Sustainable investing — new normal.
ESG investing is more than a passing fad — many believe it soon will be standard.
The strategy is widely regarded as one with sustainability, assessing environmental, social and governance (ESG) factors when evaluating whether an investment offers both financial returns and benefits.
Environmental may relate to carbon emissions, waste management and sustainability initiatives. Social factors relate to how employees are treated, workplace diversity and community relations. Governance A G of these has value relevant to leadership decisions, transparency, and business ethics.
ESG investing is become a widely accepted means of building sustainable and profitable portfolios, as investor interest and regulatory support grow. Research shows that ESG offerings often outperform and can deliver “alpha” (over-market) returns with lower risk than traditional investments.
On the Stock Exchange of Thailand (SET), ESG investment is given top priority, and listed companies are supported to comply with ESG standards internationally.
As S&P Global publishes its Sustainability Yearbook 2025 to reward the best companies in each industry for ESG performance, both at a global and regional level, it has recognised the leading Thai listed companies that have earned global ESG scores.
GROWING POPULARITY
Sustainable fund investments worldwide have increased, reaching over US$40 trillion in assets under management, according to Bloomberg. Morningstar and MSCI have reported that in the long run ESG funds outperform traditionally managed funds.
Global ESG funds rebounded faster than the market as a whole during the pandemic. According to research from Harvard Business Review, ESG stocks are less volatile and performed somewhat steady during market downturns.
The reports contend that ESG-related aspects of risk management improve a sustainable business’ chances of surviving and thriving long term. The government is imposing regulations on net-zero policies, carbon taxes and ESG standards, and will punish companies that do not comply.
Fines, environmental fees, and higher energy costs will increase for companies dependent on fossil fuels or not implementing ESG policies. Institutions like BlackRock, Vanguard and Norges Bank are setting a standard that emphasises ESG criteria and that companies from whom they invest have a clear sustainability standard.
The SET encourages Thai listed companies to prioritise sustainability to catch on to this trend. The bourse pushed the adoption of ESG among its listed companies through numerous initiatives such as the SET ESG Ratings and SET ESG Index, said Soraphol Tulayasathien, senior executive vice-president and head of sustainable market development at the SET.
The SET uses its ESG Ratings to determine the SET ESG Index, which has been available on the SET’s website since Nov 6, 2023. The SET ESG Ratings is a sustainable assessment campaign on voluntary basis, across ESG dimension. This assessment counts on annual review based on mutating sustainability trends on both a global and a national level.
Curriculum vitae • Minimum Requirement for Inclusion • The minimum score for each ESG dimension is 50% for listed companies to qualify for inclusion in the SET ESG Ratings, in order to participate companies are required to meet criteria such as the quality of the corporate governance reporting (CGR) to net profit performance, shareholder equity and compliance with the established ESG Standards. Any companies that do not meet these criteria are excluded from the ratings.
ESG IN THAILAND
Thailand has over 100 ESG funds, managing around 30 billion baht in assets.
Chavinda Hanratanakool, chairwoman of the Association of Investment Management Companies, said the firms were facing higher risks in the global business environment.
“ESG information will be a key tool for investors to use when they make investment decisions,” she said. “The management of ESG issues can mitigate business risks for companies and investors are also managing their risk.”
To cater to the rising demand for ESG investment and to boost a sagging bourse, last month the government approved the establishment of the new Thai ESG Extra (ESG X) fund category, which is aimed at promoting investment in sustainable and high-growth equities by providing big tax benefits.
Existing holdings in long-term equity funds due to be redeemed this year, around 180 billion baht, can also be transferred into Thai ESG X funds, with a tax deduction of up to the 500,000 baht limit available.
Investors get 300,000 baht in the 2025 tax year, and the remaining 200,000 baht is deductible one year at a time at 50,000 baht a year. In addition, the purchase of Thai ESG X funds at the time of new investment will also be eligible for a deduction of 300,000 baht in the 2025 tax year based on the units purchased in the period of May–June.
