By: Metta Kongphan-apirak / Agriculture and Food Cluster, GIZ Thailand
A group of ten executives and officers from Bank for Agriculture and Agricultural Cooperatives (BAAC) together with representatives from GIZ Thailand went on a week-long trip to Germany. The aim was to learn good practices on sustainable finance, Environmental, Social, and Governance (ESG) risk management, and innovative green financing models that are crucial for not only improving banking strategies and operations, but also supporting small-scale farmers to effectively access financial packages essential to help them reduce carbon emissions in the agricultural sector and adapted to climate change.
Driven by rising consumer expectations, investor confidence needs, and regulatory pressures, ESG practices are becoming a core business requirement for financial institutions in Thailand. Key developments include the integration of ESG risk assessments into lending and portfolio management, the growth of green bond issuance, and the expansion of sustainable finance options, all reflecting a broader shift towards embedding sustainability into core financial strategies.
The German banking experts all emphasised the critical role of ESG risk integration in driving banking strategies and the overall risk management processes.
“Climate targets, energy transition and social transformation are not going away. Regulations will continue to be a key driver of transparency along with trusted frameworks like ‘Taxonomy’ and global disclosure standards. These help reduce greenwashing risks and give investors confidence. Banks that fail to align portfolios with net zero pathways will face the higher capital for transitional and reputational risks. Those who act early can turn this into a competitive advantage by offering clients solutions that combine financial performance with sustainability outcomes,” said Ms Patricia Posch, Chief of Sustainability Office of Bayern LB – regarded as one of the major commercial banks in Germany.
Mr Frank Maubach, Director of Credit Management at Sparkasse München, as part of Germany’s largest network of financial institutions also emphasised that the banks must systematically integrate ESG risks into their credit standards, and the overall risk management processes: “It is necessary for banks to embed sustainability into their core operations to remain accountable, competitive and resilient.”
Over the past six years, Germany and the European Union have tightened the ESG regulations. As a development agency for agribusiness and rural areas, Rentenbank has continuously been reassessing scenarios by appointing a board to oversee risk framework, bank adaptation and strategic implementation to ensure legal compliance, sustainability and governance. “Staying ahead of regulatory changes and collaborating with external experts further supports effective ESG strategies and compliance,” said Mr Max Nolten, Sustainability Manager at Rentenbank.
Organic certification, green innovation crucial for improving smallholders’ livelihoods
As the European market demand for organic products is growing, mainly due to consumer awareness of health and environmental issues, Ms Yuko Muramatsu, International Member Support &Quality Assurance (South East Asia/China) at Naturland, a leading organic certification body, said (during a visit) that rice smallholders in Thailand had the potential to improve their household incomes by enhancing their capacities to produce organic certified rice products for feeding into premium markets.
Mr Tobias Breunig, Agricultural Finance Advisor, GIZ, said the ASEAN Sustainable Rice Straw project has reflected ongoing efforts to promote sustainable rice production and the reduction of burning rice straw and residues following circular economy principles and environmental conservation. GIZ works in collaboration with Urmatt Ltd. to implement this initiative in Chiang Rai. The aim is to transform rice straw into eco-friendly products such as fertiliser, cellulose and biodegradable packaging. This sustainable production in the rice value chain offers opportunities for Thai farmers to access finance essential for putting into practice climate-smart and resilient farming following the bio-circular-green model.
With continued efforts, BAAC is moving forward with the implementation of the ‘Climate Smart Package’ and ‘Climate Smart Financial Training’ so called ‘SC-Fin’ together with GIZ under the Thai Rice GCF Project. These include tailored loan products, farmer training, and the integration of climate-smart criteria into credit assessment procedures. The implementation and collaboration will support BAAC’s policies and procedures ensuring sustainability is embedded across all levels of the institution.
Key takeaways for taking action
Mr Kriangkrai Kalharat, Senior Executive Vice President of BAAC, said after learning from various financial institutions during the trip, said: “It is clear what BAAC, as an agricultural and rural development bank, needs now is to establish a roadmap with clear outputs to effectively manage ESG risks. ESG risk management should become a part of BAAC’s long-term strategy, helping us support our farmer clients through transitional finance for sustainable agricultural practices.”
Mr Paisan Hongtong, Senior Executive Vice President of BAAC, mentioned that the ongoing cooperation with GIZ through multiple projects is a key to achieving these goals. BAAC planned to launch the ‘Climate Smart Package’ as a new loan programme, along with other financial support packages, which will enable smallholder farmers to boost their agricultural productivity while encouraging them to lower their greenhouse gas emissions.
This partnership would not only enable the bank to further tailor and integrate ESG principles into its strategy, policy, product development and implementation, but also enable Thai smallholder farmers to access the transitional financing needed to adopt climate-smart technologies in rice farming, he said. ■