Thailand Leads the Region in ESG Disclosures
As investors around the world become increasingly aware of the importance of environmental, social, and corporate governance (ESG) factors, stock exchanges and regulators are encouraging listed companies to provide better information on how these factors affect their business.
It is no surprise that European exchanges are at the forefront of this trend. In the most recent annual ranking of 35 world bourses (stock markets) by the quality of their sustainability disclosure regimes, eight out of the top 10 were European.
Thailand’s progress in the quality of ESG reporting
However, at number 7 in the ranking, published annually by the magazine Corporate Knights, is the Stock Exchange of Thailand (SET), the only Asia-Pacific bourse in the top 10.
Over the 6 years the ranking has been published, the SET has made stunning progress. It was ranked 31st out of 35 in the first such survey in 2012. In 2015 it was 17th, and in 2018 it surpassed the only other bourse from the region, the Australian Securities Exchange, which placed 11th.
The rise of SET as the regional ESG champion challenges the notion that Asia’s financial industry is slow to adopt the practices of sustainability and that emerging markets wait for cues from developed ones.
How did Thailand manage to achieve this high level of compliance and quality of disclosures in just a few years?
Over the past couple of decades, ESG integration has become a discipline of its own within investment management, with many different approaches and methods used to incorporate ESG factors into the investment process. The usefulness and success of such considerations hinge on a good fundamental understanding of how the various environmental, social, and governance factors affect the current operations and strategic prospects of companies in which to invest.
This analysis is not possible, however, without companies’ regular and meaningful disclosure of the relevant information for investors to evaluate. Stock exchanges, financial regulators, and industry organizations have been making efforts to compel, or at least encourage, companies to publish it in their annual reports.
Corporate governance was, historically, the first to be recognized as a material factor that can affect a company’s operations and profitability. Some markets in the Asia-Pacific region, such as Australia, Hong Kong, and Singapore, published their first codes of corporate governance in the early 2000s, in the aftermath of the collapse of the dot-com bubble and the Enron scandal.
Environmental and social factors came into the spotlight later, with more emphasis being given to climate change, environmental pollution, and the effect of companies’ business on the communities in which they operate.
Japan stands out among other major markets in Asia-Pacific, having recognized the importance of environmental and social disclosures as early as 2003, when the Ministry of Environment issued its reporting guidelines.
The maturity of the market or its stock exchanges does not necessarily imply advancement in the ESG disclosures space. While the London Stock Exchange has published detailed, albeit voluntary, ESG reporting guidelines, the New York Stock Exchange has none.
A 2019 report by the Asia Corporate Governance Association (ACGA) and CLSA attributes Thailand’s progress in the corporate governance and ESG area to efforts by the country’s government to gain recognition of its efforts to curb human trafficking, grow sustainable fisheries, and stem corruption.
Since 2014, the SEC requires disclosures of policies and activities around corporate social responsibility. KPI-based ESG reporting remains voluntary, although SET encourages it by positioning good disclosures as a competitive advantage. The exchange sees this also as a point of diversification and a way to attract foreign investors.
The SEC issued a new Corporate Governance Code in 2017. It places an emphasis on sustainability reporting, using a proportionate report framework. Many companies choose to use GRI. SET publishes annually a list of companies that meet their ESG performance criteria.
According to the ACGA/CLSA survey of corporate governance, Thai companies are among the best in the region in sustainability disclosures. Thanks to that, Thai companies punch above their weight in global sustainable investing indices. The Dow Jones Sustainability Emerging Market Index includes 20 Thai companies among the 94 constituents, the highest number in Southeast Asia (on par with Taiwan).
CFA Institute believes that material ESG data need to be incorporated into investment analysis to provide a complete and thorough analysis in a fundamental investment portfolio. We are particularly focused on the quality and comparability of the ESG information provided by issuers and support development of better disclosure regimes globally. The example of Thailand shows that progress can be made quickly as long as the government, the financial industry, and the listed companies understand that availability of good ESG data is to everyone’s benefit, including the investors and the society at large.
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