Thai central bank confirms green taxonomy, bank disclosure rules

Bank of Thailand flags risk of 'green bubbles' and banks 'abandoning' companies unable to transition fast enough.

Thai financial institutions will be expected to disclose their plans and targets for green loans to the country’s central bank from 2023.

According to local reports, Bank of Thailand (BoT) official Roong Mallikamas announced the measure this week at the launch of a new position paper setting out the country’s sustainable finance priorities. The aim is to encourage banks to play a bigger role in financing the green transition, particularly for small and medium companies, said Mallikamas.

At the core of BoT’s plans is a transition-focused green taxonomy that will initially cover “industries that lag behind in the transition, especially those that emit large amounts of greenhouse gas”. It will be aligned with the upcoming ASEAN taxonomy and the Climate Bonds Taxonomy and is expected to be released in January 2023.

The supervisor is to separately issue TCFD-aligned climate disclosure standards for banks in Q3 and has said that it will collaborate with other regulatory agencies to encourage disclosure by non-financial companies. It will also begin developing a data platform providing access to relevant environmental datasets from Q4 2022, similar to those being developed by the EU, Singapore and the UK.

With regards to financial institutions, the BoT is to develop best practice guides on climate scenario analysis and stress testing to encourage sector-wide adoption of climate risk management practices and further design of green financial products. These will be due in Q3 2022.

The BoT has previously warned that the country’s reliance on a number of carbon-intensive sectors could “severely jeopardise Thai industries” as a result of environmental policies implemented by developed countries, such as the upcoming EU Carbon Border Adjustment Mechanism.

At the same time, BoT has flagged the twin risks of “green bubbles” caused by “the financial sector pushing too hard to promote eco-conscious businesses” beyond what is justified by their fundamentals, and banks “abandoning” companies that are not able to transition fast enough.

This week’s announcement is the first public update from the BoT on its taxonomy after the initiative was unveiled a year ago, following the lead of regional neighbours Malaysia and Singapore. Thailand’s proposed framework is described as a “a holistic sustainable finance taxonomy”, accounting for broader sustainability criteria, such as economic development and social justice.