From SET ESG Ratings to Global Benchmarking with FTSE Russell ESG Scores

The Stock Exchange of Thailand is enhancing its sustainability assessment standards for listed companies by transitioning from the SET ESG Ratings system to the FTSE Russell ESG Scores. This international standard evaluates over 8,000 companies across 47 countries worldwide, aiming to boost credibility and attract global investors. Simultaneously, it prepares Thai companies to effectively compare their ESG performance with leading global firms.

Meaning and Importance of ESG Rating

The ESG Rating assesses a company’s performance in Environmental, Social, and Governance (ESG) areas, reflecting its commitment to sustainable business practices. In Thailand, the Stock Exchange of Thailand (SET) has developed SET ESG Ratings to evaluate companies listed on the stock exchange.

SET ESG Ratings play a crucial role in encouraging listed companies to operate sustainably by considering environmental impact, social responsibility, and good corporate governance. This assessment covers key areas such as ESG risk management, environmental policies, and actions toward employees, communities, and society.

The importance of ESG Rating lies in several aspects:

1. Promoting Sustainable Business Development: Encourages companies to continuously improve their ESG performance.
2. Tool for Investors: Enables investors to compare the ESG performance of various companies.
3. Enhancing Credibility: Companies with good ESG ratings tend to gain more trust from stakeholders.
4. Attracting Sustainability-Focused Investors: Global investors are increasingly prioritizing sustainable investments.
5. Creating Competitive Advantage: Companies with strong ESG credentials often have growth potential and deliver better long-term returns.

Having SET ESG Ratings helps elevate the business standards of Thai companies and represents a significant step towards aligning Thailand's capital market with global sustainability standards.

SET ESG Ratings Evaluation Criteria and Scoring Levels

SET ESG Ratings evaluates listed companies that voluntarily participate in the sustainability assessment of the Stock Exchange of Thailand (SET). The assessment covers key issues in three main dimensions: Environmental, Social, and Governance (ESG).

Evaluation Criteria:

1. Companies must score at least 50% in each of the three ESG dimensions.
2. Companies must meet specific qualification criteria, such as:

• Corporate Governance Report (CGR) quality assessment results
• Net profit and shareholder equity performance
• No record of ESG-related penalties
• No “C” symbol flag from the Stock Exchange

SET ESG Ratings Scoring Levels:

The SET ESG Ratings are divided into four levels:

• AAA: Total score of 90–100
• AA: Total score of 80–89
• A: Total score of 65–79
• BBB: Total score of 50–64

The assessment is conducted annually, based on information from annual reports, sustainability reports, and company websites. SET reviews the evaluation framework each year to align with global and national sustainability trends.

If a company is found to no longer meet the criteria during the year, it may be removed from the SET ESG Ratings. However, it is noted that the evaluation relies solely on self-disclosed information from companies and lacks a mechanism for handling complaints that might result in ESG score deductions throughout the year.

The Importance of SET ESG Ratings for Listed Companies

SET ESG Ratings hold significant importance for listed companies in several key areas:

1. Attracting Investors: Achieving a high SET ESG Rating enhances a company’s appeal to investors, especially those prioritizing sustainable investments.
2. Enhancing Image and Credibility: Companies with strong SET ESG Ratings gain greater trust from customers, employees, communities, and partners.
3. Increasing Access to Capital: Institutional investors and funding sources often consider ESG Ratings in their investment decisions, making it easier for highly-rated companies to access funding.
4. Strengthening Competitive Edge: Focusing on ESG principles helps companies manage resources and processes more effectively, reducing costs and boosting productivity.
5. Reducing Risk: SET ESG Ratings assessment enables companies to better identify and manage environmental, social, and governance-related risks, fostering long-term sustainability.
6. Preparing for the Future: ESG alignment helps companies stay prepared for stricter regulations and standards that are likely to emerge.
7. Building a Sustainable Corporate Culture: Emphasizing SET ESG Ratings fosters a culture of sustainability and responsibility within the organization.
8. Enhancing Value and Business Opportunities: Companies with high SET ESG Ratings are often valued higher by investors and stakeholders and are well-positioned to explore new business opportunities focused on sustainability.

Case Study: The Siam Cement Public Company Limited (SCC)

The Siam Cement Public Company Limited, or SCC, has received a top-tier SET ESG Rating of AAA. This high rating has drawn interest from institutional investors both domestically and internationally and has reinforced SCC’s image as a leader in sustainability within the industry. Additionally, SCC's commitment to ESG principles has driven the development of environmentally friendly innovations and products, enhancing business opportunities and competitive advantage in the global market.

Transition from SET ESG Ratings to FTSE Russell ESG Scores

The transition from SET ESG Ratings to FTSE Russell ESG Scores represents an upgrade of the sustainability assessment standards for Thai listed companies to an international level. The Stock Exchange of Thailand (SET) has partnered with FTSE Russell, a global leader in ESG assessment.

Key Changes:

1. Assessment Method: FTSE Russell ESG Scores are derived from publicly disclosed information by companies, such as annual reports, sustainability reports, and corporate websites, replacing the questionnaire-based approach of SET ESG Ratings.

2. Assessment Structure: FTSE Russell employs a three-tier structure, consisting of 3 main pillars, 14 themes, and over 300 indicators. Thai companies will be evaluated on an average of approximately 125 indicators.

3. Score Range: FTSE Russell ESG Scores range from 0 to 5.0, where 0 indicates no available data for assessment, and 5.0 represents best practices.

4. Assessment Scope: FTSE Russell will evaluate companies listed in the SET ESG Ratings for the previous year and those included in the SET100 Index.

