Thailand’s policy-powered ESG movement and what it means for asset managers ______

Blog / 01 Jul 2021

Becky Chiu, Director - Client Relationship Management, Asia

Calastone’s research has shown that sustainable investment in Asia is catching up to its counterparts, and Thailand’s commitment to this stands out in the region. Among other measures, Thai regulators have been pushing for greater disclosure from listed companies on environmental, social and governance (ESG) performance. However, asset managers in Thailand will still need to do their own diligence to ensure investments in this market align with their sustainability objectives.

As the largest global funds network, Calastone has a front-row seat to capital flows, and we are seeing continuous momentum in sustainable finance. Our Fund Flow Index (FFI) report found that ESG funds accounted for US$15.1bn of the US$18.1bn trading through our network in 2019 and 2020. In other words, US$84 out of every net US$100 was directed into ESG funds, fuelling the worldwide appetite for sustainable investment whichis now impossible for asset managers to ignore.

This trend also extends to Asia, where interest in actively managed ESG funds is growing. However, we note that the ESG adoption in this region is about two to three years behind the UK and Europe. This ‘catch-up’ is playing out at different speeds across Asia, depending on the level of economic development in each market.  Within this region, Thailand’s commitment to ESG stands out. In 2019, the Stock Exchange of Thailand (SET) was ranked ninth among 49 exchanges for corporate sustainability disclosure by investor news outlet Corporate Knights and insurer AVIVA. It was the only Asian exchange to be featured in the top ten list for three consecutive years.

Thailand has recently introduced several measures for companies and asset managers, to foster a market for ethical finance. Thai asset managers are preparing themselves for the inflow of sustainable funds that will follow.

The measures so far

The Thai exchange runs workshops for issuers on topics such as ESG reporting, guiding them how to map out sustainability risks and integrate sustainability into the overall corporate strategy. From 2022, asset managers will need to pass a mandatory ESG training course every two years, to renew their accreditation.

Meanwhile Thailand’s securities regulator, the Securities and Exchange Commission (SEC), will soon require companies to annually disclose their ESG impacts and policies , including the level of greenhouse gases emitted. This should partly help asset managers determine which Thai-listed companies meet their ESG investment criteria.

Asset managers will also be monitoring Sustainability-Linked Bonds (SLBs), where the SEC has proposed additional disclosure requirements for SLB issuers, and for a third party to evaluate whether issuers have met their pre-defined ESG target. This would give asset managers a broader selection of potentially sustainable investments to choose from.

Together, these measures will encourage more Thai firms to set up sustainable funds.  We are excited to see new sustainability focused Thai equity funds that are leading this shift. Last August, UOB AM Thailand announced  the United Equity Sustainable Global Fund would be the feeder fund for the Robeco Sustainable Global Stars equities fund. Innotech Asset Management has also launched a Sustainable Thai Equity Systematic Fund.

 It is still early days

Despite these new funds and Thailand’s promotion of sustainability, the numbers tell another story: there is low demand for Thai sustainability funds.

Sustainability-focused funds in Thailand represented a mere 0.4% of all sustainability funds in Asia ex-Japan, according to Morningstar[1]. Investors are currently piling their money into electric vehicle names from mainland China and new funds in Taiwan.

But as Thai regulators refine the parameters for sustainable investing, we expect the pool of ESG funds will grow in the market.

Be diligent

The Morningstar data may also point to possible market scepticism about the ESG credentials of listed companies.

As of last December, 16 of the 58 companies  in the Thailand Sustainability Index (THSI) generated most of their revenues from petrochemical products or fossil fuels[2].

This underscores why investors struggle to meaningfully incorporate sustainability into their strategy. Despite the abundance of ESG data providers, many asset owners in Asia still say[3] there is a lack of trustworthy, standardised information.

So, competitive active asset managers will need to combine the available ESG disclosure with their independent research and engagement with companies, to capture a greater share of the inflow we are starting to see into active ESG funds.

The focus on ESG by Thai regulators will only intensify from here, forward-thinking firms need to embrace these new initiatives whilst remaining cognisant of what international investors are looking for in relation to ESG —and incorporating all of this into their asset allocation.

 

[1] https://fundselectorasia.com/asia-esg-funds-attract-record-flows/

[2] https://www.bangkokpost.com/business/2041527/esg-ratings-dont-mean-what-you-think

[3] https://www.spglobal.com/spdji/en/documents/commentary/asian-investor-spdji-esg-survey-how-asset-owners-will-make-esg-count-in-asia.pdf?force_download=true

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