Over recent years, there has been a growing demand for transparency on sustainable and socially responsible practices of companies by stakeholders with an interest in evaluating a company’s impact on the environment. An increasing number of companies are making disclosures in the three main fundamental areas - environmental, social and corporate governance - in their Environmental, Social and Governance (“ESG”) reports to reflect their impact on sustainability issues, as well as to improve their transparency about the risks and opportunities they face in these areas. With this regular ESG reporting, companies can gain credibility in the eyes of stakeholders and entice socially conscious investors.

There are many benefits to be gained by engaging in ESG reporting practices; one of which is that it is a useful risk management tool in the sense that ESG performance reports can show investors how a company mitigates risks and generates sustainable long-term financial returns. ESG reporting can also serve as a tool for investors in screening potential investments by providing an analysis of performance across said ESG factors, as well as allowing investors to avoid investing in companies that might pose a greater financial risk due to their poor ESG practices. Furthermore, companies with strong ESG performance often demonstrate higher returns on their investments, with fewer risks and improved resiliency during a crisis.

Thailand’s Securities and Exchange Commission (the “SEC”) has hopped onto this global trend by adopting the Investment Governance Code for Institutional Investors (I Code); to promote sustainable investment and requiring Thailand-listed companies to disclose their ESG performance to boost confidence of socially responsible investors in the Thai capital market.

1. ESG Reporting Obligations for Listed Companies

Under Thai law, a company issuing securities is generally required to prepare financial statements and reports (consisting of an annual report and any other report as specified in the notifications of the Capital Market Supervisory Board) concerning the financial condition and business operation of the company, and to submit them to the Office of the SEC by virtue of Section 56 of the Securities and Exchange Act B.E. 2535 (1992) (the “Securities and Exchange Act”); whereby prior to 2021, there was no requirement for such reports to contain details on the ESG practices of a listed company.

However, as of the end of 2021, the SEC requires information on ESG practices to be included in the annual filing of the above reports, which are now codified into a single report called the “56-1 One Report” by virtue of Sections 6 and 7 of the Notification of the Capital Market Supervisory Board of Thailand No. Tor Chor 55/2563 re: Criteria, Conditions, and Procedures on Reporting Information Relating to the Financial Conditions and Operations of a Company Issuing Securities (No. 20) (the “Notification of the CMSB”). This decision to codify the reports (consisting of the annual registration statement (Form 56-1) and the annual report (Form 56-2)) into a single report mainly derives from the SEC’s decision to reduce the filing and reporting burden under Section 56 of the SEC Act. This newly integrated “56-1 One Report” is to be submitted by listed companies to the SEC within three months from the end of the accounting period, and the information to be included in the “56-1 One Report” is as prescribed in the 56-1 One Report Form annexed to the Notification of the CMSB.

1.1 Organisation Structure and Operation of Companies

In relation to the organisational structure and operation of companies within the same corporate group, an overview of the vision, objectives, goals and business strategies of the company or group of companies (as specified by the company’s board of directors) must be provided in the 56-1 One Report, along with information on the directions and determination to drive the business towards sustainability; in order to allow investors to understand and monitor the future business directions of the company.

1.2 Risk Management

In terms of risk management, the information to be included in the 56-1 One Report shall prescribe: the current and emerging operational risks associated with the company or group of companies; and the factors that may cause material risks to the business operation, financial conditions and operating results of the company or group of companies, which shall include risk issues in the environmental and social areas, i.e. respect for human rights and good corporate governance. Specific examples of risk issues in environmental and social areas include climate change, disputes with the community and corruption.

1.3 Business Sustainability Development

In relation to business sustainability development, the information to be included in the 56-1 One Report must include the company’s policy and objectives relating to the sustainable management of the company, whereby such policy and objectives shall take into consideration environmental and social issues, as well as respect for human rights and good corporate governance. Such policy and objectives may be disclosed in full on the company’s website, and companies shall undertake to update and provide brief explanations of the updated sustainability management policy/objective to investors on a regular basis.

1.4 Management of Environmental Sustainability

In terms of management of environmental sustainability in its business operation, the company shall describe the environmental policy and guidelines of the company in accordance with the applicable environmental laws, rules and regulations, as well as indicate how the company is committed to mitigating negative impacts on various environmental issues (such as energy, water, refuse, waste, pollution and greenhouse gas problems) in the 56-1 One Report. Such environmental management policy and guidelines may be disclosed in full on the company’s website. Whenever such policy and guidelines are updated, the company shall inform investors of the changes on a regular basis.

Moreover, the company shall also describe the operating results of environmental management in relation to the business operation process of the company (such as management of energy, water, refuse, waste and pollution). The company will also need to disclose information on its greenhouse gas emission (according to international standards). In a case where the company has not prepared the greenhouse gas emission information, it shall specify the reasons thereof. In addition, if the company and its subsidiaries are being investigated by authorities for violation of environmental laws or regulations, or if the company and its subsidiaries are accused of causing a negative impact on the environment in a manner that may affect the business operation, image, reputation and assets of the company, the company will need to disclose full details of the investigation or accusation, as well as the steps taken to mitigate it.

1.5 Social Sustainability Management

In relation to social sustainability management, the company will need to provide information in the 56-1 One Report on its internal policy and guidelines which are in accordance with the laws and regulations pertaining to social sustainability management in the business operational process, which specifically includes respect for human rights throughout the supply chain (such as in relation to fair labour practices, providing responsible production and services for customers, and participating in social and community development). Such social sustainable management policy will need to be disclosed in full on the company’s website in order to provide investors with a guideline for monitoring the future business directions of the company. Whenever such policy and guidelines are updated, the company shall inform investors of the changes on a regular basis.

Moreover, the company shall also describe the operating results of social sustainability management in relation to the business operation process of the company, as well as the action plan of the company which shows the company’s ability to manage and mitigate social sustainability issues.[8] If the company and its subsidiaries are being investigated by authorities for violation of laws and regulations pertaining to social areas (such as violation of labour law), or if the company and its subsidiaries are accused of causing a negative impact on a societal or social issue in a manner that may affect the business operation, image, reputation and assets of the company, the company will need to disclose the full details of the investigation or accusation, as well as the steps taken to mitigate it. In addition, in the case where the company was involved in labour disputes during the past three years, it must provide the reasons and actions taken in that dispute, including the relationship between the executives and labour union (if any).

2. ESG Reporting Obligations on Non-Listed Companies

In respect of non-listed companies, there is currently no law which mandates that such companies are to be subject to mandatory ESG disclosure or reporting requirements. Nonetheless, despite the absence of a legal requirement, some companies may choose to voluntarily publish such information on their website for good corporate practice. However, in many parts of the world, the mandatory ESG disclosure or reporting requirement tends to only be imposed on listed companies, such as seen under the Thai legal system.

3. Future Outlook on ESG Reporting in Thailand

The SEC’s decision to require the disclosure of ESG practices in the 56-1 One Report not only indicates investors’ interests in a company’s ESG practices but it also creates a unified approach for listed companies undertaking the ESG reporting duty in Thailand in accordance with the SEC laws and regulations. While the prescribed 56-1 One Report Form annexed to the Notification of the CMSB sets out a general framework as to what information is to be included in the 56-1 One Report, there is still room for companies to carry out their ESG disclosure duty in any manner they deem appropriate because the prescribed form only serves to specify the bottom line of the reporting requirement. In this respect, as this mandatory requirement is a fairly recent phenomenon, it is uncertain whether companies will go beyond the legal requirement in making their ESG disclosure or whether they will put in minimal effort to meet the bare minimum requirements of the ESG disclosure.