In recent years, business risks linked to climate change have become increasingly clear, while the impact in other areas, such as biodiversity loss, are only now being recognised. Investment decisions can have a transformational effect on the economy and society, and following the COP26 climate conference in November, financial institutions will have a major role determining Thailand's development pathway going forward.
There is a growing realisation worldwide that economic and social (E&S) risks such as climate change affect business and investment at every level, and it is in the self-interest of investors to actively be part of the solution both for social responsibility and sustainable profitability.
In consultations over the past year, members of the business community have told us that they want to set more ambitious goals for climate action, and that the economy has to move in unison to achieve these targets. In Thailand, this economic transformation is built into the 13th National Social and Economic Development Plan, which takes as a central plank the Bio Circular Green economy inspired by principles of the Sufficiency Economy Philosophy.
With the extreme challenges that we are facing with Covid-19, there is an urgent priority that the recovery and stimulus measures also build on sustainable, climate-friendly foundations for long-term growth. The economic transformation needed to build back from the pandemic is based in the green economy, in areas such as renewable and low-carbon energy generation, electric vehicles and healthcare, as well as digitalisation across every sector.
In September at the Sustainable Thailand Forum, initiated by the Government Pension Fund (GPF) with strong support from the finance minister, 43 financial institutions including asset management companies and banks with total assets of US$1.3 trillion (43.1 trillion baht) committed to action on the Sustainable Development Goals (SDGs) and Paris Climate Agreement. The participants also agreed to consider signing on to the Principles of Responsible Banking (PRB), a collaboration between leading banks and the United Nations for sustainable banking launched in 2019.
At present, the Government Savings Bank and Kasikornbank, jointly representing 22% of banking assets, are the only PRB signatories in Thailand. For its predecessor, the Principles of Responsible Investing founded in 2009, only the GPF is an asset owner signatory. Both sets of voluntary, industry-led principles provide useful frameworks to take into account E&S risks, align operations with the SDGs and plan more ambitious climate action drawing on global resources and expertise.
Financial institutions also tell us that investments based on environment and social governance (ESG) factors have helped them to weather the pandemic, with stocks performing better, more sustainable net returns and increased shareholder confidence. ESG is seen to reduce risk and earn higher rates of return, with improved productivity and efficiency and less waste.
This view is increasingly validated by the data. A recent IMF paper on spending on clean energy and biodiversity conservation in the context of Covid-19 stimulus concludes that green multipliers on investment are 2 to 7 times larger than conventional multipliers, creating jobs and strengthening economies. At present in Thailand, however, there is a shortage of projects and areas of investment in this area, with 146 ESG-rated stocks on the SET.
In November, COP26 marked a long-anticipated milestone in this regard, formalising guidelines for international carbon markets under Article 6 of the so-called Paris Agreement rulebook. Setting a price on carbon is an important mechanism to generate new economic value and incentivise investment and innovation in sustainable technologies.
In Thailand, the Ministry of Natural Resource and the Environment and its partners are working on establishing carbon markets domestically, anticipating major growth in this area. The Bank of Thailand has also been moving with other institutions to develop a practical taxonomy and definitions on green financing and sustainability aligned with international standards.
This is a window of opportunity to develop a regulatory framework in line with global trends and the expansion of carbon markets. The first priority will be to develop the market domestically with a comprehensive view of the economic impacts, with the potential to establish Thailand as a leader in bilateral and regional agreements in Asean. During this process of policy formation, the UN and partners in Thailand need to work together on research and analysis for a granular assessment of what areas need to be addressed, where the opportunities are, and what sectors of the economy will be most affected. These questions are at the core of the 2030 Agenda for Sustainable Development.
We also need to recognise that climate change and biodiversity loss are inseparable as aspects of the same global environmental crisis. Ahead of the UN Biodiversity Conference in Kunming, China in April, the UN Country Team is working with the private sector, civil society, government and academia to raise awareness about conservation and, as an immediate step, identify champions for the nearly 460 species threatened with extinction in Thailand, whose protection in turn safeguards the habitat, communities and economic values upon which we all depend.
This evolving investment environment poses challenges for everyone involved, with an economic transformation that is both inevitable and potentially rewarding for those that take action. Banks, asset managers and investors hold major influence in their decisions in what and where to invest, with the opportunity to align both with the wider objectives of society and long-term financial returns.
Srikanya Yathip, is Secretary-General, Government Pension Fund, Gita Sabharwal, is Resident Coordinator, UN Thailand.