With New Sustainability Taxonomies Being Launched in the Southeast Asian Region, Enterprises Need to Re-Evaluate Their Green Investments to Align with National Objectives

In late 2024, the Bank of Thailand (BoT) issued a public consultation on its proposed phase 2 draft of the Thailand Taxonomy, which is intended to cover four additional business verticals; 1) agriculture, 2) building and real estate, 3) manufacturing, and 4) waste management. This follows the launch of phase 1 of the Thai Sustainability Taxonomy in June 2023, which then focused on the energy and transport industries. In addition to the revised scope of the sustainability taxonomy, Thailand’s central bank is also collaborating with commercial banks to help local Small and Medium Enterprises (SMEs) transit to more sustainable operations via a program termed “Financing the Transition.” These recent activities highlight the increasing importance and emphasis placed by the Thai government on transitioning to a greener economy.

In a nutshell, a sustainable taxonomy aims to provide financial and non-financial institutions with a transparent and common framework that helps identify economic activities that are environmentally sustainable. Generally, most taxonomies use a “traffic light” system: 1) “green” indicates activities that contribute or are strongly aligned to the nation’s net-zero sustainability goals, 2) “amber” indicates activities that currently do not meet sustainability goals, but are moving toward decarbonization within a prescribed time frame, and 3) “red” indicates activities that do not contribute to the country’s net-zero targets. While sustainability taxonomies in the Southeast Asia (SEA) region are still in their early stages, some commonly cited benefits of clearly defined taxonomies include:

• Directing green investments toward sustainable activities based on science-based targets
• Facilitating green funding and financing for sustainable projects
• Ensuring transparent sustainability reporting by enterprises and reducing “greenwashing”

Across the SEA region, countries are guided by domestic, regional, and international sustainability classification systems. For example, Singapore has issued its own Singapore-Asia Taxonomy (SAT) targeted at Singapore-based financial institutions. Among SEA countries, the ASEAN Taxonomy for Sustainable Finance is also being developed to ensure that a consistent approach is being employed across the region.

In the past when there were no clearly defined sustainability taxonomies, enterprises were able to falsify or exaggerate the extent of their sustainability activities, in a practice known as “greenwashing.” The launch of taxonomy initiatives globally is a well-timed effort to effectively block such practices and accelerate concerted national efforts toward net-zero targets. With emission reporting requirements emerging across various SEA countries, enterprises have to start considering how they are able to measure, capture, and report their sustainability activities in an effective and efficient manner.

In light of the above, ABI Research has identified some action items that enterprises should consider:

• Evaluate Value Chain: Enterprises need to conduct a full evaluation of their value chain to identify key areas and/or sources of Greenhouse Gas (GHG) emissions within their supply chain.
• Formulate the Right Decarbonization Strategies: After identifying the key sources of emissions in the value chain, enterprises need to start formulating the right decarbonization strategies that are aligned with the relevant taxonomies. This ensures that investments in sustainable activities are aligned with national objectives.
• Capture and Report the Right Data: Enterprises will also need to employ the right solutions to capture, monitor, and report their sustainability efforts. This can be done via the formation of specialized internal teams or via third-party carbon management software solutions and services.

In today’s world where the impact of climate change is becoming increasingly visible, ABI Research expects governments across the SEA region to accelerate their sustainability roadmaps. Enterprises need to be prepared to comply with increasingly stringent regulatory environments.