Thailand: Environmental sustainability - A new demand in today's business world

In brief

In today's business climate, companies are increasingly challenged to assess the risks that their businesses contribute to environmental sustainability, particularly around climate change, driven by either evolving regulations, investor and consumer pressure, or the need to stay competitive in the market. It is no longer sufficient to evaluate a company's success solely on its financial profitability, and it's also necessary to observe if businesses have fundamentally contributed to sustainability and sustainable development as a whole.


Contents

Global developments in sustainability continue under the United Nations Framework Convention on Climate Change, with the Paris Agreement from 2015 the primary global agreement to tackle climate change. The latest meeting in Glasgow in late 2021, COP26, focused on pushing countries to enhance the pledges made under the Paris Agreement. A wide range of decisions were reached, which included the reduction of the use of coal, minimizing deforestation, reducing methane gas emissions and providing the necessary financial support for developing countries. The Glasgow decision also calls on countries to “revisit and strengthen” their 2030 targets by the end of 2022 to align them with the Paris Agreement’s temperature goals. Thailand has pledged at COP26 to reach carbon neutrality in 2050 and reach net-zero greenhouse gas emissions by 2065. For more details, we have discussed the "E" in Environmental sustainability in our YouTube video series "Sustainability Moves".

In the context of Thailand, although there have been efforts in this direction, there are no mandatory carbon targets, actions, or schemes imposed as of yet. All undertakings are on a voluntary basis. For example, Thailand Voluntary Emission Reduction Program (T-VER) was introduced in 2013 by the Thailand Greenhouse Gas Management Organization (TGO) as a voluntary scheme to encourage the voluntary reduction of greenhouse gases in Thailand. Carbon credits traded within the T-VER scheme are exclusive to the Thailand market only.

Nevertheless, the Stock Exchange of Thailand has now asked listed Thai companies to submit a sustainability report, which includes their carbon emission details. Moreover, the developments and actions introduced by various countries to mitigate global warming and climate change as part of their commitments at the global level could make it obligatory for some companies in Thailand to comply with the climate action requirements. For example, on 21 March 2022, the US Securities and Exchange Commission (SEC) issued proposed rules to mandate public companies to disclose detailed information about their greenhouse gas emissions and other climate-related impacts and risk disclosures in registration statements and in annual filings under the US Securities Exchange Act. This is a significant step that signifies a response to the increasing investor demand for more information about the business risks posed by climate change and aims to provide a standardized framework for disclosure, as the current voluntary reporting has already been undertaken by some companies which lack consistency and comparability across registrants. Once the proposed rules are adopted, they will have significant implications not only on US companies but on companies outside the US, as some large companies would have to provide information on emissions from firms in their supply chains. These rules could therefore become obligatory for some companies in Thailand due to imposed requirements dictated by their head offices in the US which are bound by the obligations in this regard in the same way that the US-listed companies would be under the proposed US SEC requirements. For more information on these proposed rules, please read the following alerts:

In addition, in March 2022, the International Sustainability Standards Board, which was established during COP26 to develop standards for corporate disclosures on sustainability-related issues, published a draft of its proposed standards to, among other things, require all companies to disclose emissions linked to their financial assets. Based on this draft, which will be subject to public consultation and is aimed to be finalized this year, financial institutions will be expected to publish estimates of the carbon emissions linked to their loans and investments. Individual jurisdictions will decide whether companies will be required to comply with the final standards. If Thailand chooses to comply therewith, the standards could therefore potentially affect Thai banks and investors when considering future investments as they will need to ensure the projects and investments have sufficiently addressed sustainability-related issues as well. 

Another factor why Thai companies should review their climate change risks and opportunities is for competitive reasons. As part of the climate actions, the EU's European Commission has proposed an import carbon charge or Carbon Border Adjustment Mechanism (CBAM), or the Sustainable Products Initiative on a global level. Once agreed (expected 2024-2025), the CBAM will introduce a mechanism to adjust the price of cartain specified imported goods (such as steel, fertilizers and cement) that have carbon emissions that exceed the level prescribed under the EU regulations. As a result, importers in the EU who wish to import those goods will need to purchase a CBAM certificate, similar to paying an internal charge under the EU's Emissions Trading Scheme on the exceeded carbon emissions. Thus, the EU customers may be more reluctant to purchase and import goods exported from Thailand which are subject to CBAM and which have carbon emissions that exceed prescribed levels under EU regulations since they would have to bear an additional cost of purchasing the CBAM certificate. 

These developments at the global and domestic levels mean that companies can no longer ignore the importance of incorporating climate actions into their corporate strategy and business operations. Business partners, investors and consumers are increasingly demanding companies to have explicit environmental and sustainability policies. Businesses are expected to follow through with these policies. Otherwise, they will simply stop doing business with them. This is particularly important for Thai companies which need to ensure that not only their own practice fully complies with their customer's sustainability policies but also their entire supply chains. Otherwise, they will risk losing these customers.

On the other hand, if sustainable business practices are adhered to, it could actually provide the company with a competitive edge. For example, carbon labeling products, which disclose the greenhouse gas emissions from those products, could attract more environmentally conscious customers. As consumers continue to react positively to environmentally conscious products, it is simply no longer an option to not incorporate sustainable practices into the supply chain without sacrificing revenue. 

Against this backdrop and along with Thailand's own commitment at COP26, business operators in Thailand can no longer overlook such developments. The sooner we start making changes, the more beneficial and competitive it will be for the company. These trends will only become more and more of a reality and preparations should start now as this process cannot be done overnight. If operators do not start sooner than later, they may risk missing the train and making it harder for themselves later on.


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