Despite economic challenges, Thailand has emerged as one of the three unique markets, where business executives rank Environmental, Social, and Governance (ESG) efforts as their top organizational priority, along with Germany, according to Google Cloud’s Asia Pacific (APAC) findings.
The results also indicate that ESG initiatives have dropped globally from being the top organizational priority in 2022 to number three in 2023. Taiwan executives have ranked ESG as their third organizational priority, which is consistent with the overall trend, while the business leaders in Japan ranked ESG as their fifth organizational priority.
A crucial corporate concern, sustainability affects everything from clean air and climate change to legal compliance and brand integrity. Some 1476 senior executives from 16 markets, were polled as part of The Harris Poll’s second annual CXO Sustainability Survey, which Google Cloud commissioned. It highlights the precautions that leaders must take to prevent new risks when it comes to sustainability: stagnant progress and a failure to execute.
Thailand hasn’t always been a sustainability innovator. It was only 154th in the Global Sustainability Index just three years ago. But now, the nation is exhibiting genuine climate ambition. These measures are not only lip service. They stand for a sincere attempt to support sustainable development through policies and mere words.
Thailand’s government unveiled “Thailand 4.0” in 2019 to address some of the country’s long-standing economic problems. Heavy industry dependence and the enduring middle-income trap are two of them. It serves as a plan to make the Southeast Asian country a high-income, value-based nation. And within it is a persistent commitment to sustainable growth, whether by emphasizing social well-being, human capital, environmental preservation, or other factors.
The government reintroduced sustainable development promotion in 2020 by introducing Thailand’s ‘Sustainable Development Plan 2030’. This plan included explicit goals for lowering emissions, raising the proportion of renewable energy sources in the energy mix, and encouraging environmentally friendly land use.
There is a movement toward ESG-focused funds and products in Thailand, along with this country-wide focus on ESG elements. Combined with the government’s policies, these developments will probably move the Southeast Asian country toward a better, more sustainable future.
What is ESG?
ESG (Environmental, Social, and Governance) is a framework used to evaluate a company’s or investment’s sustainability and ethical impact. Let’s break down the key components of the ESG.
Any standard ESG effort carries an environmental aspect, thus summarizing a company’s business impact on the environment, including carbon emissions, energy efficiency, waste management, water usage, pollution control, and biodiversity conservation. Companies with strong environmental practices strive to reduce their ecological footprint and promote sustainable practices.
The social component of ESG refers to a company’s treatment of people. It encompasses labour standards, employee well-being, diversity and inclusion, human rights, community relations, customer satisfaction, and product safety. Socially responsible companies prioritize fair and ethical practices, respect for human rights, and positive community engagement.
Then arrives the governance element, which refers to the systems and structures that guide and oversee a company’s operations. It includes corporate ethics, transparency, board independence, executive compensation, shareholder rights, and risk management. Strong governance practices ensure accountability, fairness, and integrity within a company’s decision-making processes.
Investors, asset managers, and other stakeholders use ESG criteria to assess companies’ sustainability and societal impact. It helps these parties to set the long-term viability and ethical performance of investments and aligns with the growing interest in sustainable and responsible investing. ESG considerations are also increasingly integrated into corporate strategies as companies recognize the importance of environmental and social factors in maintaining their social license to operate and attracting investor interest.
Decoding Thailand’s ESG necessities
The Southeast Asian country is now emphasizing ESG principles across all of its industrial sectors. The country has introduced various policies and guidelines to encourage corporate entities to align with global ESG standards. Although a unified legal framework on ESG has yet to be established, stakeholders are witnessing a significant shift in corporate behaviour, reflecting the growing importance of ESG considerations. This article highlights the latest developments in Thailand’s ESG landscape, specifically in policy development, finance, and environmental conservation.
Thailand has been making significant progress in developing its ESG policy framework, which consists of non-mandatory guidelines that enterprises can observe. Despite the fragmented nature of these guidelines, several key updates have been implemented, either as legally required measures or as voluntary guidelines for action.
