Thai ESG funds, or Thailand ESG Funds, are a type of mutual fund that invests in companies recognized for their excellence in Environmental, Social, and Governance (ESG) practices. These funds aim to promote sustainable investments in Thailand and provide tax incentives for individual taxpayers. Investors can purchase Thai ESG funds to reduce their tax liability, similar to how SSF and RMF funds operate.
Thai ESGX Funds, launched in May 2025, are designed to promote sustainable investment in Thailand’s capital market, focusing on equities and bonds that align with Environmental, Social, and Governance (ESG) principles. These funds aim to attract significant capital inflows, stabilize the Thai stock market, and support long-term sustainable growth.
Investment Composition
Thai ESG funds typically invest in the top-performing ESG stocks, focusing on companies listed on the Stock Exchange of Thailand (SET) and the Market for Alternative Investment (mai). The funds usually allocate at least 80% of their net asset value (NAV) to these top ESG companies throughout the fiscal year.
Thai ESGX Funds have a structured investment policy that emphasizes sustainability and includes the following key allocations:
- Thai Equities (Minimum 65% of Net Asset Value – NAV): At least 65% of the fund’s NAV is invested in Thai stocks listed on the Stock Exchange of Thailand (SET) or the Market for Alternative Investment (mai). These stocks are selected for their outstanding ESG performance, such as:
- Companies with SET ESG Ratings for excellent environmental or sustainability practices.
- Firms disclosing greenhouse gas emissions, management plans, and targets aligned with Thailand’s carbon reduction goals.
- Companies demonstrating strong corporate governance.
- Thai Bonds (Up to 15% of NAV): The funds may invest in Thai sovereign instruments, including green bonds, sustainability bonds, or sustainability-linked bonds issued by the Thai government or businesses established under Thai law. These bonds support Thailand’s sustainability objectives.
- Foreign Assets (Up to 20% of NAV): Some Thai ESGX Funds allocate up to 20% of their NAV to foreign equities or other assets, such as U.S., Chinese, or global stocks, to diversify risk. Fund managers may hedge against exchange rate risks at their discretion.
- Other Instruments (Up to 30% in Some Funds): Depending on the fund’s strategy, up to 30% of the NAV may be invested in other instruments like debt securities or alternative assets, including derivatives for hedging or portfolio management efficiency.
Investment Strategies
The Thai government has approved the establishment of 37 Thai ESGX funds managed by 19 fund management companies, which will be available for purchase from May 2 to June 30, 2025. Investors can claim tax deductions for their investments in Thai ESGX funds. For general investors, the tax deduction is up to 30% of assessable income, capped at 300,000 baht, with a minimum holding period of five years.
Investors should be aware that Thai ESG funds, like other mutual funds, carry investment risks. The performance of these funds is not guaranteed, and the investor may receive an amount that is more or less than the original principal invested. Additionally, there is no guarantee that the investor will be able to redeem their units within the usual timeframe or that the redemption will be executed as instructed.
Thai ESGX Funds are offered in various styles to cater to different investor preferences. The strategies include:
- Active Management (70-80% Thai Stocks): Actively managed funds select high-sustainability Thai stocks, aiming to outperform benchmarks like the SET ESG Total Return Index. Examples include funds using Fundamental Market Value (FMV) models or sector-specific strategies.
- Passive Management: Some funds track the SET ESG Total Return Index, investing in its components to mirror its performance with lower fees.
- Balanced Approach (70% Stocks, 30% Bonds/Other): These funds balance Thai ESG stocks with bonds or other instruments to reduce volatility while maintaining sustainability focus.
- Dividend-Focused Funds: Funds like Bualuang’s BMDIV-TESGX target low-beta, high-liquidity Thai stocks with consistent dividends, limiting sustainable stock exposure to 70% of NAV.
- Thematic or Sector-Specific: Some funds focus on high-growth ESG sectors like wellness tourism, clean energy, or data centers, which are expected to drive Thailand’s sustainable growth.
For investors holding Long-Term Equity Funds (LTFs) as of March 11, 2025, who declare their intention to fully transfer all LTF units to a Thai ESGX fund in May or June, they can receive a maximum tax deduction of 500,000 baht for the tax years 2025-2029, with up to 300,000 baht deducted in 2025 and the remaining balance distributed equally from 2026-2029.
Specific Examples of Funds
As of May 2025, 37 Thai ESGX Funds from 19 asset management companies (AMCs) are under consideration for approval. Notable examples include:
- Bualuang Asset Management (BBLAM):
- BMDIV-TESGX: A low-fee, low-beta fund with a dividend focus, investing up to 70% in sustainable Thai stocks with high liquidity and dividend payouts.
