This article first appeared in The Edge Malaysia Weekly on June 17, 2024 - June 23, 2024

With frameworks such as the Climate Change and Principle-based Taxonomy being introduced by Bank Negara Malaysia, and stakeholders like investors and consumers scrutinising companies’ carbon emissions, preparing a transition plan towards a lower-carbon future has become increasingly important.

This is especially critical for companies in the hard-to-abate or brown sectors that produce high amounts of carbon emissions. Their stakeholders want to see how the companies plan to reduce their emissions over time, and what solutions they intend to adopt. But the process of transitioning can be arduous and requires labour, financial resources and time. As such, many organisations may be unsure how to begin this process.

Recognising this challenge, Capital Markets Malaysia (CMM) and the Climate Bonds Initiative (CBI) introduced a transition toolkit in April to help companies take the first step in creating a transition plan, which would also enable them to be eligible for transition finance.

The toolkit is presented in a simplified Q&A format, with explanations and guidance provided for each selected answer. For instance, if a company says it does not have a transition road map that is aligned with the global pathway to limit global warming to 2°C and below, the toolkit provides explanations on how this can be done.

“We felt that there was a need in the market to provide [a guide] for our large companies that are starting on this transitioning journey that would be considered ambitious and credible on a global scale,” says Navina Balasingam, general manager of CMM, which is set up by the Securities Commission Malaysia.

“We wanted to make it a bit simpler for them and give them a step-by-step approach. It takes them through the entire process, but it breaks it down in a way that doesn’t seem so onerous for the user.”

The five hallmarks of a credible transition plan, as highlighted in the toolkit, are based on the principles of CBI, which is a globally recognised resource.

The first hallmark is that the company has set targets and key performance indicators that are aligned with the Paris Agreement goals, are science based, include Scope 1, 2 and 3 emissions and address short, medium and long-term emissions. The other hallmarks include having a robust plan, internal reporting, implementation plan and external reporting.

So far, CMM has received positive feedback, particularly on the toolkit’s interactive Q&A format.

“We’ve got about 2,000-plus unique users that have accessed the toolkit. We have had good feedback. Actually, mostly banks, interestingly, tell us that it is useful because it breaks down the transition strategy journey. There’s a methodology to it,” Navina says.

The toolkit is useful for banks as they need to understand their clients’ transition journey to provide financing. Meanwhile, investors are also looking at the transition strategies of their portfolio companies nowadays.

“A couple of our asset owners have already said that every company that they [invest in] must have a net-zero goal by 2030 or 2050. The transition strategy will give them comfort that you are approaching your transition journey in a credible way,” she adds.

The toolkit will be reviewed and updated with time, Navina says, alongside the latest developments globally. Its hallmarks are aligned with and built on thematic guidelines from the International Capital Market Association and disclosure requirements from the Task Force on Climate-related Financial Disclosures.

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