This article first appeared in The Edge Malaysia Weekly on September 18, 2023 - September 24, 2023

There are many similarities in the two strategic documents that were released in the last month and outline the country’s path forward in the low-carbon global economy.

The National Energy Transition Roadmap (NETR) highlights how Malaysia will reduce emissions from the energy sector in its attempt to reach net zero emissions, while the New Industrial Master Plan (NIMP) 2030 underscores the importance of ESG in ensuring the competitiveness of the country’s manufacturing industry.

One similarity is higher penetration of renewable energy (RE) to attract companies to invest in Malaysia and help industries decarbonise. Another is the development of the electric vehicle (EV) ecosystem, which can reduce emissions and spur the growth of a new industry. Carbon capture, utilisation and storage (CCUS) is also promoted as a solution and opportunity in both the NETR and NIMP.

The response from industry observers is optimistic but cautious, based on the interviews that ESG conducted.

While the NETR showcases commendable ESG-related strategies, there is room for improvement in terms of inclusivity, stakeholder engagement, transparency and circular economy integration, says Datuk Muhamad Guntor Mansor Tobeng, managing director of RE service provider Gading Kencana Sdn Bhd.

He likes NETR’s emphasis on upgrading the grid infrastructure to support the integration of more RE and energy storage solutions.

To further enhance the positive environmental impacts of the energy transition, he suggests implementing the principles of the circular economy, which involve minimising waste, extending product life cycles and promoting recycling.

“By encouraging a circular approach to resource utilisation and waste management, the initiative can contribute to a more sustainable and responsible use of resources,” says Muhamad Guntor.

Datuk William Ng, president of the Small and Medium Enterprises Association (Samenta) Malaysia, says the NIMP’s goal is ambitious but it is also essential to protect market access for businesses, especially small and medium enterprises (SMEs). This can be done by rewarding early adopters with selective “green lanes” for government procurement, matching grants or double tax deductions for using consulting services, he says, alongside a mechanism to promote “ESG-ready” companies domestically.

“One of our main concerns is the potential disconnect in ESG guidelines between the various government agencies. We are seeing dialogue among these players to agree on a common domestic guideline, but at the same time the government is pushing our SMEs to start the journey while these guidelines are being finalised,” he says.

“There is no such thing as ‘start first and adapt later’ where SMEs are concerned, as reporting and transition costs are potentially very high.”

Ahmad Afandi, senior analyst at the Institute of Strategic and International Studies (Isis), Malaysia believes that while various considerations have been put in place to support the NETR in terms of technical, economic and policy tool considerations, it lacks environmental sustainability and social safeguards.

“This refers to protecting ecosystems and human rights throughout the whole supply chain of RE deployment, in particular the extraction of minerals and rare earths to build batteries for energy storage, which can be destructive to natural ecosystems and local communities, especially if mining and development of RE projects are being undertaken in natural forests, environmentally sensitive areas, key biodiversity areas and native customary land,” says Ahmad Afandi.

“The road map is also silent on the resilience aspect, in terms of climate-proofing the heavy mitigation and energy investment such as solar farms, EV stations and hydroelectric dams from climate hazards such as flooding, sea level rise and dry spells, [even when] Malaysia and Asean are located in one of the most vulnerable regions to climate change.”

The environmental and soc­ial impacts of RE projects must not be neglected, he says. “Existing spatial planning frameworks and policies, such as the Environmentally Sensitive Areas Framework, must be adhered to … Procedural planning, in particular environmental and social impact assessments, must be reviewed and strengthened, while consent must be practised if these development projects involve indigenous and local communities.”

The NIMP 2030 is commendable for framing ESG from a risk perspective, he adds, and it is good to see adaptation being included in the plan.

What is lacking, he opines, is the management of the impact of industry and manufacturing activities on biodiversity and ecosystems, such as nature risks. He expects this to be highlighted more in future versions of the NIMP.

Of course, Malaysia does not lack road maps and plans. To make them effective, there must be proper implementation and funding. For the NETR, Dr Tan Ee Sann, senior lecturer and researcher at Universiti Tenaga Nasional, hopes to see more specific targets for the deployment of RE and energy efficiency measures. “The pathway is set, but the execution or implementation timeline of these plans has yet to be seen. As NETR relies on the development of new energy technologies, it is important to invest in research and development to ensure that these technologies are readily adaptable for Malaysia’s energy sector.”

More clarity will be needed on the plans and policies to realise NIMP 2030. Ong Shu Yi, ESG analyst at OCBC Bank, sees it as a positive shift in the country’s industrial planning, with the push for decarbonisation presenting new economic and employment opportunities.

To promote a speedier adoption of decarbonisation measures, there should be more information on Malaysia’s plans for addressing transition risks as RE penetration increases and the transformation of hard-to-abate sectors, she says. More support for companies to defray expenses associated with reinvestment would also be welcome.

She adds that in order to create a sustainable and viable market for CCUS, “national policies are important to provide the framework required to scale up CCUS implementation in terms of technological development, capability development and costs”.

Meanwhile, Anthony Tan, Petaling Jaya Green City task force member and secretariat of the All-Party Parliament Group Malaysia on Sustainable Development Goals, observes that some of the strategies in NETR might be obstructed by the current state of climate change and energy policies.

“The national climate change bill and Energy Efficiency and Conservation Act have yet to be presented to parliament, which will hinder some impetus to adopt the NETR initiatives. [Apart from] that, the Environment Quality Act 1974 must be reviewed and revised to make it a necessity to adhere to better emission standards,” says Anthony Tan.

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