Thailand plays catch up with global green finance goals

Banks are calling for legislators to impose carbon tax and a common taxonomy of goals.

Risks are rising as public expectations for net-zero financing intensifies, and most Southeast Asian banking markets are still playing catch up to meet demands. Thailand is no exception despite steady progress in this area. 

As early as 2014, Thailand made public its intention for more green energy to address climate change, with reduction targets eventually set at 20% by 2030. In 2021, Prime Minister Prayut Chan-o-cha pledged to achieve net-zero goals by 2065. More recently, the government is considering a draft of the new National Plan for Economic and Social Development through 2027.

But according to scientists, Thailand’s reduction targets remain critically insufficient. The Climate Action Tracker (CAT)–formed by Berlin-based Climate Analytics, non-profit NewClimate Institute, and the think tank Institute for Essential Services Reform–said that Thailand’s goals do not take into account post-COVID economic trends.

The lack of clear mitigation policies, as well as ongoing structural impediments, make it hard for banks across ASEAN markets and especially in Thailand to make surefire steps to decarbonise finance, local bank executives told Asian Banking & Finance.

“One of the key hurdles for Thailand is that, if you just look from an environmental perspective to address [the] climate change issue, Thailand still has no legislation on carbon emission or greenhouse gas emission,” noted Poonsit Wongthawatchai, executive vice president and head of environmental, social, and governance (ESG) division at Bank of Ayudhya (Krungsri). “The government has not set a quota allowance for greenhouse gas emission. Thailand still has a voluntary system.”

Initiatives are currently on a voluntary basis, such as the T-VER (Thailand Voluntary Emission Reduction Program) by the Thailand Greenhouse Gas Management Organization, which encourages the voluntary reduction of greenhouse gases.

Jason Lee, sustainability lead at CIMB Thai, noted that whilst the government has formed committees and signed agreements pushing ESG initiatives, there is a need to strengthen current sustainability regulations. 

“Current policies need to be ramped up or expanded, more resources mobilised, and new policy instruments introduced,” Lee said.

ALSO READ: Thai bank earnings rise in Q2, but bad loans slated to rise

For example, Lee said that stakeholders should look at whether emissions pricing is in place or if existing emissions pricing is too low; whether support for green investments is insufficient when compared with the scale of decarbonisation efforts required; and whether pollution activities are insufficiently regulated.

Krungsri’s Wongthawatchai also highlighted the need for a carbon tax and a set quota on corporations to better drive the adoption of sustainable activities in the country, banking included.

Structural impediments
Even with the proper legislation, countries could still find it challenging to push for net zero–especially when energy demand is involved. This includes inadequate grid capacity in terms of renewable energy development, according to CIMB Thai’s Lee.

“Policies to create positive effects and the development of renewable energy sources as VAT rebates, fiscal subsidies, tax incentives for innovation, price controls, land allocation policies, demand commitments and compulsory allocation, can all be impeded by limited grid capacity,” Lee said.

In some cases, the lack of grid connections could lead to renewable energy produced going to waste, Lee warned. Meanwhile, many countries still heavily rely on fossil fuels. 

Another structural impediment is the lack of a common set of standards and definitions on ESG and banking.

“One thing is really clear: we need the taxonomy in terms of the ESG financing activity, transaction, and qualification,” Krungsri’s Wongthawatchai said. “This is something that we actually need for us to have a common set of standards and definitions.”

Wongthawatchai believes that transitioning finance also offers banks significant financial and business opportunities going forward. “There'll be a financing gap for those industries that want to transform, to restructure their businesses from brown to green,” he said.

ALSO READ: Data is the bane and boon of addressing sustainable investment gap

Thailand’s car manufacturing industry, for example, is rife for a shake-up. The electric vehicle or EV production industry in Thailand has expressed interest in accessing more green loans, according to Wongthawatchai. This is in line with the government’s goal, which is that 30% of all cars produced in Thailand will be EVs by 2030.

This is also a good idea for Thailand’s future, as car manufacturing industry is one of the key industries of Thailand. We are an auto manufacturing hub, and car manufacturers from Japan, America, and Europe all come here in Thailand. This industry has contributed significantly to our export income for the past two or three decades,” Wongthawatchai said.

“That's also a key milestone that will help further drive automobile manufacturing in Thailand and the production and distribution of sales of electric vehicles going forward,” he added.

Banks on the frontline
Taxonomy or none, banks in Thailand are already moving forward with their own ESG-related financing services in order to meet the rising demand from companies and individuals to access financial products and services that have positive environmental and social impacts.

Bank of Ayudhya has been making waves in this field since 2018 when the market technically kicked off. This is also the time when the country issued its first sustainability-linked bond and eventually loan–and the bank played a role in this issuance. Bank of Ayudhya is reportedly the first Thai bank to develop an ESG council. It also has adopted a carbon reduction plan and an ESG risk management policy that was approved by its board this 2022.

Today, Bank of Ayudhya has a 12 billion baht lending portfolio that it is looking to grow, Wongthawatchai shared.

Outside of loans, wealth management customers have a clear shift of preference for sustainable products, Wongthawatchai observed.

“Right now, about one-third of our wealth management business is in what we call the impact investment or ESG qualified investment. This segment is quite sophisticated in terms of its investment analysis and decision-making process. I believe they also see a very clear correlation in terms of their investment returns correlated to the ESG score of a specific company or a specific industry,” he noted.

CIMB Thailand aligns with its parent company CIMB Group’s sustainability commitments, such as setting Net-Zero targets, phasing out from the coal sector by 2040, having “No Deforestation, No Peat and No Exploitation (NDPE)” commitments, upholding human rights, and mobilizing over US$6.7b (RM30b) towards sustainable finance by 2024.

“This includes wholesale and corporate financing, bonds and capital raising, wealth products, and products that enable inclusion such as sustainable home financing and other products catered for low income groups,” Lee said.