Dr. Kampon Adireksombat, First Senior Vice President and Team Head of SCB Chief Investment Office at Siam Commercial Bank, has shed light on the establishment of central standards pertaining to Environmental, Social, and Corporate Governance (ESG) in major regions across the world. These standards provide clear and transparent guidelines for categorizing various economic activities, with a particular focus on environmentally sustainable businesses, often referred to as Green Taxonomy.
Individuals and entities operating within the Thai capital market must grasp and implement these standards as they play a pivotal role in aiding those interested in ESG investments or funds. This includes investors and financial institutions seeking to make informed decisions about allocating funds to projects. These standards also empower stakeholders to assess the alignment of projects with ESG principles. Furthermore, listed companies engaged in fundraising for specific projects can leverage these standards to convey their commitment and dedication to ESG principles. This not only provides clarity but also serves as a signal to potential investors and financial institutions, demonstrating the seriousness with which the project addresses ESG considerations.
The SCB CIO has conducted a comprehensive analysis of Green Taxonomy standards across different countries, including the EU, ASEAN, and Thailand Taxonomies. The research highlighted the EU Taxonomy as a global benchmark in Green Taxonomy regulations. It came into effect in July 2020 and serves as a definitive legal framework categorizing economic activities. The EU Taxonomy emphasizes environmental sustainability and the ambitious goal of achieving net-zero carbon emissions by 2050. The framework prioritizes actions to mitigate climate change, adapt to its effects, sustainably manage and protect water and sea resources, transition to circular economies, prevent and control pollution, and safeguard biodiversity and ecosystems. A key objective of the EU Taxonomy is to combat greenwashing by providing clarity to participants in the capital market, enabling them to confidently invest in sustainable assets. Additionally, it outlines disclosure obligations for companies and financial market participants to ensure compliance with taxonomy-related requirements.
When it comes to the ASEAN Taxonomy, it differs from a formal law; rather, it assumes the role of a central standard intended for member countries within the region to adapt and implement their own taxonomy laws or regulations. Its objectives closely parallel those of the EU Taxonomy, with a specific emphasis on supporting the commitments made by ASEAN nations in alignment with the Paris Agreement and other national agreements. However, the ASEAN Taxonomy lacks explicit provisions addressing the protection of water and sea resources and the prevention and control of pollution.
In contrast, the Thailand Taxonomy sets forth six distinct objectives geared toward fostering environmental sustainability: 1) Mitigating climate change challenges; 2) Adapting to climate change impacts; 3) Ensuring the sustainable utilization of water resources; 4) Preserving and restoring biological diversity and ecosystems; 5) Preventing and controlling pollution; and 6) Promoting the sustainable utilization of resources and transitioning toward a circular economy. Thailand's taxonomy explicitly delineates economic activities that contribute to these environmental objectives, particularly in the areas of avoiding, reducing, and supporting the reduction of greenhouse gas emissions. Of particular note is the initial focus on the energy and transportation sectors, jointly responsible for nearly 70% of the total carbon emissions. Thailand has committed, in accordance with its pledge at the 26th UN Climate Change Conference, to achieving carbon neutrality by 2050 and reaching net-zero greenhouse gas emissions by 2065. Within this framework, SCB has also established targets to attain net-zero greenhouse gas emissions from its operations by 2030 and from its loans and investments by 2050.
The Green Taxonomy is expected to incentivize listed companies to realign their operations with the taxonomy's objectives. Meanwhile, large financial institutions may need to emphasize competitive interest rates and provide support to companies issuing debt instruments for activities in line with the taxonomy. In order to comply with the Sustainable Finance Disclosure Regulations of the European Union, institutional investors will need to incorporate the taxonomy into the design of financial products. This includes investing in activities that align with taxonomy principles and offering funds that take into account Environmental, Social, and Governance (ESG) factors. For retail investors, an increased focus on environmentally friendly financial products will likely prompt service providers to revise their investment portfolio management requirements and advisory services to incorporate sustainability considerations. This shift may involve accepting higher levels of risk and offering products that align with the taxonomy's objectives, thus facilitating greater accessibility to retail investors for companies whose economic activities align with the taxonomy.
Source: Siam Commercial Bank