The Bank of Thailand (BOT) has introduced the policy on ‘Business Operations of Financial Institutions’ in consideration of ‘Environmental Perspectives and Climate Change’. This policy encourages financial institutions to integrate environmental considerations into their operations, governance, strategy, risk management, and disclosure. Financial institutions are expected to adopt this policy to manage risks, attract investors and customers, and contribute to long-term business viability.
The BOT is also preparing a draft Thailand Taxonomy, a common framework for classifying economic activities aligned with sustainability goals, which is expected to play a crucial role in Thailand’s green financing market and align the country’s standards with international benchmarks.
The Securities and Exchange Commission (SEC) in Thailand actively promotes the issuance and sale of environmental conservation bonds, including green, social, and sustainability bonds. These bonds are subject to specific regulations and disclosure requirements to ensure they finance sustainable projects. The SEC has also established rules and guidelines for Sustainable and Responsible Investing (SRI) funds, offering fee exemptions for ESG-related bond issuance and establishing SRI funds in 2023.
Thailand has seen progress in other ESG-related areas as well. The Equator Principles, a risk management framework for financial institutions, have gained traction in the country, with the Siam Commercial Bank becoming the first bank to join. Other financial institutions may consider similar principles when investing in projects. Additionally, although recent and non-binding in Thailand, the global guidance on Human Rights Due Diligence (HRDD) from the United Nations Development Programme encourages companies to examine their human rights commitments within the worldwide supply chain, reflecting increasing stakeholder expectations.
Thailand’s voluntary emission reduction program, known as the T-VER Program, allows projects to generate carbon credits that can be used to offset emissions or sold to businesses. The program recently introduced the T-CER premium standard, incorporating international methodologies, although approval and verification for T-CERs are still pending.
These developments highlight Thailand’s commitment to sustainable development and responsible business practices. While a unified legal framework is yet to be established, the country is taking important steps to encourage corporate entities to align with global ESG standards.
These policies and guidelines, along with the introduction of various initiatives in the financial sector and efforts to address environmental conservation and human rights, demonstrate Thailand’s dedication to advancing its ESG agenda. By embracing ESG principles and incorporating them into their operations, businesses in Thailand can enhance their long-term financial performance, manage risks, attract investors and customers, and contribute to a more sustainable and prosperous future.
What are the implications?
The ESG framework represents the company’s actions and effects on society, the environment, and corporate governance. These three elements largely influence all organizations’ long-term financial performance and sustainability. For some firms, implementing an ESG framework and incorporating ESG principles into business operations might take a lot of work. Adopting an ESG framework and incorporating ESG considerations into operations can take time for businesses, despite the positive response from society when corporations support ESG measures.
The lack of agreement and consistency in ESG reporting and measures significantly hinders ESG adoption by corporate organizations and tiny and medium-sized businesses. ESG factors are intricate and multidimensional. When looking at the big picture of ESG, stakeholders may have different viewpoints on what is relevant.
For instance, information on fuel, power, and water use should be included in the ONE Report by the Stock Exchange of Thailand (SET) as information on clean energy, renewable technology, and other related innovations (if any). If a company is unfamiliar with the global sustainability reports standard, such as GRI, TCFD, or CDP, it may initially need clarification.
Another barrier to implementing an ESG framework for small local enterprises is data management, such as the expense and difficulty of collecting and evaluating ESG data. However, many companies need more staff or the tools necessary to put in the substantial work required to gather and analyze ESG data.
ESG data can often be confusing and challenging to understand, and there might be discrepancies between different data sources. As a result, businesses could find it difficult to gather and analyze reliable ESG data, making it challenging to evaluate their ESG performance precisely.
Business companies must strike a balance between traditional business goals and ESG issues. Benefits and doing the right thing for business entities cannot be compromised. Investments in renewable energy, for instance, may be viewed as having long-term ESG benefits, but they may also be expensive and hurt short-term profitability.
Due to their perception that investing in ESG projects may harm their financial performance, firms may be reluctant to do so. Some organizations have shown how they manage this difficult issue by cooperating with local and international partners, utilizing technology, and sharing resources and responsibilities.
