Ahmad Afandi was quoted in The Edge Malaysia Weekly, 20-26 February 2023

by Tan Zhai Yun / The Edge Malaysia

Westports is one of three main ports located in Klang along the Strait of Malacca. Its long wharf fronts the sea and is lined with tall cranes that move containers back and forth between its yard and the massive ships berthed at the port.

In such a location, sea conditions have a heavy influence on operations at the port. If the sea rises to a level that is higher than the wharf, the port will be underwater. Continuous and heavy rain would affect the visibility of ships. More frequent rain and subsequent flooding, meanwhile, could inundate roads leading to the port and delay the transport of goods.

These are all expected outcomes of climate change, something that weighs heavily on Datuk Ruben Emir Gnanalingam’s mind.

“Sea level rise is a big issue for us because unlike many other businesses, we will literally be underwater if we don’t mitigate the rises. That’s why it is a big deal for us to ensure our mitigation plans are well in place based on future projections,” says Ruben, who is group managing director of Westports Holdings Bhd.

The implications extend well beyond Westports. As the main sea gateway into the country, the port plays a vital role in supporting the country’s external trade and economy. The same could be said of the other main industries in Malaysia, whether it is palm oil, manufacturing or the service sectors. Climate change will have a physical impact on these industries, and if businesses are not prepared to face it, the nation’s economy and people’s well-being will be threatened.

That’s why Westports commissioned consulting firm DHI Water and Environment in 2021 to conduct a climate risk assessment, so that the company can know exactly what to expect. The final report was published online in 2022, alongside its usual sustainability report.

The report highlighted sea level rise as a high-risk event towards 2080. Flooding and heavy rainfall are categorised as moderate risk events. This is because the port is already on slightly elevated ground, and heavy rainfall events in Malaysia tend to be for a short duration. Higher temperature is also considered to have less of an impact on the company. Regardless, all new infrastructure built by the company will have to take these findings into consideration.

After assessing the potential sea level rise in the next 60 years under various scenarios of climate change, Westports determined that the current wharf height is able to withstand that impact.

“From the governance perspective, the board felt that once we do it, we at least know exactly where we stand,” says Ruben.

But as the science continues to develop and should unexpected events — like a big block of glacier breaking off and accelerating sea level rise — occur, the company will have to consider the impact to its operations again. The climate risk assessment is expected to be done once every five years.

Not all the physical climate risks can be addressed purely by Westports, however. For instance, the big Klang Valley flood in December 2021 that inundated many parts of Klang did not affect Westports. But more than 1,000 of its staff could not come to work because their houses were flooded.

“Even if we raise our platform [to counter sea level rise], it doesn’t matter if everyone else is underwater. I think the only way to really solve this is to ensure we don’t reach a point where the sea level rises that much and exceeds the 1.5°C target,” says Ruben.

Essential for future planning

Unfortunately, assessing and publishing a climate risk report is not yet common practice among Malaysian public-listed companies (PLCs). Some include brief descriptions in their Task Force on Climate-related Financial Disclosures (TCFD)-aligned sustainability reports, where scenario analysis of climate change impacts is required.

According to the EY Climate Risk Disclosure Barometer 2020 Malaysia report, the top 100 PLCs only scored 34% for coverage of climate change-related risks and 12% for the quality of disclosures.

“We understand that some companies may not be fully disclosing their climate risks, depending on several factors, such as data availability and the quality of data. It is important to note that climate change [reporting] is a journey and would require a phased approach towards addressing climate-related risks,” says Arina Kok, Malaysia Climate Change and Sustainability Leader at Ernst & Young Consulting Sdn Bhd.

However, businesses should embed climate risk management — for transition and physical risks — into their risk management process to enhance their resilience, she says.

Physical risks due to climate change are already observed and will worsen. According to to the World Bank Group and Asian Development Bank’s Climate Risk Country Profile for Malaysia in 2021, under the worst-case scenario of climate change, average temperatures are expected to increase by 3.11°C by the 2090s in Malaysia. There will be an increase in rainfall and flooding. The latter has already been observed to occur in higher frequency and intensity in recent decades.

Other expected outcomes are higher frequency and intensity of heatwaves, lower yield of rice by up to 60% due to droughts and floods during the rice-growing season, among other things.

In view of these risks, there will be additional pressure on businesses to assess and disclose their climate-related risks. Banks are expected to consider these factors when assessing potential clients to prevent provision for bad loans due to stranded assets, for instance.

The same goes for insurance companies. Global insured natural catastrophe losses averaged around US$100 billion over the past five years, according to Moody’s, and many reinsurers are now forced to raise prices, limit coverage and exit some markets to improve returns.

Government needs to provide data

The biggest challenge for businesses to assess and prepare for climate risks, however, is access to data. How can they obtain granular data like how much flooding will occur where their assets are located, for instance, and what is the projection for rainfall in that locality in a few decades?

Not all companies have the resources to hire an external consultant to model these scenarios. Additionally, if every company relies on a different consultant or data source, there could be discrepancies in the assessment outcomes.

The Joint Committee on Climate Change (JC3) highlighted this problem in its report on climate data last year.

“The lack of quality and easily accessible climate-related data is one of the key factors that have hampered efforts by the financial sector to manage climate-related risks and support decarbonisation,” it said.

A subcommittee was established to address this and compile a Data Catalogue, which identifies available climate data sources to support various use cases for the financial sector. The plan is for the catalogue to pave the way for a national-level climate Data Catalogue, said the JC3.

It adds that data from the public sector is plagued by problems like methodological differences, decentralised data compilation and publication, and legal impediments to sharing the data. For the private sector, it’s the lack of capacity and motivation to collect and disclose climate data.

