On the role of promoting environmental, social and governance (ESG) standards in the local capital market ecosystem
What measures has SET taken to support listed companies’ compliance with ESG standards?
PAKORN PEETATHAWATCHAI: Sustainability reporting and ESG compliance is a niche area of strength for Thailand’s capital market. Our ESG journey was kick-started by the 1997-98 Asian financial crisis, which highlighted a range of corporate governance (CG) challenges. We first worked to develop regulations and set up infrastructure to embed good CG in Thailand’s business community. This included requirements for independent directors and audit committees to promote check and balance systems among listed companies in the 1990s; the establishment of the Thai Institute of Directors, a dedicated body for improving director professionalism and CG practices, at the end of that decade; the 2001 commencement of CG assessment reporting; and the 2004 launch of CG awards to highlight examples of best practices.
Moving towards social impact, we began to promote corporate social responsibility (CSR) from 2007, inaugurating a CSR institute to promote best practices among listed firms. In 2012 we issued CSR reporting guidelines and encouraged assessments via the ASEAN CG Scorecard. Between 2012 and 2019 our score improved from 67% to 96% – the highest in the region for six consecutive years.
Starting in 2013 we targeted the integration of sustainable development (SD) practices – rounding out the third ESG element. We released SD guidelines for each industry and encouraged listed firms to undergo sustainability benchmarking as part of the Dow Jones Sustainability Indices. In 2014 SET became the first ASEAN exchange to join the UN Sustainable Stock Exchanges initiative, and developed the Thailand Sustainability Investment (THSI) list of sustainable stocks the following year.
These efforts continued with the 2018 launch of the SETTHSI Index; the release of a corporate sustainability guide for Thai listed companies; and the introduction of an integrated 56-1 One Report by the Securities and Exchange Commission (SEC) in 2020. Effective FY 2021, the 56-1 One Report requires ESG disclosures from listed firms and greenhouse gas emissions disclosure from companies that are seeking to list. This is expected to be key in supporting Thailand’s ESG performance and sustainable investing over the coming years.
How would you evaluate the performance of Thailand’s ESG-rated stocks and bonds, and to what extend is demand for ESG-compliant investments rising?
PAKORN: When we first began promoting ESG-compliant investments, we were met with little interest. We attributed this to a lack of clear data to showcase the economic benefits of ESG investment, and perhaps limited clarity as to what constitutes a sustainable or ESG-compliant investment. The launch of the THSI list and, subsequently, the SETTHSI Index, was designed to address this. Our most recent data, comparing returns for the SETTHSI Index with the broader SET and SET100 indices from April 2020 to April 2021, underscores the economic benefits of these investments: the group compliant with ESG standards outperformed the other two indices on every data point.
As of May 2021 Thailand was home to CG and ESG assets under management totalling BT54.8bn ($1.7bn) across 50 funds – up from 23 funds in 2019. Meanwhile, of the BT187.1bn ($5.9bn) raised in green, social and sustainability bonds since 2018, BT136.4bn ($4.3bn) was raised in 2020 – 83% from the government and the remainder from development banks and private players. This rising demand, in a move to manage risk and generate returns, has been complemented by growing supply and promotion: supply from ESG-compliant businesses aiming for resiliency and sustainable growth, as well as promotion from regulators highlighting investment opportunities with good CG and SD practices. Indeed, the pandemic has been a catalyst in shifting the view of ESG compliance from a luxury to a requirement in the new normal.
In what ways can enhanced standard-setting and regulatory mechanisms overcome the remaining barriers to improved ESG performance?
PAKORN: A multi-stakeholder approach is crucial for enhanced ESG performance – not only in Thailand, but around much of the globe. This can also help to address the standout incumbent challenge: access to reliable, wide-ranging ESG data. For example, the 2020 update to the 56-1 One Report established clear ESG standards and triggered online and offline capacity-building programmes to support listed firms’ compliance. SET is developing an ESG data platform with a structured template to promote the availability of comparable data, maximise value added from corporate sustainability disclosures, and foster collaboration between the business value chain and stakeholders. This is expected to support Thai companies along their ESG journey in an economically sustainable way, result in a greater number of sustainability-focused products and services, drive sustainable investing in the Thai investment community and ultimately “make the capital market work for everyone”, as outlined in the SET’s vision.
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