The Bank of Thailand (BoT) urges large commercial banks in Thailand to provide transition finance to aid local businesses in shifting from carbon-intensive operations to more sustainable practices.
During the seminar EARTH JUMP 2024: The Edge of Action organised by Kasikornbank, Ronadol Numnonda, deputy governor of the central bank, revealed that last year, large local banks reported a total of 190 billion baht in green loans.
While this figure is modest compared to the total outstanding loans in the banking sector, it demonstrates a growing interest in green loan products.
According to Ronadol, several banks have pledged to achieve net-zero emissions by 2065, in line with Thailand’s national objectives.
Banks have also set goals to expand sustainable finance within the next five to 10 years, offering a variety of financial products and services.
These sustainable financial products include business loans for clean energy initiatives, solar rooftop installations, and electric vehicles. Additionally, banks are offering underwriting services to assist local businesses in issuing green bonds.
Ronadol highlighted that most green loans and facilities are currently focused on green or environmentally related projects, rather than transition finance. Transition loans remain relatively negligible in volume.
Transition finance refers to financial products and services intended to support businesses and industries in shifting to more sustainable practices, particularly concerning environmental, social, and governance factors.
The objective is to facilitate the move from traditional, often environmentally detrimental practices, to more sustainable and responsible alternatives.
Transition finance
Transition finance typically includes projects aimed at renewable energy, energy efficiency improvements, waste reduction, pollution control, and other environmentally friendly practices. Examples include loans, bonds, equity investments, or other financial instruments tailored to meet the specific needs of companies undergoing a transition.
“The central bank wants banks to pay more attention to transition finance by supporting brown businesses, especially small and medium-sized enterprises, in transitioning to less carbon-intensive operations, in line with the country’s economic context.”
Thailand’s commitment to net-zero emissions by 2065 is later than the average 2050 target of other countries, due to a different economic context. Much of Thailand’s industrial sector relies on outdated technology and fossil fuels, classifying it as a brown industry by international standards.
Thailand also faces a higher risk of climate change, ranking 9th out of 180 countries globally, necessitating the country’s sustainable transition to encompass climate change mitigation and adaptation.
Many large companies in Thailand are ready for this transition, as they possess greater awareness, knowledge, and access to capital. Consequently, numerous large corporations have made significant progress in sustainable transition efforts.
Last year, 15 Thai companies were included in the internationally recognised Dow Jones Sustainability Index, with some adopting climate transition plans.
Mid-sized and smaller companies face disadvantages in these areas and require assistance from related partners.
Ronadol mentioned that the central bank has mandated banks to develop transition financial products and services to support local businesses in sustainability.
The regulator also requires banks to adopt technology and other solutions to facilitate this transition, reported Bangkok Post.
Banks must submit their product programmes to the central bank by the third quarter of this year.
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