Banks ready to move ahead with Phase II of Thailand Taxonomy

Following last year’s successful launch of the first phase of the Thailand Taxonomy, the reference tool for a sustainable recovery, banks are now ready to move forward with Phase II, pushing green loans to help transition five industries towards achieving Net Zero.

Poonsit Wongthawatchai, head of the Strategic Group 4 Support Team on the Theme of Sustainability at the Thai Bankers' Association, said that Thailand is preparing to enhance climate resilience by adhering to the global commitments made at the COP26 conference in Paris, France.

The country aims to reduce methane emissions by 30% or more by 2030, achieve carbon neutrality by 2050, and reach net-zero greenhouse gas (GHG) emissions by 2065.

The financial sector, in particular, will play a crucial role in supporting businesses and industries in transitioning and aligning with government policies to meet the net-zero goal.

Currently, commercial banks and financial institutions are offering innovative financial products known as ESG Finance or Sustainable Finance Products.

These products, such as green bonds or green loans, were first introduced in 2018 to meet the investment needs of businesses transitioning to new technologies that reduce GHG emissions and ensure the sustainability of their operations in the future.

In Thailand alone, the United Nations estimates that there is an annual need for 400-500 billion baht in investments in industries that will help facilitate this transition.

Phase I of the classification system of economic activities deemed as environmentally sustainable targeted the energy and transportation sectors, which together account for approximately 70% of the country’s total GHG emissions.

Activities are categorised into green (those that reduce climate change impacts with net-zero GHG emissions), yellow (those in the process of reducing emissions), and red (those that do not support the goal of reducing GHG emissions).

“The classification of economic activities with environmental considerations in Phase I is beneficial because it provides clarity on which industries the banks should prioritise for support. Currently, our loan portfolios encompass all three categories, with a significant portion in yellow activities,” Poonsit explained.

In Thailand's energy sector, only about 10-12% of the activities fall under the green category, while 50-60% are classified as yellow, and around 20% are red.

Looking ahead, the Bank of Thailand (BOT) and the Securities and Exchange Commission (SEC) will further categorise economic activities with environmental dimensions. Phase II will cover the construction, real estate, manufacturing, agriculture, and waste management sectors. Together, Phases I and II represent 90% of the country’s total greenhouse gas emissions.

“For sustainable financial products, there is significant demand for raising capital to support green, red, and yellow businesses. Therefore, from the bank's perspective, we offer innovative financial products such as green bonds and green loans. These are highly popular because they clearly align with the goals of listed companies or leading corporations seeking to raise funds or invest in environmentally friendly activities or those classified under the green category."

“Green bonds or ESG bonds were first introduced in Thailand in 2018 with approximately 7-8 billion baht worth of green bonds issued.  The total outstanding amount of sustainability-linked bonds in Thailand has reached 350 billion baht (the outstanding value of ESG or sustainability bonds in the Thai market). While starting from 7 billion baht is a notable achievement, it still falls short of the annual demand of 400-500 billion baht needed for investment. The financial sector will continue to support businesses and industries in this transition,” Poonsit said.