A Climate Risk Disclosure Barometer 2020 study by EY revealed that over 60% of the 100 public-listed companies surveyed in Malaysia reported their commitment to climate action, which includes stepping up disclosures on climate-related risks in governance, strategy and risk management. However, out of more than 1,800 companies that have signed up to the Science Based Targets initiative (SBTi), only six are Malaysian companies
On 29 June 2021, Eco-Business held a Webinar convening leading thinkers and decision makers for a public discussion on the current and future state of the carbon targets landscape in Malaysia. This commentary captures the key points of the discussion which helps companies in Malaysia to understand the current national context, why they should set carbon targets and steps they should consider taking.
Malaysia’s Progress Thus Far
Since the Paris Agreement in 2015, Malaysia committed to reducing greenhouse gas (GHG) emissions intensity by 45% from 2005 levels, by 2030. Together with the commitments from 195 party nations, the aspiration was to limit global warming to well below 2°C and preferably to 1.5°C. Since then, countries have stepped up to work towards their respective commitments and fostering an ecosystem that rewards climate action.
Malaysia has implemented several policies to reduce GHG over the years, which has resulted in a decrease of GHG emission intensity per GDP over time.
- Created the Sustainable Energy Development Authority (SEDA) in 2011, which oversees the promotion of renewable energy creation in the country. Renewables currently contribute 18% to Malaysia’s energy capacity mix, dominated by hydropower. The organisation will work towards the goal of increasing that figure, excluding hydropower, to 20% by 2025.
However, Malaysia is still highly dependent on traditional, high-carbon emitting sources of fuel coal, natural gas, oil which made up 97% of Malaysia’s energy generation in 2020. Consumption of these non-renewable fuels have been increasing together with Malaysia’s total CO2 emissions. This poses a challenge to Malaysia as it seeks to secure prosperity and livelihoods for its people, with energy as an important driver, while continuing to meet growing demands for greater climate ambitions.
- In September this year, Prime Minister Ismail Sabri Yaakob pledged for Malaysia to become a carbon neutral country by 2050 and listed several measures to facilitate this transition.
- By pivoting to renewable energy, Malaysia can be better positioned to meet both of these demands. The Renewable Energy Transition Roadmap (“RETR”) 2035, which is expected to be rolled out in 2021 by SEDA, will likely catalyse the supply of renewables into the energy mix. Malaysia is also focusing on its power generation plan with a target of 31% renewable energy in its installed capacity in 2025 and 40% in 2035, as its energy transition plan until 2040.
To support Malaysia’s progress towards carbon neutrality, companies should also set and work towards strong climate targets. Corporations may adopt frameworks such as the Science Based Targets initiative (SBTi), GHG Protocol, CDP (formerly known as the Carbon Disclosure Project) and Task Force on Climate-related Financial Disclosures (TCFD) to better manage and reduce carbon emissions (Figure 1).
Figure 1. Recognised frameworks to measure, manage and disclose greenhouse gas emissions.
With only six companies in Malaysia committing to adopting SBTi, there remains strong inertia from the private sector towards becoming more sustainable. Companies wanting to make this transition are often held back by the high initial costs of the technology required to reduce their emissions. This problem is compounded by the lack of local skills in Malaysia that is needed to operate these clean technologies and that several emerging clean technologies are still not fully developed. However, as the world begins to accelerate towards a low carbon pathway, Malaysian corporates should consider embracing sustainable green growth now before the cost of catching up becomes too high.
Why Companies Should Set Carbon Targets
Mitigate Future Business Risks and Expand Access to Future Financing
Consumers and banks are becoming increasingly environmentally conscious and are willing to put their money behind companies that commit to environmental protection and climate action. Banks are recognising that climate risk is a top priority and are beginning to drop clients if companies are unable to meet certain sustainability criteria. Thus, companies that resist making meaningful sustainability and climate plans risk losing out to a shrinking pool of funds. Some banks are also pulling out of investments from fossil fuel projects in the push towards renewables. This sends a strong signal for companies to take climate commitments seriously to mitigate against climate change. In addition, businesses may also be affected as more foreign consumers and companies start screening out companies that do not adopt sustainability practices from their consumption and supply chain.
