Given that Thailand ranks ninth among countries most vulnerable to the impacts of climate change, ensuring sustainability is a long-term challenge for the Thai economy. It is indisputable that Thailand must transition towards an environmentally conscious economy. The critical question lies in how the country can achieve this transition with minimal obstacles and in a timely manner, taking into account all sectors.
Thailand Taxonomy, a classification system that categorises business activities based on their sustainability levels (Green, Amber, and Red), is the result of a collaboration between the financial sector, real sector, and various private and public organisations. It serves as a valuable tool to support Thailand's transition, providing clear indicators aligned with environmental science and the country's specific context.
It is worth noting that Thailand Taxonomy is a dynamic document that will undergo changes and revisions to swiftly adapt to the rapidly evolving global environmental landscape. Moreover, efforts towards a sustainable economy, in line with Thailand Taxonomy, must consider suitable approaches tailored to our economic realities. Since 30 percent of the Thai economy still relies on traditional sectors like petrochemicals and automotive, a gradual transition method would be more beneficial than abruptly discontinuing all carbon-producing activities.
Prakob Phiencharoen, Head of the Corporate and Investment Banking Group at Bank of Ayudhya Public Company Limited (Krungsri), highlights the crucial role of the financial sector in providing sustainable finance to all businesses. He emphasises the need for ESG integration throughout its operations to facilitate green and transition initiatives in a systemic manner.
"As a key partner of Thailand Taxonomy, Krungsri has closely collaborated with the Bank of Thailand and the Thai Bankers' Association to pave the way for sustainable finance. This includes setting loan targets to support transition plans, determining prioritised sectors and appropriate frameworks, and offering green products," explained Mr. Prakob.
He further emphasises the significance of rich data and transparency, stating, "Ideally, each party within the supply chain should possess their own ESG and carbon emission data. This enables banks to gain an accurate understanding of their portfolio, devise loan strategies and other services, and correctly classify each client's activities. In the future, credible data will play an increasingly crucial role."
"Although ESG is a relatively new concept, and many business owners are still unfamiliar with it, sustainability will soon become a prerequisite for operating a business, rather than just a desirable aspect. Without ESG data, even SMEs or small suppliers may lose out to competitors offering more expensive products that meet sustainability standards, especially when dealing with international corporations," Mr. Prakob added.
At a certain point, having access to ESG data will become essential for retaining market share and staying competitive. Therefore, the earlier a company starts incorporating ESG practices, the more opportunities it will have," he expressed.
However, he also acknowledged some challenges faced by the Thai banking industry. "During the transition period, significant capital is required to transform business models towards sustainability. We cannot limit loans only to the 'Green' category to maximise our portfolio. Transitioning also requires investments in the 'Amber' category. While lending to the Amber category may increase exposure to greenhouse gas emissions, it is crucial to assist these businesses in moving towards the Green category. This should be done through mutual performance indicators and assessments that align with international standards. The bank's role is to monitor that each client strictly follows the determined pathway to eventually achieve greener operations."
Currently, Krungsri offers a wide range of sustainable finance products and services, including green bonds and loans, social bonds and loans, sustainability bonds and loans, and sustainability-linked bonds, loans and derivatives. In addition, Krungsri has established its ESG Centre of Excellence, which provides exclusive guidance on sustainable finance.
Mr. Prakob highlighted the advantages of Krungsri's global and local perspectives, as well as its access to insights from MUFG, its parent company. He stated, "While international banks may face limitations in reaching SME or supplier clients, and local banks may lack global exposure and perspectives, Krungsri benefits from MUFG's expertise in sustainability and ESG research across all industries. This allows us to stay updated on ever-changing trends from an international viewpoint and cater to the diverse needs of our clients, even though Thailand's focus is currently primarily on energy and logistics sectors."
He added, "Therefore, we focus on sharing information and experiences, helping clients establish their own ESG frameworks tailored to their specific needs. Krungsri adheres to Thailand Taxonomy and implements guidelines from MUFG and other international standards to prepare our clients for global competition. Most importantly, we view sustainability as a journey. We not only grant loans but also launch bonds, making us stakeholders in our clients' endeavours. Despite the lower margin compared to merely collecting fees from bonds, we are committed to sustainable efforts and aspire to witness tangible changes in Thailand. Building trust and confidence in our clients throughout their long journey is our primary goal."
He further highlighted the long-term benefits of credible ESG data, stating, "In addition to the societal and environmental benefits, credible ESG data will streamline fundraising for our clients in the future. Eventually, it won't be just about bonds or loans; every aspect of good business operations will incorporate ESG elements."
Krungsri's strengths in combining global and local perspectives, along with its unwavering commitment and earned trust, led the bank to receive the "Best Bank for Sustainable Finance, Domestic" award at the Asset Triple A Sustainable Capital Markets Award 2022.
"Krungsri is dedicated to driving the transition towards true sustainability in Thai business sectors through sustainable finance. We are determined to build our sustainable portfolio for the betterment of the country and its people," concluded Mr. Prakob.