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Environmental, Social, and Governance Due Diligence in Thailand
In recent years, Environmental, Social, and Governance (ESG) considerations have gained significant prominence in Thailand’s legal and business landscape. As global emphasis on sustainable business practices intensifies, Thai regulatory authorities have developed a comprehensive framework to address ESG concerns. Below examines the current state of ESG legal due diligence in Thailand, highlighting relevant legislation, regulatory requirements, and best practices for organizations operating within the Kingdom.
What is ESG?
ESG stands for Environmental, Social, and Governance. It’s a framework used to assess how organizations address sustainability and ethical practices across these three key dimensions:
Environmental
The environmental component examines how a company manages its impact on the natural world, including:
- Climate change initiatives and carbon footprint
- Resource conservation and efficiency
- Pollution and waste management
- Biodiversity protection
- Energy usage and renewable energy adoption
Social
The social aspect focuses on how a company manages relationships with people and communities, including:
- Labor practices and working conditions
- Diversity, equity, and inclusion
- Employee health and safety
- Human rights throughout the supply chain
- Community engagement and impact
- Product safety and quality
Governance
The governance element evaluates how a company is led and managed, including:
- Board structure, diversity, and independence
- Executive compensation policies
- Business ethics and anti-corruption measures
- Risk management procedures
- Shareholder rights
- Transparency and disclosure practices
ESG has become increasingly important in business and investment decisions because:
- ESG factors can identify potential operational, reputational, and legal risks
- Investment Screening: Investors use ESG criteria to evaluate potential investments
- Regulatory Compliance: Many jurisdictions now require ESG disclosures
- Stakeholder Expectations: Customers, employees, and communities increasingly expect companies to demonstrate responsible practices
- Long-term Value Creation: Research suggests companies with strong ESG performance often demonstrate better long-term financial results
In due diligence contexts, ESG assessment helps identify both risks and opportunities related to sustainability and ethical practices before proceeding with investments, mergers, acquisitions, or other significant business decisions.
Regulatory Framework in Thailand
The Securities and Exchange Commission of Thailand has established a robust regulatory framework governing ESG compliance for listed entities. Pursuant to the SEC’s Sustainability Development Roadmap, publicly traded companies must submit comprehensive sustainability reports in accordance with specified disclosure standards. The SEC has further introduced the Corporate Governance Code (CG Code), which delineates governance principles that listed companies are expected to implement or provide explanation for any deviations therefrom.
The Stock Exchange of Thailand complements the SEC’s efforts through several initiatives, most notably the Thailand Sustainability Investment (THSI) list. This index identifies companies demonstrating exceptional ESG performance, providing investors with validated information regarding sustainable investment opportunities. Additionally, the SET has published guidelines for sustainability reporting that align with international standards while accounting for Thailand’s unique economic context.
In addition, the Bank of Thailand has implemented the Sustainable Finance Initiative to promote responsible banking practices. Financial institutions operating in Thailand are increasingly required to incorporate ESG risk assessments into their lending decisions and portfolio management strategies. This initiative represents a significant shift toward integrating sustainability considerations into Thailand’s financial sector.
ESG Due Diligence
Environmental Due Diligence
Environmental due diligence in Thailand primarily operates under the Enhancement and Conservation of National Environmental Quality Act B.E. 2535 (1992), as amended. This legislation establishes:
- Environmental Impact Assessment (EIA) requirements for specified project categories
- Environmental Health Impact Assessment (EHIA) mandates for activities potentially affecting public health
- Pollution control standards across various environmental media
- Liability frameworks for environmental damages
Additional relevant legislation includes Factory Act B.E. 2535 (1992), Hazardous Substances Act B.E. 2535 (1992), Water Resources Act B.E. 2561 (2018) and National Parks Act B.E. 2562 (2019). For projects within the Eastern Economic Corridor (EEC), specific environmental requirements apply under the Eastern Economic Corridor Act B.E. 2561 (2018).
Social Factors in Due Diligence
Labour Law Compliance – Thai labour regulations are primarily governed by the Labour Protection Act B.E. 2541 (1998) and the Occupational Safety, Health and Environment Act B.E. 2554 (2011). These statutes establish comprehensive requirements regarding employment conditions and contract terms, working hours and remuneration, workplace safety standards, non-discrimination provisions, and collective bargaining rights. Due diligence should also extend to verification of compliance with social security obligations under the Social Security Act B.E. 2533 (1990).
Human Rights Considerations – Human Rights should also be taken into considerations. Thailand’s National Action Plan on Business and Human Rights (NAP) 2019-2022 establishes expectations for business enterprises regarding human rights due diligence. Organisations operating in Thailand must assess their operations’ potential human rights impacts, particularly in relation to indigenous communities’ rights, land acquisition practices, supply chain labour conditions, and anti-trafficking compliance under the Prevention and Suppression of Human Trafficking Act B.E. 2551 (2008).
Data Protection Obligations – The Personal Data Protection Act B.E. 2562 (2019), fully implemented in 2022, imposes significant obligations regarding the collection, use, and disclosure of personal information. ESG due diligence must verify compliance with these data protection requirements, which align substantially with the European Union’s General Data Protection Regulation.
Governance Due Diligence
Corporate Governance requirements in Thailand derive from multiple sources, i.e. the Public Limited Companies Act B.E. 2535 (1992), the Securities and Exchange Act B.E. 2535 (1992), the SEC’s Corporate Governance Code, and the Thai Civil and Commercial Code for non-listed entities. Due diligence should evaluate board composition, independence, and effectiveness, with particular attention to transparency in decision-making processes.
According to anti-corruption compliance, the Organic Act on Anti-Corruption B.E. 2561 (2018) establishes stringent anti-corruption requirements. Corporate entities shall implement appropriate internal controls to prevent corruption and maintain accurate books and records. Due diligence should assess the adequacy of anti-corruption policies, training programs, and reporting mechanisms.
With regard to Related Party Transactions, the SEC has implemented detailed regulations governing connected transactions to prevent conflicts of interest. These regulations require disclosure and, in certain circumstances, shareholder approval for transactions between connected parties. Thorough due diligence must identify existing related party arrangements and verify compliance with applicable disclosure requirements.
Practices for ESG Due Diligence in Thailand - Methodological Approach
Effective ESG due diligence in Thailand requires the engagement of legal counsel with specific expertise in Thai ESG regulations, thorough document review ( including Thai-language permits and licenses), site inspections of operational facilities, interviews with management and relevant stakeholders, assessment of historical compliance records, and evaluation of pending regulatory developments.
Due diligence activities should also take cultural considerations by conducting with appropriate cultural sensitivity which includes the recognition of Thailand’s hierarchical organizational structures, understanding of Thai business relationship dynamics, awareness of communication norms and protocols, and appropriate engagement with local communities
For documentation requirements, the comprehensive documentation of ESG due diligence findings is essential, including detailed compliance assessments against applicable Thai regulations, identification of material ESG risks specific to Thai operations, recommended remediation measures for any identified deficiencies and forward-looking analysis of emerging regulatory trends.
Conclusion
As Thailand continues to enhance its ESG regulatory framework, organizations operating within the Kingdom face increasingly sophisticated compliance obligations. Comprehensive legal due diligence addressing environmental, social, and governance considerations has become indispensable for risk management and sustainable business operations in Thailand. By adopting a systematic approach to ESG due diligence that accounts for Thailand’s unique legal and cultural context, organizations can effectively navigate this complex landscape while contributing positively to Thailand’s sustainable development objectives.
This article is intended for informational purposes only and does not constitute legal advice. Specific legal advice should be sought from qualified legal practitioners regarding particular circumstances.
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