ESG investing is more than just a trend -- many expect it to become the new standard.
The strategy is considered sustainable, measuring environmental, social and governance (ESG) factors to judge an investment's financial returns and impact.
Environmental factors can include carbon emissions, waste management and sustainability efforts. Social factors involve employee treatment, workplace diversity and community relations. Governance factors value leadership decisions, transparency and business ethics.
With growing investor interest and regulatory support, ESG investing is becoming a mainstream approach to building sustainable and profitable portfolios. Research suggests ESG-focused investments often outperform traditional ones, offering competitive returns with less risk.
At the Stock Exchange of Thailand (SET), ESG investment is being prioritised and support is provided to listed companies to align with international ESG standards.
Many Thai listed companies received global ESG scores and emerged as industry leaders, recognised by S&P Global's Sustainability Yearbook 2025, which evaluates and awards companies for outperforming their peers in sustainability.
GROWING POPULARITY
Global ESG fund investments have been increasing, with assets under management now exceeding US$40 trillion, according to Bloomberg. Reports from Morningstar and MSCI indicate ESG funds tend to outperform conventional funds in the long term.
During the pandemic, global ESG funds recovered more quickly than the overall market. Research from Harvard Business Review suggests ESG stocks exhibit lower volatility and offer stable returns during market downturns.
Sustainable businesses are more likely to survive and grow in the long term due to improved risk management in ESG aspects, according to these reports. Governments are introducing regulations on net-zero policies, carbon taxes and ESG standards, affecting companies that fail to adapt.
Companies reliant on fossil fuels or lacking ESG policies may face rising costs due to fines, environmental fees, and higher energy costs. Institutional investors such as BlackRock, Vanguard and Norges Bank emphasise ESG criteria and require companies they invest in to uphold clear sustainability standards.
Recognising this trend, the SET supports Thai listed companies in enhancing sustainability. Soraphol Tulayasathien, senior executive vice-president and head of sustainable market development at the SET, said the bourse is driving ESG adoption among listed companies through various initiatives, including the development of the SET ESG Ratings and SET ESG Index.
The SET utilises its ESG Ratings to compile the SET ESG Index, which has been published on the SET's website since Nov 6, 2023. The SET ESG Ratings are based on a voluntary sustainability assessment that evaluates companies across ESG dimensions. The assessment is reviewed annually to align with evolving sustainability trends at both global and national levels.
To be included in the SET ESG Ratings, listed companies must score at least 50% in each ESG dimension and meet specific criteria, such as corporate governance reporting (CGR) quality, net profit performance, shareholder equity, and adherence to ESG-related compliance standards. Any companies failing to meet these criteria are excluded from the ratings.
ESG IN THAILAND
More than 100 Thai ESG funds manage some 30 billion baht in assets.
Chavinda Hanratanakool, chairwoman of the Association of Investment Management Companies, said firms are encountering greater risks across the global business landscape.
"ESG information will be an important tool investors should use to make investment decisions," she said. "Companies that take into account ESG issues can see their business risks reduced, while investors are also focusing on managing their risks."
To serve the growing popularity of ESG investments and to prop up a struggling bourse, the government endorsed the Thai ESG Extra (ESG X) fund category last month, designed to encourage investment in sustainable and high-growth equities through substantial tax incentives.
Investors can transfer existing holdings from long-term equity funds maturing this year, estimated at 180 billion baht, to Thai ESG X funds to qualify for a tax deduction of up to 500,000 baht.
Investors can claim 300,000 baht in the 2025 tax year, with the remaining 200,000 baht available for deduction in subsequent years at 50,000 baht a year. New investments in Thai ESG X funds are also eligible for a separate tax deduction of 300,000 baht in the 2025 tax year, provided the units are purchased between May and June.
The SET listed 242 stocks for inclusion in Thai ESG and Thai ESG X funds, consisting of 228 companies with SET ESG Ratings and 14 companies disclosing greenhouse gas emissions data. Whether other stocks can be included depends on the individual fund policies.
The bourse announced Thai ESG X funds must invest at least 65% of net asset value in securities listed on the SET or Market for Alternative Investment that meet one of the three following sustainability criteria.
First, securities that have a good SET ESG Rating or international ESG rating, such as from the FTSE Index or MSCI Index. Second, companies that disclosed greenhouse gas emissions data, and third companies that have a CGR score from the Thai Institute of Directors of at least 90 and disclosed data on at least 85% of their items on the SET ESG data platform.
RATINGS BENEFITS
Mr Soraphol said an ESG rating serves as a tool for improving sustainable business practices and risk management.
Companies receive scores and recommendations in order to enhance their ESG performance, he said.
ESG scores allow companies to compare their sustainability performance against peers, while companies gain visibility among sustainable investors, facilitating better access to capital, said Mr Soraphol.
"An ESG credit rating benefits investors and analysts, providing a benchmark for comparing companies' ESG performance," he said.
For analysts, the rating supports stock valuation and investment decision-making. In addition, the rating helps fund managers develop ESG-focused investment products, said Mr Soraphol.
The rating also serves as a tool for investor engagement and corporate ESG advocacy, he said.
In 2024, 228 listed companies clinched a spot on the SET ESG Ratings, echoing the growing wave of sustainable investments locally and globally. There are 242 listed companies on the list.
GLOBAL LEADERSHIP
S&P Global recently launched the Sustainability Yearbook 2025 to recognise top-performing companies in sustainability. The assessment is based on the 2024 S&P Global Corporate Sustainability Assessment (CSA), which evaluated 7,690 companies on economic and ESG factors.
S&P global CSA scores range from 0 to 100 and categorise companies into the top 1%, top 5%, and top 10% globally:
The top 1% comprises companies with the highest CSA scores worldwide.
The top 5% covers companies ranking just below the top 1%.
The top 10% comprises the highest-ranked 10% of companies in each industry.
Beyond ESG stocks, investment themes such as climate change, green bonds and carbon credits are gaining traction.
The SET partnered with the London Stock Exchange Group through FTSE Russell to enhance ESG assessments in Thailand, aligning SET ESG Ratings with global standards. The assessment methodology, which is used for more than 8,000 securities worldwide, ensures Thai listed firms can be benchmarked against global peers, strengthening investor confidence.
A pilot assessment is planned for 2024-2025, with full public ESG score disclosure by 2026.
NET-ZERO COMMITMENTS
As the SET enters its 50th year, the bourse is driving sustainable capital market development and aiming for net-zero greenhouse gas emissions by 2050. As part of these efforts, it is developing the SET Carbon system to disclose climate change management data about the capital market, aiming to enhance climate data disclosure and streamline corporate greenhouse gas emissions reporting.
The first phase of SET Carbon is available to interested companies in the first quarter of this year.
In collaboration with the Electricity Generating Authority of Thailand, the bourse is also integrating listed companies' energy consumption data.
The SET recently obtained validation for its net-zero targets from the Science Based Targets initiative (SBTi), an internationally recognised authority on science-based target setting. The validated targets include a 42% reduction in greenhouse gas emissions by 2030 and a 90% reduction by 2050.
With this distinction, the bourse becomes the fourth stock exchange worldwide to secure SBTi validation for both near-term and long-term net-zero targets, alongside Bursa Malaysia, the Nasdaq and Deutsche Börse Group.
"ESG investing is more than just an option, it is the new global investment standard," said Mr Soraphol.
Investors prioritising ESG will unlock superior opportunities, while companies committed to sustainability will attract greater investor attention and achieve long-term growth potential, he said.