Sustainable Corporate Governance Creates Value
On top of mitigating against risks and regulatory pressures, sustainability provides an opportunity for firms to create value. Environment, social, and governance (ESG) funds are showing that they can outperform ordinary funds to deliver strong, risk-adjusted returns. Particularly in a volatile world, companies that embrace sustainability assures investors of their resilience and long-term business viability.
Growing Focus on Sustainable Supply Chains
Companies are also integrating sustainability into procurement practices to mitigate against risks to supply chain disruptions and minimise their environmental impact throughout their product lifecycle. For example, a study released by Standard Chartered in 2021 revealed that 78% of MNCs will stop working with suppliers that do not align with their carbon transition plans by 2025 [10][11]. Evidently, companies with high dependencies on global supply chains must continue to improve their ESG management and find ways to reduce carbon emissions.
What Can Companies Do
Figure 2. Recommendations for companies to prepare for and support a carbon neutral future
Consider Setting an Internal Carbon Price
Companies can expect tougher regulations on carbon emissions, particularly when it comes to pricing carbon emissions. Malaysia had recently announced that a carbon tax will be implemented eventually to align companies with its sustainability agenda. Such regulations could have a significant impact on firms if left unprepared. Corporates can better prepare for a prospective carbon tax by conducting their own internal pricing strategy. A survey by CDP in 2020 revealed that more than half of the world’s largest companies already have or are planning to implement an internal carbon price. Internal carbon pricing allows companies to place a monetary value on emitting carbon, even when few or none of their operations are subjected to external carbon-pricing policies and related regulations. An internal carbon price is useful for making informed decisions on capital investments that affect emission profiles, energy efficiency, and energy sources, as well as to measure, model, and manage the financial and regulatory risks associated with existing and potential government pricing regimes.
Scaling Up Climate Technologies
Climate change is a complex problem and collective effort is required across all sectors and levels of society to help Malaysia mitigate and adapt to the phenomenon. While the adoption of energy-efficient and low-carbon technology remains a challenge due to its high capital cost, scaling up investments across the private and public sector could lead to reductions in the cost of such technology in the long run. Moving forward, this could also mean greater cost effectiveness compared to reliance on the incumbent technology. Doing so will also enable the widespread adoption of new technology to further drive down emissions. In addition, companies will also need to invest in training up local experts to utilise newly-adopted climate technologies to their full potential.
Start Small, Ramp Up
While tackling each of these fronts may seem like a daunting prospect, corporates that have not already started their sustainability journey can begin by taking small steps in developing a strategic framework to report their company’s sustainability issues and carbon emissions before setting ambitious science-based targets. As the Chinese proverb goes: "A journey of a thousand miles begins with a single step". Only when more corporates embrace meaningful climate ambitions will we then be able to see Malaysia making greater progress towards carbon neutrality.
Original Webinar produced by Eco-Business
Refrence :
1. EY Climate Risk Disclosure Barometer 2020 Malaysia 2020
2. SBTI COMPANIES TAKING ACTION.
3. Kumbhare, D.S., Growing champions: Malaysia's Renewable Energy Opportunity. The Edge Markets. 2021
4. Malaysia Energy Informations, Enerdata.
5.Mahadi, A. & Joshi, D, Time for Malaysia to think about setting carbon neutrality target: New Straits Times. NST Online. 2020
6.CNA, 12th Malaysia plan: What you need to know about the 2050 carbon neutral goal and other Green Measures. 2021
7.Culp, S. Banks increasingly see climate risk as top priority. Forbes. 2021
8.Dvorak, P., Hua, S. & Yoon, F. Coal projects in Asia face dwindling financing as climate pressure mounts. The Wall Street Journal. 2021
9.Sammihe, Carbon dated: Multinational companies planning to cut suppliers by 2025 for failing to curb carbon emissions. Standard Chartered USA. 2021
10.We Mean Business, More than 100 multinational corporations have taken the climate pledge. Climate Home News. 2021
11.MIDA, Malaysia mulls imposing carbon tax on future investments. 2020
12. CDP, Nearly half of world's biggest companies factoring cost of carbon into business plans. 2021