Malaysia’s energy transition and the role of the Private Sector

26 February 2024 

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Malaysia’s updated submission of its Nationally Determined Contribution in 2021 set the scene for greater climate action and the development of new strategies and technologies going forward. As outlined in the update, “Malaysia intends to reduce its economy-wide carbon intensity (against GDP) of 45% in 2030 compared to 2005 level”. Determining the future of the energy system is one of the primary concerns for policymakers and other decision makers in Malaysia. This article takes a look at the key climate targets of the past few years, what is being done to meet them, and the importance of the private sector in driving climate action forward into the future.  

Ambitions and priorities

The roles that various stakeholders can play in Malaysia’s transition is being explored. The nation’s Joint Committee on Climate Change (JC3) recently met to discuss how the financial sector can help to achieve national goals around resilience, food security and decarbonising key industries. The committee aims to educate investors on reporting strategies and the importance of ESG and to incentivise lenders to commit to investment that will support sustainable ventures. 

A role for international stakeholders has also been identified to achieve national climate targets – 

specifically, the National Energy Transition Roadmap (NETR) targets set for 2050. By improving on key sustainability metrics, Malaysia can attract international investment to help drive further sustainable economic growth. 

In 2019, the country’s energy sector produced almost 80% of its greenhouse gases. The NETR outlines areas that will play a significant role in the energy transition: energy efficiency; renewable energy; hydrogen; bioenergy; and carbon capture, utilisation, and storage (CCUS). 

Incentives for sustainable investment 

Noticeable advancements have been made in Malaysia’s regulatory and policy frameworks with the intention to encourage, simplify and streamline sustainable investment.

In December 2022, the Securities Commission Malaysia (SC) announced the adoption of a Principles-Based Sustainable and Responsible Investment Taxonomy for the Malaysian Capital Market (SRI Taxonomy). This taxonomy aims to define and classify what counts as sustainable investment, in order to avoid confusion and to challenge greenwashing practices.  

There has also been a recent consultation on plans for the nation to adopt ISSB reporting standards. They would form part of the National Sustainability Reporting Framework (NSRF). ISSB standards, known as IFRS S1 and IFRS S2. Designed to be used together and both consist of the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). IFRS S1 is designed to help companies to communicate any significant sustainability-related risks to investors. IFRS S2 expands on this and sets out specific climate-related disclosures. 

More is needed

These developments run parallel to key dilemmas that are related to the particular circumstances of Malaysia. There is a clear need for the above incentives and more, to build on renewable energy production and adoption; 75% of power in Malaysia still comes from coal and natural gas. According to the PwC Summary of the NETR, RM637bn in investments will be needed to meet the target of 70% renewable energy capacity by 2050. 

The transition will be a significant challenge for the country, in which energy represents a large portion of the economy; 1 out of 4 workers in Malaysia are employed by the energy sector. To ensure a just transition, green jobs will be needed to replace those in carbon-intensive industries. 

Some would argue that the priorities outlined in the NETR roadmap are in conflict with other priorities, including the need to sufficiently provide for the population amongst population growth and poverty, which is more apparent in rural areas. Alternatively, advocates would point to the long term economic and environmental benefits of sustainable investment, which have the potential to outweigh the short term trade offs. 

Further work is needed if Malaysia is to meet its lofty financial targets it needs to commit to the NETR roadmap. The PwC summary states that most Malaysian companies are in the early stages of their energy transition when compared to global standards. Despite the developments discussed above, Malaysia is yet to fully implement a domestic ESG framework. 

The uptake of ESG can assist the private sector in transitioning away from greenwashing practices and towards material action. The further development of laws and culture regarding ESG in Malaysia will ensure that the energy transition is at the forefront of corporate strategy for firms trading in the country. Establishing a stronger regulatory framework for ESG will also help to standardise reporting, to prevent inconsistencies and confusing overlapping metrics. 

The government has shown intent to act on this. It is crucial that we see collaboration between policymakers, private firms, investors and lenders to drive this energy transition forward and meet the outlined shared goals. 

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