In more detail

The Taxonomy is a reference tool for classifying economic activities considered to be environmentally sustainable. It provides a scientific-based central framework to guide Thailand’s economy toward a low-carbon future. To put this in a context, the Taxonomy aims to help Thailand achieve its Nationally Determined Contribution (NDC) under the Paris Agreement, which includes reaching Net Zero by 2065 and achieving carbon neutrality by 2050.

As outlined in our previous article, the Taxonomy adopts a traffic light system whereby activities or projects are classified as either "green," "amber" (transitional activities), or "red." Businesses must determine if their activity fulfills all of the requirements for the activity to be considered as green.

Key updates of Phase II

Expanded scope

Under Phase I, the scope of the Thailand Taxonomy applied only to the energy and transportation sectors, which are considered the top two contributors of greenhouse gas (GHG) emissions in Thailand. With the launch of Phase II, the Taxonomy now covers six sectors in total, which together account for 95% of Thailand’s GHG emissions and more than 40% of its economic activities.

Under the recently expanded scope of Phase II, for the manufacturing sector, considered emissions include GHG emissions from chemical reactions generated during the manufacturing process, such as from the production of cement, aluminum, iron and steel, and plastic. They also include enabling activities such as carbon capture and storage, and auxiliary transitional activities, i.e., energy efficiency improvements. For the waste management sector, the technical screening criteria (TSC) are used to classify activities into several types: waste collection, organic waste management, waste-to-energy (WTE), and hazardous waste disposals. For the agriculture sector, it is important to note that aquaculture and forestry activities are also covered.

Further guidelines on the application of the Taxonomy

Accompanying the launch of the second phase of the Taxonomy, the guidelines on the application criteria of the Taxonomy, including the Do No Significant Harm (DNSH) and Minimum Social Standards (MSS) principles, were published. Specifically, there are three criteria in the application of the Taxonomy. The first criterion requires that activities under the Taxonomy substantially contribute to one or more of the six environmental objectives (EO), such as climate change mitigation (EO1), climate change adaptation (EO2), and pollution prevention and control (EO5).

The second criterion requires that the activities adopt the DNSH principle, meaning that even if the activity significantly contributes to one of the objectives under the Taxonomy, it must not do significant harm to any other objectives. Lastly, the Taxonomy adopts the MSS principle, which requires that activities comply with Thai labour standards and international labour principles and conventions.

Impact on businesses

The Taxonomy is being used by financial institutions when providing finance for sustainable activities. It thus provides businesses with greater certainty, enabling them to implement activities that facilitate access to green finance. Moreover, the Taxonomy can be used as a reference guide for sustainability reporting and corporate sustainability planning. The businesses may also use the Taxonomy as their due diligence tools for examining the claims that they are currently making about their economic activities to ensure that such claims are justifiable and based on factual evidence. Businesses can utilize the Taxonomy as a due diligence tool to verify the legitimacy of their claims regarding economic activities. This ensures that the assertions are substantiated by factual evidence, thereby mitigating the risk of greenwashing.

The Taxonomy is also referenced in the Climate Change Bill ("Bill"), which sets out the minimum standards of what needs to be included in each phase of the Taxonomy’s development. Importantly, the Taxonomy will be an important information tool for the allocation of funds under the Climate Fund, to be established under the Bill. Businesses seeking funding may wish to check that their activities are consistent with those deemed sustainable under the Taxonomy. To read our latest article on the Climate Change Bill, please visit this link.

Conclusion

With the launch of the second phase of the Thailand Taxonomy, businesses in the agriculture, construction and real estate, manufacturing, and waste management sectors will be better able to plan their sustainability strategies to obtain green finance. To this end, business operators progressing on their sustainability journey should become familiar with the Taxonomy and align their activities accordingly to fully leverage the benefits.

If you have any questions or concerns about the application or interpretation of the Taxonomy, please feel free to contact our Sustainability Group.

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The following have contributed to this legal update:

• Dhiranantha Rithmanee, Sustainability Specialist
• Muanjit Chamsilpa, Sustainability Specialist