discuss policy issues. Since the committee’s inception, it has formed working groups to address common issues and/or concerns in which sustainable finance is included. In 2019, the Three Regulators Steering Committee established and mandated the Working Group on Sustainable Finance (WG-SF) to foster and monitor a culture of sustainable finance throughout Thailand’s financial sector. The membership of the WG-SF consists of representatives from the BOT, the Fiscal Policy Office (FPO) representing the MOF, OIC, SEC, and SET [1]. 

Successes and remaining challenges

A Gap Analysis with the support of the International Finance Corporation (IFC) and GBRW was conducted in 2020 to take stock of Thailand’s financial sector policies, as well as regulatory and industry association actions taken to date to promote sustainable finance. The key findings revealed that while Thailand has made striking progress in the early phases of developing their sustainable finance ecosystem, especially vis-à-vis regional peers, there are various “Key Dependencies“ that must be addressed and overcome, if Thailand is to maintain and improve its reputation as a sustainable finance centre of excellence [1]. 

In response, the Working Group on Sustainable Finance jointly established the Sustainable Finance Initiatives for Thailand in August 2021 [3], recommending 5 Key Strategic Initiatives (KSIs) to address those “Key Dependencies”. These KSIs do not represent business-as-usual. Instead, these action programmes are central to transforming the financial sector and delivering the WG-SF’s commitments of fostering and implementing sustainable finance within Thailand’s financial sector, on or before December 2025. The KSIs included are (i) Developing a Practical Taxonomy, (ii) Improving the Data Environment, (iii) Implementing Effective Incentives, (iv) Creating Demand-led Products and Services, and (v) Building Human capital [1]. 

Since these initiatives encompass the entire financial sector, such an undertaking will necessitate successful collaboration among and between government agencies, private sector market participants, international partners, as well as the financial sector regulators and members of the WG-SF. Financial sector regulators must effectively engage with other government agencies in order to enhance the flow of information, ensure the goals of the Initiatives are strategically aligned with Thailand’s national goals, and facilitate and implement the KSIs, pursuant to the work plan and its timeline. Additionally, implementing the Initiatives will necessitate strong collaboration between the public and private sectors, along with the involvement of international development partners, development finance institutions, and NGOs to mobilise their knowledge, expertise, experiences as well as financial resources towards common goals. Furthermore, implementing the Initiatives will also require on-going attention and monitoring to ensure goals and benchmarks are clearly defined, understood, agreed upon, and attained in a timely manner, with the support and cooperation of multi-stakeholder procedures [1]. 

Initiatives and Development Plans

In January 2023, the Bank of Thailand (BOT) and Securities and Exchange Commission (SEC) issued a consultation on a pilot version of a sustainable finance taxonomy. The taxonomy aims to establish a common investment language for the sustainable finance market in Thailand, as well as to help accelerate its development, facilitate the creation of innovative products and services like green bonds, loans and index-linked services and help develop a broader sustainable finance ecosystem in the country. Like the ASEAN Taxonomy, the Thailand Taxonomy uses a traffic light system, with the objectives of the taxonomy largely drawn from the EU taxonomy. The EU taxonomy most closely aligns with the environment-related goals in Thailand’s National Strategy for 2018-2037, including climate change mitigation, climate change adaptation, the protection and restoration of biodiversity and ecosystems, as well as pollution prevention and control. The pilot taxonomy initially focuses on developing screening criteria and thresholds for the climate change mitigation objective, while future versions of the taxonomy will cover the other environmental objectives. The pilot taxonomy is limited in scope to two sectors – energy and transportation – as they account for a significant share of Thailand’s GHG emissions and high energy intensity use. Other sectors will be covered in future versions of the taxonomy [4].