- ASEAN needs around $200 billion of annual investments in green projects in response to climate change.
- ADB has supported Southeast Asia in mobilizing capital at scale for green projects.
- ADB supported Thailand’s sustainable finance ecosystem by designing green, social, and sustainable bond frameworks for public and private issuers and, in partnership with the Climate Bond Initiative, established a local green bond verifier.
ASEAN needs around $200 billion of annual investments in green projects in response to climate change. How the countries mobilize capital at scale is crucial. In Thailand, the development of a sustainable finance ecosystem is one of the priorities that allow the country to leverage capital for environmental, social, and governance (ESG) investment projects.
To build an ecosystem for sustainable finance, key stakeholders from both the demand and supply sides of the capital market need to move forward in the same direction. Policies and guidelines from regulatory bodies, sustainable financial products such as green and social bonds, and investor awareness on ESG are among the main factors of ecosystem development.
In addition, partnerships with international institutions such as ADB and the Climate Bond Initiative helped strengthen the ecosystem. The technical support contributed to an establishment of a local green bond verifier for Thai green bond issuers. A social bond framework development to support low-income households is another good example of support from international institutions.
Focus: Sustainable Finance
Building of Sustainable Finance Ecosystem in Thailand
Hello, and welcome to the ADB Thailand Times, a series of conversations about sustainable finance. In the last episode, we talked about how ADB helps set up a sustainable finance ecosystem in Thailand. Today, we will have an opportunity to deep dive into how that ecosystem is being built. Joining us today are two very special guests. Let me first welcome Khun Jomkwan Kongsakul, Assistant Secretary-General of the Securities and Exchange Commission of Thailand. Sawasdee Krub Khun Jomkwan. The second guest, I would like to welcome Khun Kosintr Puongsophol, the Financial Sector Specialist from the ADB. Sawasdee Khap. Okay, how are you guys doing today?
Deputy Secretary General (Former Assistant Secretary-General)
The Securities and Exchange Commission of Thailand
Really good for me. Thank you.
Okay. If I may have Khun Kosintr take the first question. In the last episode, we were talking about sustainable finance with Khun Anouj. I have a sense that this segment is something that's up and coming. A lot of people are paying attention to it. But we didn't have a chance to really deep dive into what that sustainable financing or sustainable finance is all about, right? Can you give us a little bit of what sustainable finance is, and why is it so important for us to take a look at it and participate in it, now more than ever?
Financial Sector Specialist, Asian Development Bank
Okay, so sustainable finance is all about how we allocate the capital or allocate the investments to projects or to investments that contribute positively to the environmental and social development. So, you might hear about ESG - environmental, social, and governance. So, ESG can be incorporated by all kinds of stakeholders. And today, we'll talk about how the capital market can support sustainable finance market development. So, from investors’ point of view, it's a matter of integrating ESG into the investment-making decisions. They will be looking at investing opportunities in companies that issue all kinds of securities, that consider environmental and social, for example, green bonds, social bonds. And, of course, from issuers' point of view, the one who issues the securities, is about how to integrate ESG into the business operations. For example, when they come up with new projects, how do they assess whether that project has an impact on the environment or how that project has an impact on the social or the neighborhood where they are operating in. So, it's just a matter of ensuring that whatever they do, whatever the investors do, whatever the issuers do, whatever we do, actually contribute positively to the environmental and social development.
And to your second question. Why it is important right now? Why is it very, very urgent right now? My short answer is because there are lots of massive investment needs. It is estimated that for ASEAN itself, we need about $200 billion of annual investments in green projects. And where do we get the money from? The government has limited capacity. They can allocate a certain portion of their budget for infrastructure development. So, it is important that we also mobilize the funding or the capital from the private sector. How do we do that? So, it's just a matter of making the project, making the instruments more financially viable, that can attract investment from the private sector. How MDBs like ADB can provide a support to the ASEAN and governments and also to the ASEAN corporate issuers, to make sure that sustainable finance is sort of mainstream. And this is super important because, as I said, there are a lot of funding needs, and we don't have the money, right? So, we just need to make sure that we can mobilize the capital. And also, at scale, I think the key word is at scale, because we don't have much time left. We cannot afford to invest or to consider project by project. What we really need to do is how we can mobilize the funding so that it can support multiple projects at the same time.
Thank you very much. The second question is to Khun Jomkwan. What I heard just now is that this is all about mobilizing financial resources, for the investor and issuers so that they can interact and invest and build some kind of impact, positive impact, to society, particularly because of climate change, right? I'm pretty sure that by ensuring that all these players are coming together and working together, the ecosystem cannot be built by default, but has to be by design. If one were to build an ecosystem for sustainable finance, how would one start, and who should be part of it?
