This is an extract from Climate Bond Initiative’s recent report “Green Infrastructure Investment Opportunities Thailand” that identifies and analyses green infrastructure projects open for potential investment and highlights avenues for further pipeline development. This report has been produced with the support of the Asian Development Bank and the ADB-managed ASEAN Catalytic Green Finance Facility, the Thailand Securities and Exchange Commission and the Public Debt Management Office, Thailand Ministry of Finance.

The ASEAN sustainable finance market maintains rapid growth despite the negative impact of COVID-19, focusing attention on the need for a sustainable economic recovery. Interest in the ASEAN markets from investors continues to grow. Apart from ASEAN institutions, several foreign entities—including development banks as well as foreign commercial banks—have issued green bonds in local ASEAN currencies, confirming rising demand in regional domestic markets.

Thailand is well-positioned to mobilize capital from the green bond markets to support green infrastructure investment. Within ASEAN, Thailand has a mature bond market. The Thai bond market has grown rapidly in the aftermath of the 1997 economic downturn and is the second largest among ASEAN bond markets (next to Malaysia), with an annual average growth of 10%. The Thai bond market has been largely dominated by government bonds—which have seen consistent growth over the years—reaching THB6.02 trillion (USD192.3 billion) in 2020. Corporate bonds remain small compared to the total market value, but the trend has been on the upside in recent years. The existence of a dynamic bond market in Thailand has facilitated the integration of green bonds into the capital structure of the country.

Several institutions in Thailand have successfully issued green bonds to finance green infrastructure investment, particularly for transport and energy. Since the first issuance in 2018, more Thai companies embarking upon a green transition have issued green bonds to finance various types of investments, including green infrastructure.In 2018, B. Grimm Power Public Company Limited (B. Grimm Power) issued maiden 5-year and 7-year green bonds—the first certified climate bonds issued in Thailand—with proceeds financing renewable energy projects in Thailand. The 2018 TMB Bank issuance was the very first green bond issued by the bank to promote private investments in renewable energy and energy efficiency in Thailand, given that environmental sustainability is one of the pillars of the TMB Bank Sustainable Banking Framework. The proceeds were used to finance climate-smart projects.

In 2019, Energy Absolute PCL issued its maiden green bond—the first green bond for a wind power project in Thailand—to support the long-term financing of its 260 megawatt (MW) Hanuman wind farm. Several deals came to the Thai green bond market in 2020. The Global Power Synergy PCL (GPSC), with a THB5 billion (USD153.5 million) green bond issuances for renewable energy and waste projects. The bond was issued in three tranches with 5-, 10-, and 15-year maturities.

Ratch Group Public Company Limited issued a 4 tranche THB8 billion (USD257 million) green bond with maturities ranging from 3 to 15 years. The bond proceeds would be used for investment, repayment, or loans for eligible projects on environmental conservation, consisting of wind power plant projects in Australia, and the Pink Line and Yellow Line electric monorail projects in Thailand.

Among Thai green bonds, energy and transport account for the majority of proceeds allocation. Several green bonds were issued by BCPG Public Company Limited to finance renewable energy in 2021. The remaining spreads across water, waste, land use, and the ICT sectors. The largest issuer in the transport sector is BTS Group Holdings, while the largest in energy is BCPG Public Company Limited. All these issuances (excluding TMB Bank’s) obtained external reviews, with nine of them being certified by Climate Bonds.

Thailand has also made use of the sustainability bond label to finance transport infrastructure and post- COVID-19 recovery. Government and development banks globally have been actively issuing bonds to provideimmediate relief for the devastating impacts of COVID-19. As echoed by the International Monetary Fund and the Asian Development Bank (ADB), such economic recovery stimulus can accelerate green economic recovery in thegreater Asia and Pacific region. Beyond green bonds, there are also social and sustainability bonds, which can be issued to achieve many sustainability goals associated with post-COVID-19 pandemic build back better strategies.

