Transition Bonds and Thailand Amber Bonds: Bridges for Business Transformation Towards Sustainability

In recent years, the global trend towards sustainable finance has focused on supporting environmentally friendly activities, or "Green Finance," through various financial instruments such as Green Bonds, Sustainability Bonds, and Sustainability-linked Bonds, in order to create a positive impact on the environment and society.

However, specific support... "Green Business" Achieving carbon neutrality and net-zero greenhouse gas emissions cannot be done immediately. It requires funding for a systematic, gradual transition to a low-carbon economy, particularly in sectors that are difficult to reduce greenhouse gas emissions, such as energy, heavy industry, and transportation. This has led to the global sustainability concept expanding to include "supporting the transition."

for this reason ""Transition Finance" Therefore, funding tools for the transition play a crucial role in supporting projects that enable high-carbon businesses to reduce their greenhouse gas emissions along the decarbonization pathway and towards national net-zero emission targets.

Examples of such projects, according to the ICMA (International Capital Market Association) Climate Transition Bond Guideline, include carbon capture, utilization and storage; decommissioning or dismantling high-greenhouse gas emission assets; and fossil fuel conversion.

To ensure clarity and reliability in Transition Finance operations, various organizations have developed two main groups of key tools:

1.Taxonomy For example, the ASEAN Taxonomy and the Thailand Taxonomy define and categorize economic activities using a three-color traffic light system: 1) Green signifies environmentally friendly activities aligned with the Paris Agreement's goal of limiting global warming to no more than 1.5 degrees Celsius; 2) Yellow (Amber) represents activities in a transitional phase that still involve greenhouse gas emissions, but at science-based levels, consistent with the Paris Agreement's goals; and 3) Red signifies activities that do not align with the Net Zero path and create significant negative environmental impacts.

2.Transition Finance Handbook/Guidance These frameworks define the components of a Transition Framework/Plan for reliability, such as ICMA, Climate Transition Finance Handbook (CTFH), ASEAN Transition Finance Guidance (ATFG), and Japan's Basic Guidelines on Climate Transition Finance. In the context of Thailand, the SEC (Securities and Exchange Commission of Thailand) recognizes the importance of Transition Finance and has included the development of financial products supporting Transition Finance as one of its strategic plans for 2026-2028. This has begun with the development of two types of debt instruments: Transition Bonds and Thailand Amber Bonds.

Transition Bonds This is a debt instrument issued to raise funds for projects that support the transition of businesses or industries that still emit greenhouse gases, aiming to gradually reduce those emissions and move towards a low-carbon economy. The funds raised are intended to be invested in projects that align with international Transition Bond standards.

Thailand Amber Bond This will provide bond issuers with an alternative way to raise funds for investment in transition projects within the context of Thailand, with the funds specifically designated for investment in projects classified as "yellow" activities according to the assessment criteria in the Thailand Taxonomy.

This product will provide new options for issuers, particularly those in industries facing challenges in reducing greenhouse gas emissions. It will offer a financial instrument that allows them to communicate their commitment and transformation journey, potentially attracting investors who support sustainable development.

While investors will benefit from having a wider variety of investment options, they will also have confidence in the transparency of information, as these types of instruments are required to disclose information according to international standards and must undergo review or certification from an independent external appraiser, just like other sustainability bonds.

Based on the aforementioned criteria, Thailand will be among the leading countries in the world to have regulations supporting the issuance and offering of Transition Bonds, as well as debt instruments referencing yellow-classified activities in the Taxonomy, such as Thailand Amber Bonds. Currently, the SEC is in the process of revising the regulations, which are expected to come into effect in the third quarter. The SEC also plans to support this through capacity building to promote the issuance and offering of such products in the future. In addition, the SEC will have other promotional measures for issuers, such as waiving application fees and filing fees until May 31, 2028.

Ultimately, for capital markets to effectively move towards long-term sustainability, interim mechanisms are necessary. These mechanisms will promote climate and environmental transitions while maintaining a clear, reliable, and internationally aligned regulatory framework and disclosure standards. Once organizations have transitioned to a greener model, Green Finance can be used for other fundraising purposes.