KUALA LUMPUR (Oct 23): Sustainability is at the core of Malaysia’s development strategies as it does not just ensure the country’s survival but presents a chance for growth, said Minister of Natural Resources, Environment and Climate Change (NRECC) Nik Nazmi Nik Ahmad at the the JC3 Journey to Zero Conference 2023 on Monday.

This is seen in the government's Malaysia Madani policy framework, Budget 2024, the National Energy Transition Roadmap and the New Industrial Master Plan that were released recently.

“The struggle against climate change also presents Malaysia with a unique and purposeful opportunity. Besides ensuring our country’s survival, we are also being presented with a chance to lead, innovate and build a sustainable future for generations to come,” said Nik Nazmi.

The biennial conference, held over three days in Sasana Kijang, Kuala Lumpur, is organised by the Joint Committee on Climate Change (JC3) to bring together various stakeholders to discuss climate and nature finance.

The JC3 was established in 2019 to build climate resilience within the Malaysian financial sector, and is co-chaired by Bank Negara Malaysia (BNM) and the Securities Commission Malaysia (SC). JC3’s members comprise senior officials from Bursa Malaysia and financial industry players.

Nik Nazmi stressed that the financial sector must lead the way in addressing climate change due to its huge influence as custodians of capital and investments. The government, meanwhile, is playing its role by implementing supportive policies and providing funding, such as the ecological fiscal transfer to states that was increased in the recently passed Budget 2024.

“The National Carbon Policy, National Adaptation Plan and the recently passed Energy Efficiency and Conservation Bill 2023 will also help the public and private sector to better adopt energy saving and efficiency,” said Nik Nazmi.

Taking actions to mitigate and adapt to climate change is crucial, as climate change impacts are increasingly felt in Malaysia.

“Farmers in Perlis and Kedah, Malaysia’s own rice bowls, are among those hit the hardest. It is estimated that Malaysia’s economy could lose 5.9% of its gross domestic product by 2030 due to heat-related productivity loss,” said Datuk Abdul Rasheed Abdul Ghaffour, governor of BNM in his opening remarks.

“Malaysia also grapples with excessive rain and floods that impact the people and economic wellbeing. Within less than a decade, Malaysia has witnessed nearly half a million climate-related displacements, and by 2030, about 25% of Malaysia’s population could be displaced due to the impact of climate change.”

More blended finance, integration of climate risk into regulatory frameworks, and acknowledgement of climate and nature risk are required, he added. The JC3 has been addressing these needs by making climate risk data accessible and setting up programmes for small and medium enterprises (SMEs), amongst other initiatives.

This was echoed by Datuk Seri Dr Awang Adek Haji Hussin, chairman of the SC. There must be a shift beyond awareness towards action. The SC has been playing its role by embedding the Sustainable and Responsible Investment (SRI) framework into the Capital Market Masterplan and introducing a roadmap.

“Since the SC introduced the SRI Sukuk Framework in 2014, almost RM21 billion of SRI sukuk has been issued, with more than 20% raised to finance renewable energy. With the introduction of the SRI-linked Sukuk Framework last year, Malaysian capital markets has a complete suite of frameworks to help companies tap into the sukuk market not just for financing green, social and sustainability projects, but also for transition purposes,” said Awang Adek.

For an orderly and just transition to occur, governments and companies need to publish transition pathways that are comprehensive. This is essential even if Malaysia only contributes to less than 1% of global emissions, said Tan Sri Nor Shamsiah Mohd Yunus, the ninth governor of BNM.

Malaysia’s emissions per capita are the 15th highest in the world, she said, which is above that of Singapore, Indonesia and Thailand. Managing risks from climate change are critical for Malaysia to stay competitive.

“We are an open economy. Exports account for a large share of our GDP. We need to ensure our goods are competitive. There are changes in the international regulatory landscape that we need to take into account,” said Nor Shamsiah at the Leader’s Dialogue during the conference, entitled 'Unveiling the path ahead: Are we heading towards an unjust and disorderly transition?'

She added that a comprehensive plan on an end-to-end transition for Malaysia is needed, which is echoed by Diana Guzman, director of group environmental, social and governance (ESG) for Prudential PLC.

“We do need a pathway ahead. We cannot go ahead of governments and countries. [That means] taxonomies in place for how the country wants to plan out the transition to net zero, where the country wants to land and how the country can get there. Those are very important signals for us. The long-term sustainable development of the country is very important for the survival of our business,” said Guzman.

The social aspect of the just transition must also not be ignored. This means getting the buy-in from the public, community and workers.

For instance, “we really need to think about making sure that the phase out of coal-fired power plant does not disrupt the electricity supply, accessibility of electricity and also, to make sure it doesn’t disrupt the prices,” said Yuki Yasui, regional director of Asia-Pacific for the Glasgow Financial Alliance for Net Zero.

Guzman observed that this is the biggest hurdle in ensuring a just transition currently.

“The social threshold, [where] we are probably leaving people behind, is becoming the greatest obstacle for the net zero transition. The social transition is an afterthought when investing in climate transition. It should be at the forefront of designing taxonomies, policies, investment vehicles and climate pledges.”

Mandatory climate disclosure and detailed roadmaps from the government are also key to establishing confidence in private capital investors for climate investment, said speakers at the panel session entitled 'Drawing Global Private Capital: Catalyst for Economic Transformation.'

“Whether it's for understanding net zero goals, providing finance or just understanding those exposures better, I think the mandatory element is absolutely critical,” said Claire Elsdon, global director of capital markets for CDP, on the role of transparent and mandatory climate disclosures in securing climate investments.

The CDP provides tools for investors and corporate clients to evaluate the risk of climate change-related issues. A new questionnaire targeted at SMEs will be launched by CDP in 2024, said Elsdon.

Additionally, governments need to provide clarity on what they aspire to achieve in their net zero plans to convince investors to put in capital for the long term, said Kim-See Lim, regional director of East Asia and the Pacific for the International Finance Corporation. More blended finance will be needed to attract private capital and offset the risks from investing in climate projects.

“Investors require that clarity, that certainty and that confidence to invest and make these long-term decisions,” stressed Lim.

Meanwhile, more companies are getting on board with climate governance, as new standards are making it easier for companies to comply and see the benefits of transitioning to a low-carbon economy.

Mathew Nelson, chief sustainability officer Oceania of Ernst & Young, gave the example of the International Sustainability Standards Board (ISSB)’s S1 and S2 reporting standards that were released this year.

These standards bring consistency to sustainable financial reporting, so businesses can set solid goals on how they will make the transition. It helps businesses look at their business strategy and sustainability as one, and encourages them to adopt sustainable business models, said Nelson at the panel session entitled 'Charting the course of climate governance: Implications for bold climate change.'

Ira Poensgen, technical lead of the taskforce secretariat for the UK transition plan taskforce, added that companies see the need to transform once they truly see how it benefits them.

“More and more companies are starting to realise that their climate plans and their transition plans are core to their corporate strategy,” said Poensgen.

However, government policies have to be aligned with these initiatives in the private sector, in order to attract investments and promote business growth.

“Finding ways to reduce uncertainty to promote information from a government perspective, in addition to prudential regulation, is something that can really foster private sector investments and boost financial integration” said Cecile Thioro Niang, practice manager for finance, competitiveness and innovation in East Asia and Pacific at the World Bank.