Emergence of Sustainable Investment and Impact of Tax Incentives on ESG Funds in Thailand

In the contemporary world, sustainable investment has emerged as a global trend. Investors worldwide are increasingly focusing on companies’ sustainability practices, believing that these actions will translate into sustained long-term performance. Thailand is no exception to this trend. Over the past decade, Thailand’s securities authorities have actively promoted ESG (Environment, Social, and Governance) principles. This article explores the sustainable investment trends in Thailand, the concept of tax incentives for ESG funds, the number of new ESG funds launched to date, and their Assets Under Management (AUM).

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The Evolution of Sustainable Investment Trends in Thailand

Thailand has made significant strides in sustainable investment. A survey conducted by Deloitte Thailand in 2022 among 106 leading companies in Thailand revealed varying levels of ESG preparation or implementation among organizations. The survey also highlighted opportunities to introduce green technologies and business models in the energy and consumer product industries. In July 2022, the Securities Exchange Commission of Thailand (SEC) and UNDP Thailand launched the Thailand SDG Investor Map. The map identified fifteen investment opportunities in eight SDG-related sectors that can enhance the implementation of the National Economic and Social Development Plan. These sectors include Food & Beverages, Renewable Resources & Alternative Energy, Health Services, Transportation, Financials, Infrastructure, Services, and Education.

The Stock Exchange of Thailand (SET) is at the forefront of championing Environmental, Social, and Governance (ESG) principles and sustainability within the country. SET has seamlessly integrated ESG principles into its comprehensive operations, spanning from the intricate listing process to the promotion of financial literacy among the public. It has been meticulously evaluating the ESG performance of listed companies. In the year 2023, a commendable number of 193 listed companies met the stringent selection criteria and were consequently awarded the SET ESG Ratings. This development underscores the escalating significance attributed to ESG aspects in the realm of business operations. Moreover, SET has aligned its sustainability principles with the globally recognized UN Sustainable Development Goals. These concerted efforts are a testament to SET’s unwavering commitment to bolstering the economy while advocating for social and environmental sustainability.?

GPF and Major Asset Owner Commitment Towards Sustainability

The GPF, one of the largest investors in Thailand, aims to be the leader in ESG investing and initiatives in the country and globally. As a universal owner, GPF has a wider responsibility to support global action on sustainable development, and to ensure that ESG issues are properly integrated into all of its investment decisions. The Government Pension Fund (GPF) of Thailand has signed up to the Principles for Responsible Investment. As a signatory, GPF is expected to take into account the environmental and societal implications of their decisions.

The Game-Changing Impact of Tax Incentives for ESG Funds in Thailand

The Thai government’s decision to offer tax incentives for investments in Environmental, Social, and Corporate Governance (ESG) funds has been a game-changer in the country’s financial landscape. This initiative, approved by the Thai Cabinet on December 8, 2023, and implemented through Ministerial Regulation No. 390 and the Notification of Director-General on Income Tax No. 442, has significant implications for investors, the financial market, and the broader Thai society.

• The Impact of Tax Incentives on ESG Funds in Thailand

To encourage sustainable investment, the Thai government has introduced tax incentives for investing in Thai ESG funds. Investors can deduct up to 30% of their annual taxable income, with a maximum investment cap of 100,000 baht. These deductions can be applied when purchasing units of any Thai ESG Funds, provided that the investment units are held for a minimum of eight years from the date of purchase. In June 2024, the Ministry of Finance proposed changes to these conditions, including reducing the minimum holding period from eight years to five years and increasing the maximum annual tax deduction from 100,000 baht to 300,000 baht.

Since the introduction of tax incentives for ESG funds in Thailand, the market has witnessed a surge in sustainable investment fund launches. Thai ESG equity funds, numbering 18, were launched and collectively manage a total net asset (TNA) of 135.74 million US dollars. These funds focus on socially responsible investments within the equity asset class. Additionally, 3 Thai ESG fixed income funds have been launched, with a combined TNA of 20.98 million US dollars, prioritizing sustainable fixed income investments. Furthermore, 3 funds fall under the mixed assets category, managing a total of 28.18 million US dollars. These mixed assets funds blend equity and fixed income components while adhering to ESG principles. Overall, Thailand now boasts 24 new ESG funds post introduction of tax breaks with a cumulative TNA of 184.89 million US dollars post introduction of tax incentives. This growth reflects investor interest in aligning financial goals with environmental and social considerations.

• Advantages of Tax Incentives on ESG Funds:

The introduction of tax incentives in Thailand has led to a significant boost in sustainable investments. These incentives have encouraged individuals to invest in Environmental, Social, and Governance (ESG) funds, which focus on companies that adhere to sustainable business practices.

Investors in Thai ESG funds can enjoy attractive tax deductions, with the ability to deduct up to 30% of their annual taxable income, subject to a maximum investment cap of 100,000 baht. This initiative aligns with previous schemes such as Retirement Mutual Funds (RMF), Super Savings Funds (SSF), Super Savings Fund Extra (SSFX), and Long-Term Equity Funds (LTF). The scheme offers flexibility and encourages long-term commitment. There is no specified minimum investment, and these deductions can be claimed for tax years spanning from 2023 to 2032. The minimum investment period for Thai ESG spans a full eight years from the purchase date, and investors can purchase Thai ESG funds in any given year and claim tax deductions only for the years units were purchased.

These tax incentives also encourage individuals to plan their finances strategically. The immediate financial benefits from the tax deductions, coupled with the long-term holding period, encourage investors to think long-term and contribute to their financial stability. Furthermore, by attracting more investments into the financial market, the tax incentives can stimulate economic growth. The increased capital can be used by companies for expansion, innovation, and job creation. The tax incentives for ESG funds also foster corporate social responsibility. Companies that adhere to ESG principles are more likely to attract investments, encouraging them to adopt sustainable and socially responsible practices.

?Lastly, this initiative enhances Thailand’s reputation as a forward-thinking market that promotes sustainable investments. This can attract more foreign investments and boost the country’s standing in the global financial market.

Conclusion

The rise of sustainable investment in Thailand aligns with a global shift towards more responsible and sustainable business practices. The Thai government’s tax incentives for ESG funds further encourage this trend, making Thailand an attractive market for sustainable investment. As more ESG funds are launched and their AUM grows, Thailand is poised to become an attractive destination for the sustainable investment in the region. The future of sustainable investment in Thailand looks promising, and it will be interesting to see how these trends evolve in the coming years.

Disclaimer: The content published on this blog represents my personal opinions and views and should not be taken as professional investment advice. I am not a certified financial advisor or consultant, and the information presented here is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, nor does it constitute an offer to provide investment advisory or other services. Furthermore, the opinions expressed here are not intended to and do not represent those of my employer or any of my professional colleagues. Readers should consult with their own financial advisors or consultant before making any investment decisions. I expressly disclaim all liability in respect to actions taken based on any or all of the information on this blog.