In Thailand, where wealth disparity is considerable and social unrest is a concern, social considerations and the interaction between business and society are especially crucial. By implementing fair labour standards, going through individual human rights due diligence procedures, fostering diversity and inclusion, and cooperating with local communities, many Thai businesses are working to improve social conditions.
Several challenges continue to be unaffected by the social efforts taken by enterprises. These include promoting real skills for individuals with impairments, same-sex marriage, and welfare for LGBTIQ+ in a genuine way. It is clear that the Thai government has also put into practice a number of steps to support social sustainability, including adopting policies to combat poverty and inequality, forming a social assistance system, and promoting education and healthcare. The business sector must collaborate with important players like SET and the local government to pursue these challenges beyond general social issues.
To complete their ESG initiatives, businesses in Thailand must work with various stakeholders. For most companies, dealing with governance issues takes a lot of work. Formal systemic corruption and a lack of openness are the main impediments to improving governance. By implementing high ethical standards, encouraging transparency and accountability, and assuring adherence to legal and regulatory obligations, many Thai businesses are working to strengthen corporate governance.
The formation of the ‘National Anti-Corruption Commission’, the application of corporate governance rules, and the development of policies to support accountability and transparency are just a few of the steps the Thai government has taken to promote good governance.
There are several reasons why Thai organizations should adopt an ESG framework and incorporate ESG considerations into their operations, despite these systemic and structural constraints.
First, investors are becoming more interested in ESG factors. They will be more drawn to companies with great ESG performances. Second, customers, particularly the younger generation, are placing a greater emphasis on ESG factors. Companies that emphasize ESG considerations may be better able to draw in and keep customers. Adopting an ESG framework will be advantageous for an organization’s financial situation. It may put it in a better position to manage ESG risks, including climate change, social unrest, and legislative changes.
Thai businesses must develop ESG strategies, action plans, and reporting systems that are transparent, consistent, and in line with the standards set by their stakeholders and the best practices in their respective fields. This will promote greater comparability and transparency in Thai business. Additionally, it will be simpler for consumers, investors, and other stakeholders to understand the benefits of ESG performance.
Thai businesses from various backgrounds and industries should invest in the skills and resources needed to manage, gather, and analyze reliable ESG data. Handling the collection and analysis of ESG data can entail creating agreements with ESG data providers or engaging specialized ESG personnel. For some businesses, the procedure can be a long and difficult one. It will undoubtedly enhance our performance, relationships with stakeholders, and reputation in the neighbourhood.
Thailand has become noteworthy in adopting ESG principles. Despite economic challenges, Thai business executives rank ESG efforts as a top organizational priority, indicating a genuine commitment to sustainable development. The government’s introduction of initiatives like ‘Thailand 4.0’ and the ‘Sustainable Development Plan 2030’ demonstrates a persistent commitment to sustainable growth and environmental preservation.
Thailand’s ESG landscape is evolving through policy developments in various sectors. The Bank of Thailand and the Securities and Exchange Commission have introduced guidelines and regulations to encourage financial institutions and corporations to integrate environmental considerations, climate change mitigation, and sustainable practices into their operations and investments. The adoption of ‘Equator Principles’ and the focus on human rights due diligence further reflect Thailand’s progress in embracing ESG principles.
While challenges remain, such as the need for more consensus and consistency in ESG reporting and the difficulty of collecting and evaluating ESG data, Thai businesses can harness the benefits of ESG. By balancing traditional business goals and ESG issues, organizations can mitigate risks, attract investors and customers, and foster long-term financial performance and sustainability.
The importance of ESG considerations is growing globally, with investors and customers increasingly valuing companies demonstrating strong ESG performance. Thai businesses must collaborate with stakeholders and develop transparent ESG strategies, action plans, and reporting systems to meet their expectations and align with international best practices.
By embracing ESG principles, Thai organizations can contribute to sustainable development and responsible business practices, enhance their financial performance, manage ESG risks, and improve their relationships with stakeholders. With continued efforts and investments in ESG data management, Thai businesses have the potential to foster a more sustainable and prosperous future for the country and its communities.