Thai companies that act on environmental, social and governance (ESG) issues are more likely to attract foreign direct investment (FDI), according to PwC Thailand.
While ESG is not yet a make-or-break issue for Thai investors, companies need to integrate ESG factors into their corporate strategy if they want to draw major foreign investors, said Chanchai Chaiprasit, CEO of PwC Thailand.
"Although it is still early days for foreign institutional investors to use ESG as part of their investment strategy when investing in the Thai stock market, one of the most common questions we've heard from those looking to make direct investments is what Thai companies have done in relation to ESG," he said.
"There is a great appetite to increase investment in companies that are serious about ESG, showing the issue now presents both opportunities and risks for those who aren't prepared for it."
Some 49% of investors who participated in the "PwC 2021 Global Investor ESG Survey" said they would be willing to divest from a company that wasn't taking action on ESG issues.
The survey captured the views of 325 investors globally, primarily asset managers and analysts with investment firms, investment banks or brokerage firms with a combined US$11.6 trillion in assets under management.
More than half (59%) also said a lack of action on ESG issues made it likely they would vote against an executive pay agreement. A large majority, 79%, said a company's performance in managing ESG risks and opportunities is pivotal to their investment decisions.
While most investors said they were likely to take action if companies fail to address ESG issues, most also didn't want a company's actions on ESG to significantly affect their investment returns.
Some 81% said they would accept no more than one percentage point less in investment returns from businesses that pursue ESG goals. Nearly half, 49%, were unwilling to accept any reduction in returns, it said.
The focus on ESG issues is placing more importance on ESG reporting, which must clearly show progress toward ESG goals, in the view of 83% of survey respondents.
Although regulators have been pushing for greater disclosure from listed companies on ESG performance, ESG reporting in Thailand is limited and still only done by large SET-listed companies, PwC has noted.
Chanchai Chaiprasit, CEO of PwC Thailand
SUPPLY CHAIN ISSUES
Mr Chanchai said he is seeing a rising trend of direct investment from foreign investors. Even if they don't ask specifically for a sustainability report, those who want to acquire Thai businesses -- particularly in the manufacturing sector -- are interested in businesses with ESG goals.
"ESG plays an important role for businesses in the manufacturing sector that are part of a supply chain, especially those connected to the European Union," he said. "This is because of EU laws governing supply chain due diligence. If companies in this sector don't comply, they'll find it difficult to trade with EU partners."
Companies that haven't yet implemented ESG strategies need to research the area and study what leading global companies are doing, he said.
"Businesses in a supply chain or with business partners in Australia, the US or Europe, where ESG is taken very seriously, should immediately put an ESG plan in place," he said. "If you're a company that wants to invest or sell securities abroad, it's crucial to have a clear ESG strategy.
"Going forward, foreign investors or foreign investment funds are likely to divest or invest less in companies that don't have an ESG strategy, especially those in a supply chain."
As ESG has become a top business priority that needs immediate action, senior management must communicate to the rest of the company how ESG affects the future of the business, and the company's strategy in this area.
This includes adopting measurements that follow recommended ESG reporting standards to increase the chances of generating long-term sustainable returns and responding to changing investor needs, said Mr Charnchai.