Key Differences Between the Two Systems:

1. Global Standardization: FTSE Russell ESG Scores are used to evaluate over 8,000 companies in 47 countries worldwide, allowing for direct comparisons with global corporations.

2. Transparency: The reliance on publicly available data enhances transparency and reduces the burden on companies to respond to questionnaires.

3. Detailed Metrics: FTSE Russell includes more detailed and comprehensive indicators, increasing the precision of assessments.

Benefits of the Transition:

1. Increased Credibility: Adopting international standards enhances the credibility of Thai companies in the eyes of global investors.

2. Attracting Foreign Investors: FTSE Russell’s recognition by institutional investors worldwide can help attract foreign investment.

3. Development to Meet Global Standards: Thai companies are incentivized to elevate their ESG practices to match global leaders.

4. Enhanced Business Opportunities: A strong ESG score aligned with global standards could open new international business opportunities.

This transition will take place over a two-year pilot period (2024-2025), with official FTSE Russell ESG Scores being released in 2026, marking a significant step in elevating the sustainability standards of Thailand's capital market to the global level.

Preparing for FTSE Russell ESG Scores Assessment: What Listed Companies Need to Know

Preparation for FTSE Russell ESG Scores assessment is crucial for Thai listed companies, as it elevates sustainability evaluation standards to a global level. Companies should consider the following steps:

1. Understand the Assessment Criteria:

• Review the "Guideline to FTSE Russell ESG Scores" available in both Thai and English, published by the Stock Exchange of Thailand.
• Attend training and seminars organized by the Stock Exchange to fully understand the assessment criteria and preparation methods.

2. Enhance Information Disclosure:

• Focus on ESG information disclosure in annual reports, sustainability reports, and on the company website, ensuring comprehensive alignment with FTSE Russell indicators.
• Verify that disclosed information covers the three main pillars and 14 themes according to FTSE Russell’s assessment structure.

3. Develop Data Collection and Reporting Systems:

• Establish a systematic, continuous data collection process for relevant indicators.
• Improve internal reporting processes to efficiently gather and disclose complete, timely information.

4. Update ESG Policies and Strategies:

• Review and align environmental, social, and governance (ESG) policies with international standards.
• Set clear, measurable ESG goals and implementation plans.

5. Build Internal Understanding:

• Provide training for employees at all levels on the importance of ESG and the FTSE Russell ESG Scores assessment.
• Foster a corporate culture that emphasizes sustainable business practices.

6. Prepare for a Pilot Assessment:

• Participate in pilot assessments scheduled for 2024-2025 to gain insights and make improvements before the official assessment in 2026.
• Use the pilot assessment results to analyze the company's strengths and weaknesses, and develop continuous improvement plans.

7. Strengthen Stakeholder Collaboration:

• Build partnerships with suppliers, communities, and other stakeholders to enhance ESG practices across the value chain.
• Gather feedback and suggestions from stakeholders to improve operations.

8. Stay Updated on Global ESG Trends:

• Study best practices of leading global companies in the same industry.
• Track changes in international ESG regulations and standards to be prepared for future shifts.

Comprehensive preparation will enable Thai listed companies to navigate the FTSE Russell ESG Scores assessment smoothly, aligning their sustainability practices with global standards. This will enhance competitiveness and improve long-term investor appeal.

The Importance of Advancing to International Standards with ESG Ratings

The transition from SET ESG Ratings to FTSE Russell ESG Scores is a significant step in elevating the sustainability standards of the Thai capital market to an international level. This shift will bring numerous benefits to Thai listed companies in various aspects:

• Enhancing International Credibility: Using globally recognized assessment standards will boost the credibility of Thai companies in the eyes of international investors.
• Attracting Long-term Investors: Global institutional investors prioritize FTSE Russell ESG Scores in their investment decisions. A strong score can attract foreign investment flows.
• Benchmarking with Global Companies: FTSE Russell uses the same assessment approach with over 8,000 companies across 47 countries, allowing Thai companies to compare their ESG performance with top global firms.
• Improving ESG Operations: Adapting to international standards will encourage Thai companies to continually enhance their operations in environmental, social, and governance areas.
• Expanding Business Opportunities: A strong ESG score according to global standards may lead to new business opportunities at the international level.
• Mitigating ESG Risks: A more comprehensive and detailed assessment will help companies identify and manage ESG risks more effectively.
• Gaining a Competitive Edge: Companies with solid ESG practices often demonstrate greater growth potential and better long-term returns.

This transition will span two years (2024-2025) as a pilot phase, with the official announcement of FTSE Russell ESG Scores expected in 2026. Thai listed companies should seize this opportunity to prepare, enhance data disclosure, and align their ESG operations with international standards to strengthen their competitive edge and ensure long-term sustainability.

Raising the standards to FTSE Russell ESG Scores benefits not only listed companies but also enhances the overall Thai capital market. It strengthens the appeal and robustness of the Stock Exchange of Thailand on the global stage, which will positively impact Thailand's economy and sustainable development in the long run.

Reference:

• https://setsustainability.com/libraries/1340/item/-ftse-russell-esg-scores
• https://www.infoquest.co.th/2024/420872
• https://setsustainability.com/ftse-russel-esg-scores
• https://www.sdthailand.com/2024/07/transition-set-esg-ratings-to-ftse-russells-esg-scores/
• https://setsustainability.com/storage/files/32/TheGuidelineto-FTSE-Russell-TH-LO2.pdf
• https://www.sdperspectives.com/next-gen/25192-set-esg-ratings-ftse-russell/
• https://www.thairath.co.th/money/experts_pool/columnist/2800274
• https://www.esgprothai.com/content/29362/set-esg-ratings-ไปสู่-ftse-russell-esg-scores

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