The Bank of Thailand has encouraged large commercial banks to offer transition finance to assist local businesses in moving from carbon-intensive industries to more sustainable practices.
Speaking Monday at the seminar “EARTH JUMP 2024: The Edge of Action” hosted by Kasikornbank, Ronadol Numnonda, deputy governor of the central bank, said last year large local banks reported a total of 190 billion baht in green loans.
Although this amount is small compared with total outstanding loans in the banking industry, it reflects a positive trend in the adoption of green loan products, he said.
According to Mr Ronadol, several banks have committed to achieving net-zero emissions by 2065, aligning with Thailand’s national goals.
The banks also set targets to expand sustainable finance over the next 5-10 years, offering a range of financial products and services.
These sustainable financial products include business loans for clean energy adoption, solar rooftop installations and electric vehicles. Banks are also providing underwriting services to help local businesses issue green bonds.
However, he said most green loans and facilities are limited to green or environmentally related projects, rather than transition finance. Transition loans remain relatively small in volume.
Transition finance refers to financial products and services designed to support businesses and industries in transitioning to more sustainable practices, particularly in the context of environmental, social and governance factors.
The practice aims to facilitate the shift from traditional, often environmentally harmful practices, to more sustainable and responsible alternatives.
Transition finance typically includes projects focused on renewable energy, energy efficiency improvements, waste reduction, pollution control and other environmentally friendly practices. Some examples are 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,” said Mr Ronadol.
Thailand’s commitment to net-zero emissions by 2065 is later than the average 2050 target of other countries, for which it cited a different economic context. Much of Thailand’s industrial sector relies on old technology and fossil fuels, classifying it as a brown industry by international standards.
Thailand also faces a higher risk of climate change, ranking ninth out of 180 countries globally, which means the country’s sustainable transition should encompass both climate change mitigation and adaptation, he said.
Many large companies in Thailand are prepared for this transition, as they have greater awareness, knowledge and access to capital, said Mr Ronadol. As a consequence, numerous large corporations have made significant progress in sustainable transition efforts, he said.
In 2023, 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, said Mr Ronadol.
He said the central bank has mandated banks 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.
Banks are required to submit their product programmes to the central bank by the third quarter this year, said Mr Ronadol.
