COMMENT | Transition to net-zero: Business risk in going green

COMMENT | When we talk about climate risks, we tend to picture mass physical threats, i.e. extreme weather patterns, loss of lives, and widespread damage to infrastructure.

Yet, few consider the ‘‘unspoken risks’’ associated with the transition to a net-zero future.

These transition risks do not take the form of floods or storms, but rather emerge as complex economic, social, and political challenges.

One clear example is the potential impact of introducing carbon pricing mechanisms, such as a carbon tax, which can increase operating costs, particularly for hard-to-abate industries like oil and gas.

To comply, businesses may need to invest in cleaner technologies, upgrade infrastructure, or buy carbon credits.

These added compliance costs are often passed on to consumers through higher prices, which can lower demand and make businesses less competitive.

Regulatory changes and climate policies aimed at meeting emission reduction targets also add uncertainty and force companies to quickly adapt.

As a result, carbon-intensive industries may face job losses and economic shake-up, particularly in areas that rely heavily on fossil fuels.

Climate risks are financial risks

As businesses work closely with financial institutions, the climate risks they face naturally extend to their lenders and investors.

For instance, the current carbon tax for Singapore is S$25 (RM82) per tonne of carbon dioxide, with expected increases to S$45 (RM148) by 2026-2027, and a potential rise to S$80 (RM263) by 2030.

For carbon-intensive sectors, this could mean millions of dollars in additional annual costs, threatening both profitability and long-term viability.

The International Maritime Organisation (IMO) has also approved a carbon tax on shipping emissions, set to begin by 2027.

Emission reduction targets include a basic tier of four percent by 2028 and 30 percent by 2035. A stricter tier aims for deeper cuts, i.e. 17 percent by 2028 and 43 percent by 2035.

Ships that fail to meet these targets will face a levy between US$100 (RM425) and US$380 (RM1,617) per tonne of carbon dioxide, depending on the level of non-compliance.

This growing financial pressure highlights why climate risk is now widely viewed as financial risk, potentially affecting financial stability, asset values, and long-term returns.

To address climate risks, Bank Negara Malaysia and the Securities Commission Malaysia (SC) established the Joint Committee on Climate Change (JC3) in 2019. The committee leads the financial sector’s response to climate-related challenges.

Some of JC3’s achievements include the development and pilot implementation of a Climate Change and Principles-Based Taxonomy for financial institutions, a review of current disclosure practices, and a gap analysis of the green finance landscape.

It also supports the alignment of sectoral transition pathways as well as helps small and medium enterprises (SMEs) track and report their emissions.

As part of these efforts, JC3 also launched the ESG Jumpstart Portal, a one-stop platform providing SMEs with essential information on climate transition.

Risks can be opportunities

Climate change is not entirely a threat, as within every risk lies an opportunity. Rather than seeing risks solely as threats or potential failures, we can uncover new possibilities that might otherwise remain hidden.

These include boosting efficiency, redesigning production processes, and creating new products and services.

Resilience-related opportunities are especially important for companies with long-term assets, large supply or distribution networks or heavy reliance on utilities, infrastructure or natural resources.

These businesses may also benefit from access to longer-term financing and investment to support sustainable growth.

For instance, UOB Malaysia supports energy efficiency and green transition through initiatives like the U-Energy and U-Green Financing programmes.

Climate risk reporting and disclosure

Transition risks are higher for sectors that depend on carbon-intensive technologies or require more effort to become energy-efficient.

These businesses are more likely to face scrutiny from regulators, investors, consumers, and environmental groups.

Although there is no one global standard for climate reporting yet, several trusted frameworks are widely used.

One such example is the establishment of the International Sustainability Standards Board (ISSB).

The ISSB’s standards build upon and consolidate existing frameworks, such as the Task Force on Climate-related Financial Disclosures (TCFD) and Sustainability Accounting Standards Board (SASB).

Climate risk reporting and disclosure involve publicly sharing information about a company’s exposure to climate-related risks and opportunities.

Many businesses struggle to assess and report climate-related risks and opportunities as these areas are still new, complex, and technical.

A successful low-carbon future hinges on investing in education, forging strong industry partnerships, and promoting knowledge sharing. These actions are crucial for driving the green transition and enabling sustainable business growth.

We need climate reporting to assess whether the economy is truly progressing toward a low-carbon transition.

Transparent, consistent, and comparable disclosure of emissions data, climate-related risks, and mitigation measures will enable stakeholders to hold businesses accountable and make informed decisions.

Ultimately, robust climate reporting is a vital driver of real and measurable progress, both at the corporate level and across the broader economy.

CHONG YEN MEE is a UNFCCC Roster of Experts member and a consultant working with Soon Hun Yang, who founded Eco-Ideal Consulting Sdn Bhd, a local environmental consultancy specialising in carbon advisory services.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

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