Going forward, Thailand can also consider the use of ‘transition bonds’ to finance hard-to-abate sectors. The economy of Thailand still depends heavily on the use of fossil fuel resources. Specifically, more than 60% of electricity production is generated from oil, gas and coal, while on the consumption side, oil-derived energy products and natural gas accounted for around 70% of total final energy consumption in Thailand. As Thailand is implementing steps to decrease the reliance on fossil fuels and green the economy, ‘transition bonds’ can be considered to support this transition from brown to green.

Beyond green bonds, Thailand is moving forward with various sustainable finance initiatives which benefit green infrastructure investment. The Government of Thailand has been developing national and regional policies to facilitate further growth in sustainable finance. In 2019, the Thailand Securities Exchange Commission (SEC) approved the Sustainability Development Roadmap to streamline its sustainable finance ecosystem and incorporated it into the SEC Strategic Plan2020–2022. The roadmap sought to develop sustainable finance in the capital market by developing six main elements: demand, supply, products, and three other enabling factors. In the same year, BoT became a member of the Central Banks and Supervisors Network for Greening the Financial System to enhance the role of financial system to manage climate-related risks.

In January 2021, the SEC became an official supporter of the Taskforce on Climate-related Financial Disclosures. In doing so, it takes an important role in e-listed companies to adopt international standard disclosure guidelines and incorporate climate-related risks into their strategic planning and risk management. This is expected to enhance the capacity of the Thai capital market for contributing to sustainable development. In 2022, all listed companies will need to disclose the sustainability information integrated with the business reporting called “One-report” as a mandatory requirement, which will include GHG emissions and human rights issues.

In addition, the Working Group on Sustainable Finance—comprising the Fiscal Policy Office, the BoT, the Thai SEC, the Office of Insurance Commission, and the Stock Exchange of Thailand (SET)—have jointly established the Sustainable Finance Initiatives for Thailand in August 2021. The initiatives recommend five key strategic initiatives, including Developing a Practical Taxonomy, Improving the Data Environment, Implementing Effective Incentives, Creating Demand-led Products and Services, and Building Human capital. As such, the initiatives will set out the direction and framework for driving sustainable finance across Thailand.

A menu of green financing options in Thailand is expanding

Apart from the green bonds market, Thailand has also been exploring other green finance instruments including equity, credit enhancement and risks mitigation structures (such as partial credit guarantees for green projects), and concessional loans for solar energy and energy efficiency projects. The expansion of these other green instruments offers promising potential for Thailand to mobilize finance to meet its climate change mitigation and adaptation goals.

Greening the Stock Exchange: Thailand has emerged as a regional leader in ESG disclosure, with 100% of listed companies mandated to report ESG information since 2014. According to the Corporate Knights ranking on the level of sustainability disclosures among companies listed on Stock Exchange Sustainability member exchanges since 2012, the SET was the only Asia-Pacific exchange in the top 10 in 2018. In this same year, the SET Thailand Sustainability Index (SETTHSI) was launched to motivate listed firms to adhere their operations to the ESG practices to gain investors’ trust and confidence. SETTHSI measures the performance of sustainable companies, which must consider ESG and pass the SET market capital size and liquidity criteria. Since its inception, SETTHSI has performed relatively well, closely following the SET index. According to the Asian Corporate Governance Association and CLSA Securities (Thailand) Ltd, Thai listed companies are among the best in the Asian region in terms of sustainability disclosure.

Sustainable Banking: Beyond the achievements of the regulators, leadership has been shown in the banking sector. The BoT is ramping up its sustainable finance framework by introducing its 3-year Strategic Plan (2020–2022): Central Bank in a Transformative World. Accordingly, financial institutions are encouraged to integrate ESG information into their business and operating models. The BoT is also a member of the Network for Greening the Financial System and subscribes to its key principles.

In 2019, the Thai Bankers’ Association introduced Sustainable Banking Guidelines for Responsible Lending under the leadership of the BoT. Under the guidelines, Thai banks are required to establish internal policies and processes to address key ESG risks in their lending activities.

