Malaysian PLCs ill-prepared for climate risk reporting

MALAYSIA’S top 100 public-listed companies (PLCs) lack comprehensive climate risk disclosures, according to an inaugural study spearheaded by accounting giant Ernst & Young (EY).

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

The scores were higher for coverage of metrics and targets at 45%, followed by risk management at 41%. However, coverage of governance and strategy was lower at 22% and 24% respectively.

The findings were based on the analyses of reporting disclosures by the PLCs, benchmarked against the global Taskforce on Climate-related Financial Disclosures (TCFD) recommendations in four areas, namely governance, strategy, risk management, and metrics and targets.

Arina Kok

“As communities and economies struggle with the COVID-19 pandemic and with climate change trends increasingly apparent across regions, a “wait-and-see” approach could heighten the risk of not developing comprehensive and robust strategies to strengthen business resilience,” cautioned Ernst & Young Advisory Services Sdn Bhd director (climate change and sustainability services) Arina Kok.

“In fact, the wider environmental, social, and corporate governance (ESG) issues arising from climate change are a concern to Malaysia’s economic resilience, recovery and sustainability agenda, which was a focal point in the recently tabled Budget 2021.”

Kok further noted that there is significant scope for Malaysian PLCs to leverage climate risk assessment to build organisational resilience and help create long-term value during the current trying times.

All-in, the CRDB identifies four action points that are pivotal to the management of climate-related risks but are generally less addressed among Malaysia’s PLCs:

  • Prioritising the impact of climate risk to business resilience: The enterprise risk management (ERM) agenda of boards needs to prioritise the impact of climate risk to business resilience and long-term sustainability. The assessment of climate risks and opportunities can strengthen current and future business strategies and build business resilience.
  • Step up ERM to include the likelihood and impact of climate risk: ERM of companies can evolve to a more structured process including:
    • Ensuring climate-related risk is evaluated according to ERM considerations, specifically on its likelihood and impact; and
    • Conducting periodic assessments of emerging climate-related risks and opportunities in the near, medium and longer-term future.
  • Integrate scenario analysis into ERM processes: ERM assessments can consider the transition to a lower-carbon economy consistent with a 2°C or lower scenario and, where relevant, scenarios consistent with increased physical climate-related risks.
  • Set clear climate-related metrics and targets: Stronger stakeholder engagement across the value chain and more collaborative enterprise-wide efforts can spur the innovation of solutions in mitigating and addressing emerging issues on climate risks. – Dec 4, 2020

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