- Other Thai ESGX Funds from BBLAM offer active and balanced strategies tailored to different risk profiles.
- Krungsri Asset Management: Offers Thai ESGX Funds with a mix of active and passive strategies, emphasizing sustainable Thai equities.
- SCB Asset Management (SCBAM): Provides funds like SCB Thai Sustainable Equity Passive Fund (ThaiESG), which tracks the SET ESG Total Return Index, and active funds with up to 20% foreign asset exposure.
- Kasikorn Asset Management (KAsset): Manages funds like K Target Net Zero Thai Equity Fund, which focuses on net-zero-aligned Thai companies.
Examples of Stocks and Sectors
While specific stock holdings for Thai ESGX Funds are not fully disclosed in the provided data, Thai ESG Funds (the predecessor to ESGX) invested in stocks with high ESG ratings (A-AAA). Recommended stocks for Thai ESG investments, likely relevant for ESGX, include:
- Advanced Info Service PCL (SET: ADVANC): A telecom company with strong revenue growth and ESG ratings, expected to benefit from reduced competition.
- Airports of Thailand PCL (SET: AOT): Benefits from tourism growth, with significant profit projections and high ESG scores.
- Central Pattana PCL (SET: CPN): A real estate and retail company with strong performance across sectors and solid ESG credentials.
- Gulf Energy Development PCL (SET: GULF): A clean energy company increasing production capacity, aligned with sustainability goals. These stocks are part of major SET indices and are favored for their ESG compliance and growth potential in sectors like tourism, clean energy, and technology.
- Historical Context (Thai ESG Funds): Thai ESG Funds, which Thai ESGX builds upon, showed strong performance in 2024. For example, BBLAM’s Bualuang Top-Ten Thailand ESG Fund yielded 8.39% year-to-date as of October 22, 2024, and KAsset’s K Target Net Zero Thai Equity Fund returned 8.13%. These outperformed the SET’s 3.85% return but were slightly below the SET Total Return Index’s 7.27%.
- Expected Inflows: The Association of Investment Management Companies (AIMC) estimates Thai ESGX Funds will attract at least THB 20 billion in new investments, with up to THB 80 billion from Long-Term Equity Fund (LTF) transfers, totaling THB 100 billion in inflows from May to June 2025.
- Market Stabilization: The funds are expected to ease selling pressure from LTF redemptions (valued at THB 150-160 billion) and boost the SET Index by approximately 25 points with THB 10 trillion in investments.
Tax Incentives and Conditions
Thai ESGX Funds offer significant tax benefits to encourage investment:
- New Investments: A tax deduction of up to 30% of assessable income, capped at THB 300,000, for investments made between May 2 and June 30, 2025. Units must be held for at least 5 years.
- LTF Transfers: Investors transferring LTF units (as of March 11, 2025) to Thai ESGX Funds can claim a tax deduction of up to THB 500,000, with THB 300,000 in 2025 and THB 50,000 annually from 2026 to 2029.
- Compliance: Investors must comply with Revenue Department conditions, such as holding periods, to retain tax benefits. Non-compliance may require returning tax benefits or incurring penalties.
Risks and Considerations
- Market Risk: Investments are not guaranteed, and principal loss is possible, especially in volatile market conditions.
- Liquidity Risk: In extraordinary circumstances, redemptions may be delayed if funds lack sufficient liquidity.
- Corporate Governance: Funds must ensure investments align with ESG criteria, and companies like Energy Absolute (EA) have been removed from SET ESG Ratings due to governance issues, highlighting the need for diligent selection.
- Regulatory Compliance: Asset management companies must adhere to SEC rules, ensuring at least 80% of NAV is invested in eligible ESG assets annually.
Thai ESGX Funds primarily invest in Thai ESG-rated equities (at least 65% of NAV), Thai green or sustainability bonds (up to 15%), and foreign assets (up to 20%), with some funds allocating up to 30% to other instruments. They employ active, passive, or balanced strategies, targeting sectors like clean energy, tourism, and technology. With 37 funds from 19 AMCs, they are expected to attract THB 100 billion in 2025, supported by tax incentives and LTF transfers. Investors should review prospectuses, assess risks, and ensure compliance with tax conditions before investing. For detailed fund information, visit the SET website (www.set.or.th) or contact AMCs like BBLAM or SCBAM.