Private banks in Thailand have led on green finance by issuing green and sustainability bonds to fund and refinance green assets. Thai banks that have issued green and sustainability bonds are TMB Bank and Kasikorn Bank, for USD160 million. Many banks are also providing green loans and other tools for green projects, i.e., renewable energy and energy efficiency. Since 2015, 11 banks have participated in the Energy Efficiency Revolving Fund (EERF), including Bangkok Bank, Bank of Ayudhya, CIMB Thai, TMB Bank, Siam City Bank, Siam Commercial Bank, Kasikorn Bank, Exim Thai Bank, SME Bank, and UOB. Another example is the “SME Go Green” scheme initiated by Siam Commercial Bank, which provides green loans to green SMEs to cover their long-term and working capital to finance clean energy and pollution management projects which will help to reduce energy consumption.

Green Funds: Thailand has developed several funds for supporting green infrastructure and renewable projects. A domestic initiative is the Energy Conservation Promotion (ENCON) Fund which was established in 1992 under the ENCON ActB.E. 2535 and became operational in 1995. Since its introduction, the ENCON fund is the key financial mechanism of the government to facilitate renewable energy and energy efficiencydevelopment in Thailand. The fund raises about USD200 million each year and had a capital of around USD1bn in 2017. So far, more than 1,000 projects have received capital allocations from the fund. Furthermore, the ENCON fund is also the main funding source for two other successful energy efficiency funding schemes: the EnergyEfficiency Revolving Fund (EERF) and the Energy Service Company (ESCO) Revolving Fund. TheENCON fund has resulted in unprecedented success and served as a good reflection of how governments can support the growth of green projects.

Thailand is also eligible for some regional and international green funds. At the regional level, the ASEAN Infrastructure Fund Ltd. (AIF)—established in 2011 but formally incorporated in April 2012 and owned by the ASEAN member states and ADB—is dedicated to funding infrastructure development needs by mobilizing regional savings, including foreign exchange reserves. Until December 2020, the AIF has committed an estimated USD500 million for nine projects, with a total portfolio size of around USD3bn, including ADB co-financing. These projects are from Indonesia, the Lao PDR, Myanmar, and Viet Nam. In 2019, the AIF launched the ASEAN Catalytic Green Finance Facility (ACGF) to support governments in Southeast Asia to prepare and finance infrastructure projects that promote environmental sustainability and contribute to climate change goals.

The Role of Development Finance Institutions (DFIs)

DFIs that work in ASEAN—such as ADB, the International Finance Corporation (IFC), and the Asian Infrastructure Investment Bank—can subscribe to private placements or be anchor investors in debt issuance and initial public offerings. This will help companies seeking funding to build investor confidence and catalyse investments from a wider pool of private actors. With these interventions, DFIs have leveraged market participation to develop green financing. For example, in early 2019, ADB and other development financiers launched the “ASEAN Catalytic Green Finance Facility” to mobilize USD1bn for financing green infrastructure in Southeast Asia. In 2 years of activity, the facility has reached USD2bn in pledges to provide loans and technical assistance to sovereign green infrastructure projects in such sectors as sustainable transport, clean energy, and resilient water systems, to promote green and sustainable development in Southeast Asia, and catalyse private capital by mitigating risks through innovative finance structures.

Within Thailand, the IFC has been active in supporting the development of a sustainable finance market. Since 2019, the IFC has joined hands with the BoT to develop a Sustainable Finance Policy Framework, which includes a sustainability roadmap and tools to help banking improve ESG risk management practice.

Likewise, ADB and the Government of Thailand have developed a long-term strategic partnership over the years. Since 1996, ADB has committed USD9.14bn in the forms of loans, equity investment, grants, and technical assistance to Thailand. ADB has been supporting green finance in Thailand by financing or co-financing many green projects in renewable energy, energy efficiency, and sustainable transport. These projects have amplified strategic priorities of ADB to support the Government of Thailand to build inclusive climate and disaster resilience, and achieve its international climate change commitments.

The complete report can be accessed here