In addition, SET reported that 242 stocks were available for inclusion in Thai ESG and Thai ESG X funds, comprising 228 companies with SET ESG Ratings and 14 companies that published data on greenhouse gas emissions. It all depends on individual fund policies on whether other stocks can be included.
Thai ESG X funds must invest at least 65 percent of their net asset value in securities listed on the bourse or on the Market for Alternative Investment that comply with one of the three following sustainability criteria, the bourse said.
Top of the list, stocks with high SET ESG Rating and other International ESG rating such as FTSE Index, MSCI Index and etc Second, companies that reported on greenhouse (GHG) emissions data, and third companies that reported a CGR score from the Thai Institute of Directors (IOD) at least 90 and also reported on 85% of items listed on the SET ESG data platform.
RATINGS BENEFITS
An ESG rating, according to Mr Soraphol, is a tool to help businesses optimise sustainable practices and manage risks.
Companies are scored and given recommendations to improve their ESG performance, he said.
The ESG scores enable companies to compare themselves with similar ones in terms of sustainability performance and also give companies exposure to sustainable investors, resulting in potentially easier access to capital, added Mr Soraphol.
“An ESG credit rating helps both the investor and the analyst, as it acts as benchmark against which comparison of the companies’ ESG performance can take place,” he said.
For analysts, the rating is a trigger for stock valuation and investment decision-making. The rating also allows fund managers to create ESG-related investment vehicles, Mr Soraphol added.
The rating is also an investor engagement tool and a mechanism for corporate ESG advocacy, he said.
In 2024, 228 Listed Company earned a spot on the SET ESG Ratings which reflects a strong trend of the sustainable investment both locally and globally. The number of listed companies on the list is 242.
GLOBAL LEADERSHIP
S&P Global has announced the launch of Sustainability Yearbook 2025, which recognizes the best performing companies in sustainability. The ranking analyzes nearly 7,700 companies on both economic and environmental, social, and governance (ESG) factors as part of the 2024 S&P Global Corporate Sustainability Assessment (CSA).
S&P global CSA score (0–100) and ranking of the companies in the top 1%, top 5%, and top 10% globally:
The top 1% are companies with the highest CSA scores globally.
It’s based on the top 5%, which encompasses companies two steps below the top 1%.
That top 10% is made up of the 10% of the best-performing companies in every industry.
Outside of ESG stocks, investment themes like climate change, green bonds and carbon credits are taking off.
To augment ESG assessments in Thailand to align with global standards, SET partnered with London Stock Exchange Group, through FTSE Russell, to develop SET ESG Ratings. Widely used for more than 8,000 securities around the world, the assessment methodology means that Thai listed firms can be placed alongside their global peers, thereby boosting investor confidence.
There will be a pilot assessment in 2024-2025, and public disclosure of full ESG scores by 2026.
NET-ZERO COMMITMENTS
For the SET, its 50th anniversary this year means driving sustainable capital market and commitment to net-zero greenhouse gas emissions by 2050. To that end, it plans to implement the SET Carbon system to disclose how the capital market is managing climate change, with the goal of improving climate data disclosure and simplifying corporate greenhouse gas emissions reporting.
The initial phase of SET Carbon will be open to interested companies in the first quarter of this year.
The bourse is also working with the Electricity Generating Authority of Thailand to integrate energy consumption data from listed firms.
Recently, the SET was validated by the Science Based Targets initiative (SBTi), a leading authority on science-based target setting, for its net-zero targets. The approved targets are a 42% reduction in greenhouse gas emissions by 2030 and a 90% reduction by 2050.
With this distinction, the bourse has become the fourth stock exchange in the world to have both near-term and long-term net zero targets validated by SBTi, after Bursa Malaysia, Nasdaq and the Deutsche Börse Group.
“ESG investing is not just an alternative; it has become the new global investment standard,” Mr Soraphol said.
ESG-focused investors will gain better opportunities and sustainably minded companies will gain investor interest and long-trem growth potential, he added.