Banks embark on sustainable finance journey
Thailand is taking serious steps in its journey towards sustainable finance as it recognizes the importance of addressing the adverse effects of climate change, inequality, and poor governance in the context of a wider global landscape.
31 Oct 2019 | Bayani S Cruz
Spearheaded by the Bank of Thailand (BOT), the country’s powerful central bank, the banking sector has been undertaking various efforts at education and thought leadership as well as introducing responsible lending guidelines for commercial banks. While these may be considered baby steps when compared to what their peers in the more developed markets are already doing, these efforts are intended to be the start of bigger and wider ranging endeavours in the field of sustainable development.
On August 13, for example, the BOT, together with 15 of the country’s largest commercial banks launched a formal collaboration intended to produce a set of guidelines for responsible investing as part of each bank’s sustainable business operation.
When completed, the guidelines will provide a set of lending criteria based on environmental, social and governance (ESG) principles.
The goal is to have policies for responsible lending in place by the end of 2020, accounting for stakeholder engagement, internal implementation mechanism, as well as transparency.
“Banks should adopt responsible lending guidelines and adjust themselves through internal changes to fend off problems that would otherwise be caused by their failure to embrace the ESG principles,” says BOT Governor Dr. Veerathai Santiprabhob.
The launching ceremonies for the guidelines for responsible lending were part of a thought leadership event on August 13 held by the BOT known as the “Bangkok Sustainable Banking Forum 2019”.
This is the second such event held by the BOT which aims to raise industry understanding of the concept of sustainable banking and jumpstart sustainability practices in the Thai financial industry.
Building upon the momentum from last year’s event, the “Bangkok Sustainable Banking Forum 2019” aims to deepen the adoption of sustainability practices in the Thai financial industry and to serve as a wake-up call for the financial industry to rethink ESG risks as sources of financial risks.
The forum was attended by over 400 participants representing global central banks and supervisors, international organizations and partners, high-level executives from Thai financial institutions, financial regulators, government agencies, and non-profit organizations.
Like in other markets, the financial sector plays a pivotal role in addressing ESG risks as it can dictate how and to what areas funds are channeled to in an economy.
For Thailand, although banks have taken some initiatives to adopt sustainability practices, the overall sustainability practices of banks remain in the early stages of implementation, with different levels of understanding and many industry participants reporting sustainability practices only as a part of Corporate Social Responsibility (CSR) activities.
Thus, there is much room to improve on Thai banks’ ESG integration practices.
For their part, the Thai Bankers’ Association and commercial banks are aware of their primary role in the banking sector.
As financial intermediaries, the banks aim to elevate the operation of Thailand’s financial sector by establishing a common policy on responsible lending guidelines.
The guidelines will ensure that Thailand’s commercial banks will have proper procedures to promote socially-conscious loan approvals based on ESG concerns to protect financial institutions and mitigate potential damages.
The banking sector is ready to incorporate these policies in their consideration for loan approval next year, setting a course towards sustainability.
“All of our member banks believe that the financial institution system is an important mechanism in not only providing financial support via lending but also creating a balance that can help minimize potential risks to the financial sector and Thai economy. Therefore, a commitment by financial institutions towards responsible lending will help protect financial service users and build the nation’s stability over the long term,” says Predee Daochai, chairman of the Thai Bankers’ Association.