Malaysia stands out with its net-zero goals


WHILE Malaysia suffered setbacks in terms of its handling of foreign labour a couple of years back, this had been rapidly addressed. With adherence to global standards and the gradual reduction in reliance of foreign labour via enhanced automation, it appears that Malaysia is on the right track in terms of tackling this “social” pillar. 

In fact, in terms of the “environment” pillar, we see Malaysia as having the clearest net-zero path among its Asean peers. Aside from Malaysia, only Thailand and Indonesia have set a goal to achieve carbon neutrality by 2050 and 2060 respectively, while most of our neighbour peers have mostly outlined a commitment to sustainable development and reducing greenhouse gas emissions. 

Across Asean, countries are actively advancing their net-zero pathway plans as part of a dedicated commitment to fight climate change and lower carbon emissions. For instance, Malaysia’s decision to abstain from constructing new coal power plants and accelerating the retirement of existing coal capacity aligns with the broader global trends. 

Similarly, countries such as Thailand, Vietnam and Indonesia have articulated strategies aimed at diminishing their dependence on coal and investing into cleaner energy alternatives. These initiatives collectively signify Asean’s concerted push towards 

sustainable and low-carbon energy systems, underscoring the region’s commitment to a greener and more environmentally responsible future. 

Based on the Asean countries net zero path figures, the table shows the distinct rankings of the Asean nations in the Energy Transition Index (ETI). The ETI benchmarks the coun- tries’ performance on their energy systems, as well as their readiness for transition to a more sustainable and reliable energy future. 

Even though Malaysia is considered as a developing country, it still scores a higher ranking in the ETI compared to its neighbouring country, Singapore, where they are more economically advanced. Malaysia scores highly due to supply diversity and reliability. 

Countries today are facing the problems of renewable energy (RE) investments being too little and too slow and the issue of scaling up such investments. But, as costs drop and return on investment (ROI) on RE investments improve, this would spur such investments. Yet, contractual obligations from traditional power producers remain a key deterrent, in our view. 

We thus see the recently introduced National Energy Transition Roadmap (NETR) resolving some of these issues. By laying the framework and given the government’s stance, a clear path to a higher degree of RE investments is now inevitable. But aside from achieving its carbon reduction goals, we see the country benefiting from the indirect benefits of having a stronger environmental, social and governance (ESG) orientation. 

A country with a stronger ESG orientation tends to have a positive impact on foreign direct investment (FDI) by enhancing its attractiveness via mitigation of long-term risks associated with environmental degradation, social unrest and poor governance. With investors increasingly embedding an ESG criteria into their investment mandates, countries that adhere to global standards such as those set by the United Nations Principles for Responsible Investment (UNPRI) or the Sustainable Development Goals (SDGs) would become more appealing to those seeking compliance with such investment practices, which have grown dramatically in recent years. 

On July 11, 2023, the government set in motion to position the country as a regional leader in RE by expediting the implementation of the NETR, which broadly aims to shift the country away from traditional fossil fuels towards a green economy. The NETR would be implemented via 10 flagship pilot projects and executed at an estimated cost of RM623 billion. 

While the NETR is deemed to be a roadmap and hence, long-term in nature, regardless, the scale of investments required is rather massive, which in our view will see the participation of foreign investments. It 

positions the country as a leader in green manufacturing within Asean Foreign participation will not merely expedite the nation’s climate goals, but simultaneously strategically positions the country as a green manufacturing hub within the Asean region. 

Malaysia is already leading in the ESG race especially from a climate angle and the NETR aims to further consolidate its position especially as global companies chase their own climate goal agendas, requiring their manufacturing partners to be solely dependent on RE in the future. 

Importantly, the NETR addresses the country’s structural issues Malaysia stands out in terms of its ESG orientation, and its strong desire to do even more will possibly give it a second aim at not merely restructuring the economy but ensuring strong and sustainable GDP growth in years ahead. 

Ultimately, as Malaysia gravitates towards its net zero target and should the NETR be properly and efficiently executed, we see room for the country to simultaneously tackle some inherent issues it faces — a weak currency and declining foreign ownership particularly in the equity market. 

  • Extracted from Affin Hwang Investment Bank note entitled “Malaysia ESG: A look into the NETR” released on Jan 25, 2024. 

  • This article first appeared in The Malaysian Reserve weekly print edition