Thailand to develop sustainable finance taxonomy and ESG disclosure rules

Initiative seeks to tap into global appetite for green investments, but regulators criticise ‘profoundly complicated’ landscape for reporting standards

Thailand has become the latest Asian country to embark on the development of a sustainable finance taxonomy, following in the footsteps of regional neighbours Malaysia and Singapore.

The initiative, announced yesterday, will be coordinated by a regulatory-led working group comprising the country’s central bank, stock exchange and departments for securities and exchanges, insurance and fiscal policy.

Unlike the EU’s pioneering green taxonomy, which currently focuses on environmental criteria, 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.

Regulators said that the development of such a taxonomy was “a critical factor for countries seeking access to the growing international pool of green capital to complement local sources”, but noted that it would also have to be cost-effective and “tailored to the precise needs of the nation”.

In addition to the taxonomy, the working group will establish an ESG reporting standard to bridge sustainability data gaps in the country. The group said that it might consider “a lighter-touch or voluntary approach” in the early stages of the roll-out; and a hybrid of mandatory and voluntary requirements, through which companies and financial institutions will have to report against core ESG indicators and can choose to disclose additional data when appropriate.

As part of the disclosure plank, the Bank of Thailand indicated that it may begin developing sector-wide climate stress tests and scenario analysis, before rolling out mandatory modelling across banks and other regulated financial institutions.

However, Thai regulators criticised the plethora of parallel and competing sustainability initiatives currently in the market, saying that it made choosing a single global reporting standard for alignment “profoundly complicated”.

The focus on ESG reporting builds on an existing initiative by the Stock Exchange of Thailand (SET) to improve investor access to sustainability data. Over the past year, SET has inked agreements with data houses VE, MSCI and Arabesque to provide free ESG ratings and commentary to market participants.

Other policy measures being considered by the national working group  include new incentives to support the demand for sustainable finance products, reducing regulatory roadblocks for such products and educational programmes for finance sector professionals on sustainability.

No timeline has been specified for the project.

Separately, the Bank of Thailand has announced that it will ask Thai banks to account for ESG risks when determining the amount of capital buffers needed to offset potential risks and losses. According to the supervisor – which is a member of central banking body the Network for Greening the Financial System – financial institutions need to pay more attention to ESG risk factors to ensure their long term stability.

This does not mean that banks will automatically have to increase their capital buffers, the central bank said; only to ensure that all forms of risk are adequately managed and accounted for.

The updated policy will come into force from January 2022 and will only apply to commercial banks.