For SEC Thailand, I would say that the sustainability agenda has been our top priority and our key flagship. But of course, we cannot do this alone, we need the actions of our key stakeholder in the course in the ecosystem to move towards the same direction. So, for SEC Thailand, what we have done so far is that we try to strengthen the key drivers, both in terms of supply and the demand sides to strengthen the sustainability ecosystem. Starting from the supply side, we have what we call the CG code, the corporate governance code, to help our listed companies to understand and build up their own corporate governance in their companies. And also we require them to disclose, as Khun Kosintr just mentioned earlier, that we require them to disclose the ESG responsibilities on their annual report. We call that the One report. And on that report, they have to disclose how they integrate the ESG responsibilities in their business strategy and also the operation. And also, last but not least, we encourage the firms to, you know, issue ESG bonds. Talking about the green bond, social bond, sustainability bonds, and also the SLB, the sustainability-linked bond, not only we waive the related fees, but we also have a person like ADB, and also CBI, supporting us on providing the technical assistance for our local reviewer. So thank you ADB for that. For our local firms, the overseas reviewers are quite expensive for them, and they are very hard to find, and very hard to access. So, with that helping, I think it's very good for our local firms to issue those kinds of bonds. And, you know, that's on the supply side.
Strengthening the supply side alone is useless if investors don't care about that. We need the market force from the investors, we need the demand from the investors. So, what we have tried to do is that we have the investment stewardship code for the institutional investors, and we encourage our institutional investors to adopt this code. They have to do some kind of integrating the ESG factors in the investment decision-making process. And also, we need to create visibility for the ESG products, the ESG bonds that I just mentioned. So, we have the Thai Bond Market Association that helps us on providing the visibility, the bulletin platform where the demand can meet with the supply, so that our investor can find insight and in-depth information about the ESG bonds on that platform. That's what we’ve done for the demand side. So, in conclusion, I think we have observed a remarkable milestone on both the demand and the supply side of our ecosystem.
Having heard from Khun Jomkwan, there seems to be a lot of early achievement that the regulator has accomplished so far, from giving out the right directions, clear directions, guardrails, and standards, and even creating opportunities for matchmaking. For ADB, could you give us a few examples of real-life products that are already in the market and how does ADB actually help promote those products?
I agree that we have seen that the regulators have already done a lot. Some of those activities that we are currently doing is actually aligned with the SEC policies. For example, we collaborated with the local credit rating company, called Tris Rating, to become a local green bond verifier for Thai issuers issuing bonds in Thailand. And we think that this is very important because often the case for Thai companies to issue a green bond or social bonds, they would need to engage international reviewers, and of course, they need to speak in English, they need to provide all the documents or the evidence in English, which could be cumbersome for them. So, having someone on the ground working in the same country, in the same time zone, speaking the same language that can help them throughout the issuance process, I think that'll be very useful. And we are thankful to Tris Rating for agreeing and also for the effort to become the first local green bond verifier. And, of course, they are accredited by the Climate Bonds Initiative. So, this is very important because with that we can incorporate or we can import international practices into the local markets. So, I think that is very important, and we have been working with SEC and Tris Rating for the past few years.
And another example that I would like to share is our work with the Government Saving Bank (GSB), to issue a social bond in June this year (2022). So, I would say that there are two key elements to this: we support the GSB with the framework development because the GSB is almost a pure play social bond issuer where most of their products are to support low-income households to address informal debt issues and also provide very competitive interest rate loans to small income or low-income earners. So, we helped them with the framework, and at the same time, we also discussed with the GSB whether they could provide some sort of social deposit schemes for the existing depositors, because, as you may know, issuing bonds, bond is mainly for large investors, institutional investors, and high net-worth investors. But how about individual depositors, individuals like us, some of them may want to be part of that journey, some of them may want to contribute to environmental and social development. They don't have the products. So, for a bank to come out with social deposit products for the existing customers, where the bank promises that those deposit will only be used to support social projects. So, this could be another area, hopefully to see in the local market.
Having heard all these wonderful conversations, I personally feel that finally the sustainable bond market, or (what) we call the ESG bond market, is firmly established in Thailand and probably across Southeast Asia as well. Key to it is the ability to mobilize all the financing to help advance our sustainable goals, and most importantly, help everybody in this part of the world able to mitigate against climate change, and also adapt to the climate change as well. So, thank you so much for your time and all the knowledge you passed today. Thank you