SET ESG Ratings: Understanding the Sustainability Assessment Criteria for Listed Companies

SET ESG Ratings is a tool developed by the Stock Exchange of Thailand (SET) to assess the sustainability of listed companies. It evaluates performance based on three key dimensions: Environmental, Social, and Governance. The ratings help establish a standardized framework for measuring sustainability performance while promoting responsible investment and business practices within Thailand’s capital market.

What is the SET ESG Ratings?

SET ESG Ratings is a tool developed by the Stock Exchange of Thailand (SET) to evaluate the sustainability performance of listed companies. The assessment is based on three core components: Environmental, Social, and Governance (ESG).

The primary objective of the SET ESG Ratings is to establish a standard for measuring and comparing the sustainability performance of Thai listed companies. The ratings are categorized into four levels: BBB, A, AA, and AAA, depending on the scores received.

The Importance of SET ESG Ratings

For Investors: It provides essential data to support investment decisions by helping assess the long-term risks and business opportunities of various companies.
For Listed Companies: It serves as a tool for evaluating and improving their sustainability practices, enhancing credibility, and attracting ESG-focused investors.
For the Capital Market: It promotes the development of a more sustainable Thai capital market and raises the standards of corporate operations in line with global investment trends.

In essence, the SET ESG Ratings is a key instrument for driving sustainable business and investment development in the Thai capital market, by fostering transparency and credibility in ESG information for all stakeholders.

Criteria and Assessment Method for SET ESG Ratings

SET ESG Ratings are assessments conducted for listed companies that voluntarily participate in the annual Sustainability Assessment Questionnaire organized by the Stock Exchange of Thailand (SET). The evaluation covers three key dimensions: Environmental, Social, and Governance & Economic.

Assessment Process

The assessment process involves the following key steps:

Data Collection: SET considers information from various sources, including publicly disclosed materials such as the 56-1 One Report, sustainability reports, and company websites.
In-depth Review: SET conducts an in-depth review of corporate information, including board meeting reports, committee reports, operational procedures, business ethics, business plans, and Environmental Impact Assessment (EIA) reports, among others.
Evaluation: The assessment results are calculated based on weighted criteria, which vary by industry group and material issues. The evaluation considers the company's performance in terms of policies, processes, outcomes, and disclosure.

Qualification Criteria

To be ranked under SET ESG Ratings, listed companies must meet the following criteria:

Minimum Score: At least 50% in each dimension (Governance & Economic, Environmental, and Social).
Eligibility Requirements:
- Receive at least a 3-star rating in the Corporate Governance Report (CGR).
- Have no history of allegations or convictions related to governance violations or negative social/environmental impacts.
- Have no negative shareholders’ equity.
- Report net profit in at least 3 of the past 5 years.
- No announcements from the Securities and Exchange Commission (SEC) regarding abnormal trading behavior by directors or executives.

Rating Levels

Companies that pass the selection process for SET ESG Ratings are classified into the following 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

Future Changes

The Stock Exchange of Thailand has announced plans to transition from the SET ESG Ratings system to the FTSE Russell ESG Scores, a globally recognized standard.

During 2024–2025, there will be a pilot phase in which SET ESG Ratings will still be used in parallel.
From 2026 onwards, SET will officially adopt the FTSE Russell ESG Scores and discontinue the SET ESG Ratings.

This change aims to elevate the sustainability assessment standards of Thai listed companies to an international level, enhancing credibility and attracting foreign investors.

Latest SET ESG Ratings and How to Check

The Stock Exchange of Thailand (SET) has announced the list of listed companies that have passed the sustainable stock assessment under the SET ESG Ratings for the year 2024 (B.E. 2567). A total of 228 companies met the criteria and were officially rated, categorized into the following levels:

AAA Level: 56 companies
AA Level: 80 companies
A Level: 71 companies
BBB Level: 21 companies

The 56 companies that received the highest rating of AAA are considered leaders in sustainability within the Thai capital market. Notable examples of companies rated AAA include:

BCPG Public Company Limited (BCPG)
Indorama Ventures Public Company Limited (IVL)
Krungthai Card Public Company Limited (KTC)

Investors can view the complete and most up-to-date list of SET ESG-rated sustainable stocks through official sources from the Stock Exchange of Thailand. The full assessment results are available on the SET Sustainable Capital Market Development website under the 2024 SET ESG Ratings announcement.

It is also noteworthy that companies assessed under the SET ESG Ratings collectively account for 82% of the total market capitalization of the SET and mai (as of December 12, 2024), underscoring the significance of these firms within Thailand’s capital market.

Interestingly, in 2024, a total of 106 small- and mid-cap listed companies, each with a market capitalization not exceeding THB 10 billion, qualified for SET ESG Ratings. This marks a 43% increase from the previous year and reflects a growing commitment to sustainable business practices across companies of all sizes.ด

However, investors should be aware that the SET ESG Ratings are primarily based on disclosed information from the companies themselves. There is currently no mechanism in place to handle complaints that could lead to ESG score deductions during the year. Therefore, investors are encouraged to use this data alongside other analytical factors when making investment decisions.

Sustainable Investment Strategies Using SET ESG Ratingss

Utilizing SET ESG Ratings data as part of investment analysis and decision-making is a key strategy for investors focused on sustainable investing. The following approaches can be applied:

Use as a Preliminary Screening Tool: Investors can use SET ESG Ratings as an initial stock screening tool by focusing only on companies with high ratings, such as AA or AAA, to build a sustainable investment portfolio.
Analyze in Conjunction with Fundamentals: SET ESG Ratings should be assessed alongside financial fundamentals—such as financial ratios, revenue growth trends, and profitability—to provide a comprehensive view of a company.
Assess Long-Term Risks: ESG data can help identify potential future risks, such as environmental challenges, regulatory changes, or social issues that may impact a company’s business performance.
Identify Business Opportunities: Companies with high ESG Ratings often adopt innovative and sustainability-oriented business models, which may lead to new business opportunities in the future.
Consider Improvement Trends: Beyond current ratings, investors should evaluate trends in a company’s ESG performance. Companies showing consistent improvement may have the potential to deliver better returns over time.
Use for Risk Diversification: Construct a well-diversified portfolio by investing in companies with strong ESG Ratings across various industries to spread risk.
Monitor Rating Changes: Since SET ESG Ratings are updated annually, investors should regularly monitor changes and adjust their portfolios accordingly.
Review In-Depth ESG Information: In addition to the rating level, investors should explore detailed ESG information such as environmental policies, supply chain management, or labor practices to truly understand a company’s operations.

Incorporating SET ESG Ratings into the investment decision-making process enables investors to build portfolios that are both sustainable and capable of generating long-term returns. However, this data should be used in conjunction with a thorough analysis of other relevant factors to ensure the most effective investment decisions.

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