Why SMEs must prepare for the green economy
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Why SMEs must prepare for the green economy

Global trends demand businesses of all sizes transition to carbon-friendly practices, and small firms are requesting more loans to adapt

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With 2024 set to surpass the heat record established in 2023, Thailand is preparing for a series of sweltering years ahead while grappling with a cooling economy.

Despite these challenges, the green economy is burgeoning, presenting unprecedented opportunities for Thailand's small and medium-sized enterprises (SMEs) to pivot and thrive in new market conditions.

Emissions data matter

The EU's Carbon Border Adjustment Mechanism (CBAM) is of paramount importance for Thai SMEs, especially as emissions reporting became mandatory last year for European companies importing products in six carbon intensive industries: aluminium, cement, electricity, fertilisers, hydrogen, and iron and steel.

By the end of 2025, European regulators may include additional products, and by 2026 affected companies will need to start paying a border carbon tax based on the EU emissions trading system's allowance prices. With the EU being Thailand's fourth-largest trading partner and free-trade agreement negotiations expected to be completed next year, the impact of CBAM will likely be profound across the Thai economy.

Thai SMEs have a critical two-year window to align with these changes, a vital step given their deep integration within both domestic and global supply chains.

Sustainability push

Evolving consumer demands are significantly influencing the rise of green industries in Thailand, notably in sectors such as tourism, transport and the built environment.

The 2023 Sustainable Travel Research Report by Booking.com indicates that digitally savvy travellers, especially those aged 26 to 35, are increasingly seeking sustainable tourism options. Nearly two-thirds of these travellers expressed a preference for accommodation with sustainable certifications, and 59% are actively seeking such options for future bookings.

This shift is paralleled by a growing global demand for electric vehicles (EVs), prompting the Thai government to strategically position the country as a manufacturing hub for a wide range of EVs, including passenger cars, trucks, and buses. A commitment has been made nationally for zero-emission vehicles to constitute 30% of all vehicle production by 2030. The introduction of tax incentives for local EV assembly has proven highly beneficial.

Several prominent Chinese EV brands, including Great Wall Motor, BYD, and Hozon New Energy Automobile, are establishing local plants. Notably, Great Wall Motor commenced production of its Ora Good Cat passenger car in January this year, marking a significant milestone in the local automotive industry.

Another sector experiencing rapid growth is green real estate. According to a recent survey by JLL Research, more than 95% of commercial real estate occupiers in India, Malaysia, and Thailand aim to achieve 100% green-certified portfolios. However, there is a noticeable lag in supply, with only two square feet of low-carbon space currently under development for every five square feet demanded.

Leading the charge in Thailand is the One Bangkok project, the country's largest private sector property development, which has achieved platinum LEED certification, setting a high standard for eco-design globally. Additionally, SENA Development is pioneering the integration of rooftop solar panels and electric vehicle charging facilities in residential homes, further advancing the green real estate market.

Regulatory trends

Beyond evolving consumer and supply chain demands, Thai SMEs are poised to navigate an expected tightening of domestic compliance measures as the government shifts focus from brown industries to meet its international emissions reduction targets.

In 2022, Thailand submitted its second Nationally Determined Contribution (NDC), pledging to cut greenhouse gas emissions by 30% to 40% by 2030, and achieve carbon neutrality by 2050, with a goal of net-zero emissions by 2065.

Discussions are progressing on the nation's first climate change bill. If enacted, this legislation would require companies to report their greenhouse gas emissions to a centralised database. The bill also proposes the introduction of three economic instruments: a domestic emissions trading system, a carbon tax and the creation of carbon credits.

Another significant regulatory development is Thailand's National Energy Plan, which aims to transition the nation's electricity production to renewable sources and phase out coal usage. At COP28 last year, the government pledged to increase the proportion of renewable energy in its electricity mix to 68% by 2040, aiming to reach 74% by 2050.

Green imperative

The notable increase in applications for the Thai SME Fund's Decarbonisation Loan underscores a shift towards greener operations among SMEs. This trend is set to continue as the global marketplace evolves rapidly. For Thai SMEs, adapting to these green initiatives is not merely an option but a prerequisite for sustainable growth and long-term viability in the face of global climate challenges.

Far-sighted business owners will recognise the opportunities the green economy presents and adapt accordingly, ensuring they are not left behind in an increasingly environmentally conscious world.

Amporn Supjindavong is head of commercial banking at UOB Thailand

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