Historical and current data on temperature, rainfall, flood and drought is mostly available. However, most forward-looking data by region or country, such as those projecting heatwaves and coastal vulnerability to climate change, is unavailable, said the JC3.

A lot of this information is not readily accessible or is spread out across different government websites, adds Ahmad Afandi, senior analyst at think tank ISIS Malaysia.

Malaysia’s third national communications report to the United Nations in 2018, for instance, has projections on climate change impacts on Malaysia and a few key sectors. However, the document is only available online in PDF format and the information is dated.

The National Water Research Institute of Malaysia (NAHRIM) has projections on flooding and drought risks in the future due to climate change, says Ahmad Afandi, but these are not easily accessible. Some of its sea level rise projection reports are available online in PDF format.

“The data is there but it’s not being well communicated. How can businesses do a comprehensive assessment if they can’t even access the data in the first place? Additionally, how can one make sense of the data? It’s very technical and some data is not well synchronised,” he says.

“For instance, the Department of Irrigation and Drainage has a flood hazard map for all river basins in Malaysia, and it includes a climate change factor to see how much it will influence flood-prone areas. But it’s not made public and I don’t see it included in all local plans.”

This information needs to be readily available, integrated into policymaking and development plans, localised and standardised. The government has to play a role in making this possible, Ahmad Afandi adds. “This is supposed to be done under the National Adaptation Plan. Only with this data can we come up with a strategy.”

Ahmad Afandi suggests the government draw up a guideline on how businesses should view climate risks in their operations and supply chain. Government development plans, be they for mining, agriculture or transport, will have to take climate risk data into consideration.

A map highlighting climate risks in different localities can also be introduced through the downloadable geographic information system (GIS) file format, where businesses can download the raw data and transfer it to their own maps, he adds.

ESG has reached out to the Ministry of Natural Resources, Environment and Climate Change for a response.

The JC3 report goes further to suggest a greater reconciliation of national- and corporate-level greenhouse gas emissions data, adoption of the Malaysia Standard Industrial Classification (MSIC) by all relevant ministries, agencies and private sector for data collection and sharing purposes, and promotion of open data standards and platforms.

Businesses should prepare for climate risks

Merely disclosing climate risk data, of course, makes no sense unless it is used to guide decision-making. For instance, businesses will have to prepare for flooding or longer rainfall periods by building structures that are higher or allocating green spaces to absorb excess water.

A company that has publicly stated its intention to do so is Duopharma Biotech Bhd. In 2021, Duopharma included sustainability-related risks in its Enterprise Risk Management (ERM) framework and assessed climate change risks on its business.

It drew up plans to manage these risks, which include developing new assets at elevated levels, developing a water recycling project and introducing a water crisis management plan, according to its 2021 sustainability report. This information is not published in detail in a separate report.

“One of the risks that we have reviewed and assessed is the potential risk of our suppliers and vendors not being able to produce and deliver materials to our operations due to climate change-related events such as droughts, flooding or extreme weather events,” says Leonard Ariff Abdul Shatar, group managing director of Duopharma.

“To ensure consistent supply of raw materials to our operations, we have put in place relevant control measures, such as having alternative or backup suppliers, and adequate buffer of stocks for all products. We also anticipate conducting due diligence on our vendors with regard to their climate mitigation strategy, to further strengthen our control measures.”

A challenge the company faced in preparing its climate risk assessment is taking into consideration unexpected climate-related events that may occur in the future and the unequal impact on different locations.

“Unclear methodology and tools to internally and independently conduct the climate scenario analysis, as recommended by the TCFD, may also pose another challenge for us, unless we invest in sustainability experts with technical expertise to perform this assessment,” says Leonard.

More technical guidance, readily-accessible tools and data sets for the local context for non-financial companies would be helpful, he adds.

“The government may also provide support by establishing comprehensive scenarios in the local context to help companies assess future risks and vulnerability to climate change for their respective operations.”

Another important aspect to consider is the role of larger corporations in guiding their small and medium enterprise (SME) vendors along this path.

“For us, managing climate risks across our value chain is crucial to make our business more resilient and able to sustain in the long term,” says Leonard.

In mid-January, Ruben, who is the steering committee member of the CEO Action Network, convened a meeting with the Ministry of Transport and other stakeholders in the industry to discuss how the transportation industry can incorporate sustainability.

“We are trying to ensure that all the people who interact with us, and who contribute to our scope three emissions, also make an effort towards reducing their carbon footprint,” says Ruben. “We’re highlighting to our vendors already that in the future, we will be selecting more ESG-compliant companies. We’re doing it now because we need to give them time to adapt.”

Government’s responsibility to mitigate climate risk

The government also has to take into consideration the future impacts of climate change in its planning. Ahmad Afandi cites the example of requiring more climate responsive structures in flood-prone areas, which could be green spaces.

The private sector will have to demand more climate risk data and projections from the government as well, so they can prepare adequately for the future.

“We all have the right to safe living. If I build something that others would deem unsafe for my community, I shouldn’t do it. But if the data is not available, how would I know? Right to information is very important,” says Ahmad Afandi.

He hopes to see stronger policy instruments to encourage businesses to incorporate risk reduction measures in their planning, clear and quantifiable climate targets by the government, and mandatory disclosure of certain data.

Additionally, there could also be a surcharge on developments in high climate risk or flood-prone areas, he suggests. “If you want to reduce the surcharge, you can incorporate more green elements in your development. For instance, you can do your stormwater management plan and have more green spaces. This kind of instrument would encourage a change in market behaviour.”

This article first appeared in The Edge Malaysia Weekly, 20-26 February 2023

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