SEPTEMBER-OCTOBER . 2023 | ESG

27

BY BEN ONG ( MBA , MMIM ) Chairman Malaysian Association of Public Advocacy for Nature ( MAPAN )

ON MARCH 16 , 2023 , the first auction of carbon offset was transacted on Bursa Carbon Exchange ( BCX ), the only Shariah-compliant voluntary carbon market ( VCM ) in the world .

There were 150,000 Verra-registered units traded with 15 Malaysian buyers for credits sourced from technology-based solutions ( TBS ) and nature-based solutions ( NBS ). Each metric ton of credit was sold at RM18.50 and RM68 , respectively , for TBS and NBS .

BCX hopes to spur local interest in carbon offset , which means effective decarbonisation for massive emitters . The 14 Malaysian buyers ’ involved included six local banks , Petronas ( Malaysian national oil corporation ), Permodalan Nasional Berhad ( GLC / GLIC ), Telekom , one each of steel ( Malaysia Steel Works ) and aluminium ( Press Metal ) company , a production arm of oil and gas companies ( Yinson ), an aviation lubricant and grease distributor ( AU Synergy ) and a PET bottle manufacturer ( PET far Eastern ).

For the Exchange to be genuinely representative of the eventual effort to address unabated emissions , hopefully , Tenaga Nasional , independent power producers ( IPP ), plantation companies , sanitary landfill operators , fast fashion producers ( highest pollution after oil and gas industry ), mining and quarry extractors and housing developers are enticed to join its next auction .

BCX prided itself as an established global commodities player for access to Malaysian-based carbon credit , though the inaugural auction was from

Cambodia and China sources . The RM7.7 million fetched translated to RM51.33 per contract unit , which was relatively cheap relative to US $ 40-80 per tonne as published by World Bank .

It will be interesting to see later how much our Sarawak ’ s sustainable aviation fuel and microalgae project and the vast tropical rainforest all over Peninsular and East Malaysia will be .

Accelerating a net zero future is the intent of BCX . But , if both project proponents and developers are foreign to offsetting Malaysian ’ s greenhouse gas ( GHG ) emissions , especially when the country has excellent nature-based potential , our trade balance will suffer .

Just reflect on the RM7.7 million that floated out of Malaysia in March 2023 . By deduction , we will have a total of RM23.1 million foreign exchange outflows for another two auctions to close this year .

BCX defines high-quality carbon as at least 100 years of carbon sequestration or reduction following Verra ’ s requirements . While extant research is blank as to the projection of carbon trading 30 years from now , why is the permanence threshold set beyond 2050 when Malaysia is to achieve its net zero neutrality ? Further , which of our local Malaysian projects are 100 years old enough to make BCX active ?

More focus should also be given to cement , pharmaceutical , e-waste , medical and electronics industries as they are the key carbon generators for Malaysia .

Minimising or eliminating pollution is not what BCX was incorporated for . Nevertheless , without targeting these sectors , there is no impetus for the Exchange to continue creating volumes to decarbonise Malaysian businesses such that Malaysia can achieve its Nationally Determined Contributions ( NDC ) of 45 per cent of its gross domestic product ( GDP ) as committed to the United Nations Framework Convention on Climate Change ( UNFCCC ) during COP 26 , by 2030 .

United Nations Sustainable Development Goals ( UNSDG ) are the national climate action goals . At the business level , environmental , social and governance ( ESG ) is the benchmark for decarbonisation .

This is where , when implemented , a Malaysian ESG standard ( currently being drafted by SIRIM ) will boost transactions over BCX counters . It must be noted that SDG in Malaysia is under the Ministry of Economy while the Ministry of Investment , Trade and Industry ( MITI ) formulates the ESG framework . Both ministries can assist the Exchange in providing volume data .

Air , water and solid waste pollution contributed largely to the carbon footprint . Although such pollutions fall strictly under the Ministry of Natural Resources , Environment and Climate Change ( NRECC ) through the Environmental Quality Act 1974 enforcement , the Ministry of Local Government Development ( KPKT ) is the direct overseer of waste . KPKT is a carbon gatekeeper to BCX .

Micro , small and medium enterprises ( MSME ) constituted 97.4 per cent of all business establishments in Malaysia . Most of them are in the supply chain and dominate Scope 3 emission . Individually , it will be difficult for them to trade on BCX . ESG NGO can thus play intermediary roles to be active on the Exchange . – @ ESG threats of the climate crisis .

However , it is worrying that most of our policymakers have not fully fathomed to the seriousness of the crisis before us . Many have not been convinced of the potential economic catastrophe of environmental mismanagement .

Many may not be aware that businesses worldwide are busy embracing the socio-environmental stewardship encapsulated under ESG , which stands for environmental , social and governance .

Like it or not , the sustainability agenda is becoming an essential yardstick for business and investment . ESG records of companies increasingly guide investors .

Bursa Malaysia has initiated getting the listed companies to embark on the voluntary ESG disclosure . Once in place , there is no doubt that the many

SMEs in the country will also have to take the ESG journey , especially those on the listed companies ’ supply chain . They form the bulk of the Scope 3 carbon emissions in the ESG risk profile . Indeed , all will have to learn to deliver ESG in their businesses . Providing ESG involves deploying the right technologies to reduce carbon emissions and improve productivity .

This is where the digitalisation of business processes is paramount , not only in uplifting productivity but also improving the health and environment of society .

To effectively embrace the right technologies calls for a robust innovation ecosystem . The ecosystem must necessarily bring the stakeholders together in partnership and close collaboration .

There is a lot of work here , as we are known as a nation which takes pride in working in silos . It is especially glaring in the R & D ecosystem , where collaboration is minimal .

There are good models of such ecosystems in other countries which we can replicate here . The Madani framework should give serious attention to this matter to have a better chance of delivering the desired outcome of a sustainable Malaysia .

The recent State election results strongly signal that many are still unclear about the reforms promised in the GE15 manifesto . Many have not been convinced since simple reform , such as not filling GLC chairmanship positions with politicians , has been broken .

But most critical of all is that the Madani approach will only have a chance of success if there is more collaboration among agencies and ministries . – @ ESG