Unleashing value through tackling climate change

My partners and I at Kitaran Tabah have been engaging businesses across the forestry, plantation, manufacturing and energy sectors large and small in Malaysia. All were more than a little curious
about how to generate additional income or to manage risk of increasing costs driven by changes that have been highlighted by notables such as Bill Gates and Elon Musk, that has made Swedish teenage activist Greta Thunberg a worldwide sensation and has seen new requirements imposed by Bursa Malaysia on our public listed companies since last year.

Some major firms have already taken significant investment decisions due to this ‘Change’. In March and April this year, there were announcements of the development of 2 new Data Centres in Johor by
Amsterdam based Yondr Group and Malaysia’s own YTL Group respectively. Whilst the former only mentioned energy availability in general as one of the key factors in choosing to site its latest 200MW
Data Centre in Malaysia, YTL was more forthcoming in declaring its 500MW Data Centre as Green, to be powered by renewable energy, specifically solar power.

The choice of Johor state to host these Data Centres was due to its closeness to Singapore, currently the region’s key hub. However, why didn’t they choose to just build these Data Centres on the island
state itself? Of course, relative land availability and price may be a factor, but there is a more pressing reason for this since the end of 2021 … Climate Change.

New climate change policies present opportunities

Climate Change and it’s now trending corporate offspring, ‘ESG’, that stands for Environmental, Social & Governance principles, have brought significant changes to government policy worldwide. It is no longer driven just by environmental activists, but also global investor and consumer demands. In the case of the Data Centre industry for instance, major players are increasingly demanding for these power-hungry facilities to be powered primarily by renewable energy sources.

Unfortunately for Singapore, it does not have many options to generate renewable energy, unlike Malaysia. It is hence not surprising that these new, large and Green Data Centres in Johor were announced after
the Malaysian Government’s decision in October 2021, to stop Renewable Energy exports to Singapore. Whilst this decision was made by Malaysia primarily to allow us to meet our own Climate Change goals of reducing dependency on Coal and other fossil-fuel generated power, the additional benefit seems to be that it has increased Malaysia’s attractiveness as a Green Data Centre destination relative to our neighbour.

In time, assuming the government continues to ban renewable energy exports, encourages the growth of our renewables industry, and implement other ESG-driven policies, we may well see a steady influx
of more green-leaning investments into Malaysia. In fact, the rise of activist ‘ESG investors’ also means that there is a pool of high-value foreign capital available to Malaysian businesses that boldly interpret Climate Change policies as opportunities rather than threats. Climate Change related changes in government policies worldwide already present Malaysian businesses with new risks to manage and opportunities to grow by embracing ESG principles in their business practices. This is particularly true for our companies that aspire to do more business overseas, where demand of ESG-compliant goods is on the uptake. The question though is whether businesses are aware and know how to leverage on the opportunities presented by ESG.


What it takes to achieve net-zero carbon and other ESG goals


Consider the most popular ESG policy adoption among Malaysian companies today, the ‘net-zero carbon’ target. Many companies have pledged to such targets, though during engagements with some of these companies, we have found many still unclear as to the level of detail and commitment needed to deliver a net-zero carbon target. Companies need to first establish their Baseline Emissions levels, through a rigorous auditable process, that accounts for every ton of CO2 equivalent emitted from their direct fuel consumption, power from the grid and any supplies to the business.

Note that establishing this Baseline Emissions level for a company is only the beginning. Companies then must plan specific actions leading towards complying sustainably to a net-zero carbon status. For
instance, it may begin a solar installation program to reduce consumption of ‘dirtier’ grid power and apply fuel efficiency targets. Eventually, when all these actions to reduce emissions have been applied, the remainder CO2 emissions will have to be offset from say a mangrove or forest carbon sequestration program.

Only then can auditors sign off on a company’s net zero carbon status. In fact, even the net-zero carbon emissions standards being adopted worldwide in itself has spawned opportunities for business. Besides a growing demand for renewables, there will be increasing carbon sequestration efforts across mangroves, forests, plantation and orchards, greenhouse gas auditing activities, energy efficiency consultancy and technical solutions development, among others.

It will also give rise to a new class of professionals that will be needed, those with specific expertise in Climate Change management and ESG.

Sustainable forestry and opportunities in carbon sequestration for Malaysia

Expertise in Climate Change is also not trivial, even if there are many professional pathways leading to it. The science around Climate Change and even more so the various strategies and technologies to
manage it is evolving ever rapidly, such that some may not be obvious. For instance, ‘Sustainable Forestry’ as understood by many is ensuring trees are replanted in place of any timber harvested.

However, this is not enough. The timber harvested also must be destined for sustainable uses, such as for construction and manufacturing furniture, and proven so with valid end user certificates. Trees harvested for making chopsticks and pulp-paper, destined eventually to rot away in waste dumps, let alone firewood, may not be deemed as for ‘sustainable use’. Yet it is surprising how often we have received inquiries about potential carbon credits from replanting forest plantations or ‘ladang hutan’ where the end use is uncertain.

There is growing maturity though. For instance, we recently spoke to a Malaysian firm that needed help to fulfil a furniture manufacturing customer from China’s demand for sustainable timber, fully aware of the need for end user certificates!

Another common assumption in Malaysia is of the great potential presented by our palm oil acreage to sequester carbon. Unfortunately, whilst palm oil trees do absorb carbon, palm species are not our
best ‘carbon sink’. Malaysia has some of the most extensive mangrove acreages in the world, with many mangrove tree species able to sequester 25-30 times more carbon per hectare compared to palm oil. Mangrove preservation and restoration hence should be a priority development area among Malaysia’s carbon sinks, followed by our virgin forests, then perhaps rubber plantations!

ESG and Climate Change driven changes and activities such as mentioned above have and continue to develop and will increasingly steer investments globally. All the areas we touched on, be it for companies to develop as investment opportunities or to manage future risk, require rigour and the right expertise to pursue.

However, it begins from an awareness by our business leaders that it is time to bring ESG and Climate Change front and centre in their firms’ strategies and decision-making processes. Then only will businesses be able to leverage on this latest change that is here to stay.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top