This article first appeared in Forum, The Edge Malaysia Weekly on January 17, 2022 - January 23, 2022

As the sheer scale of the challenges posed by the climate emergency is becoming increasingly clear, it is gratifying to see many company directors and businesses responding with a heightened sense of urgency.

However, recent developments have reinforced the gravity of this global crisis and the critical need to consider adaptation and other measures. A vital element of this response is increased coordination between government and industry.

Key milestones in the past few months include:

On May 26, 2021, the World Meteorological Organisation reminded us that we were already at 1.2°C of global warming [in 2020] and there was a 40% chance of hitting the Paris Accord’s lower threshold of 1.5°C in the next few years.

On Oct 8, 2021, after decades of effort, the United Nations Human Rights Council passed a historical vote that access to a clean, healthy and sustainable environment is a fundamental human right. It should be a matter of national pride that Malaysia co-sponsored this resolution.

Though there was much hype around the United Nations Framework Convention on Climate Change (UNFCCC) Conference of Parties (COP26) held in Glasgow in November 2021, things have started to unravel. A mere four days after COP26, the US government undertook an auction of a colossal 81 million acres to be leased for oil and gas production in the Gulf of Mexico, while recognising it was legally not obliged to do so.

A month after COP26, on Dec 13, 2021, a resolution was tabled at the UN Security Council (UNSC) that the climate crisis and international security were inter-linked — “integrating climate-related security risks into conflict-prevention strategies”.

Russia exercised its veto against this resolution, which India rejected as well. The Explanation of Vote by India’s permanent representative T S Tirumurti is revealing and insightful, reminding us that the hard-earned consensus across all 197 member states of the UNFCCC was informed by specific national circumstances. In contrast, with this draft resolution, climate change decisions were sought to be taken out of the wider international community represented in the UNFCCC and given instead to the UNSC, which is unrepresentative in character.

Tirumurti noted that “ironically many of the UNSC members are the main contributors of climate change due to historical emissions [and] a few states will then have a free hand in deciding on all climate-related issues: this is clearly neither desirable nor acceptable”. This will also militate against the interests of developing countries.

Corporate directors have long been mindful that we live in a volatile, uncertain, complex and ambiguous (VUCA) world and will recognise that we have moved beyond traditional measures of materiality as a percentage of revenue, profit and net assets.

Now, we need to apply the concepts of double materiality (such as environmental, social and governance [ESG] factors which can be financially material and dynamic materiality (where risks may appear to be immaterial but have the potential to become material very quickly, with significant financial consequences).

Even a passing knowledge of the clear and present dangers arising from the climate crisis (developments that are “unpredictable yet entirely foreseeable”) requires directors to apply their minds to the following:

- Mitigation efforts (such as decarbonisation strategies and circularity) are being demanded by trading partners and allocators of capital, although it is certain that achieving global net zero emissions by 2050 will be impossible without developed countries meeting and enhancing their commitments, whether for 2030 or 2050. As of now, they are not on the path to meet them.

- The massive transitions affecting virtually every economic sector, where the way industries are powered, operated, supplied and valued will undergo transformations.

- The necessary adaptation measures for an irreversibly hotter world, which will require predictable financing, easily accessible market mechanisms and access to technology.

While boards of directors in Malaysia discuss adaptation priorities in the context of climate risks, there should be an accompanying realisation that significantly weakened institutional capacity, coupled with the lack of access to relevant, timely and accurate data (in some cases, deliberately withheld) are augmenting business risks and will result in suboptimal outcomes during crises.

The tragic unexpected loss of lives and damage sustained during the recent floods in the country are the result of a confluence of many factors, including global warming, a tropical depression, short-sighted development planning and even an astonishing indifference from first responders.

Expectations of intelligent, rigorous and robust responses by key stakeholders might have been entirely reasonable at one time in our nation’s history, but it now appears to no longer hold true. There are clear signals that previously reasonable assumptions such as a crisis-resilient supply chain and transport modalities, expectations of staff being housed securely and safely, and affordable insurance coverage might no longer hold true. And of course, there are significant mental health impacts arising from these events as well.

Even so, Malaysia could punch above its weight at events such as the Round Table platform, organised by CGM and the CEO Action Network and supported by the Ministry of Environment and Water, to facilitate engagement between “all of government and whole of society”. It was gratifying to observe dozens of business leaders actively volunteering to plan, coordinate and host the five-month series of free, open and recorded round table sessions held last year, which attracted more than 4,000 attendees.

Arguably the greatest lacuna is the lack of synergy between government action on climate and corporate priorities, with the current booming energy prices being an example of this disconnect, versus carefully synergised energy and climate strategies. Thus, complementarity between government policies and targets and private sector mitigation strategies is absolutely essential.

The transition pathway to a decarbonised yet warmer world needs to be natural and not forced. Many corporations are applying net zero strategies but the 

Paris Accord’s recognition of global peaking clearly states (in Article 4) that developing countries will take longer to peak, that is, after developed countries.

We can spend much time ranting at the inequity of contributing the least towards accelerating global warming yet having to disproportionately bear the costs of mitigation, adaptation as well as “losses and damages”, but what was particularly revealing at these round table sessions was the number of elegant and simple solutions that have been floating around for years and that could get the nation to decarbonise and be more sustainable in a very short time frame. However, we need to upscale ourselves technologically, which is where the question of access to technology and intellectual property rights arises.

We can hold fast to the principles of common but differentiated responsibilities and of equity under the UNFCCC, but the Covid-19 pandemic has been instructive as to reactions and priorities during times of crisis: the enormously profitable vaccine rollout, accompanied by refusals to suspend monopolies of intellectual property, hoarding and supply chains disruptions have led to huge inequalities in vaccinations and booster shots between the developed and developing nations, while multiple layers of businesses profit all around the world.

Finally, as Anis Chowdhury and Jomo Kwame Sundaram point out, a transformative approach to climate risks is required: “moving away from de-risking in favour of a more integrated and systemic approach to diversify economies for greater resilience [which will be] more supportive of sustainable development, and much less vulnerable or likely to be disrupted by external shocks. Climate adaptation requires a new vision of common goals, instead of merely avoiding risks and worst-case scenarios”. For this government, private partnership and a whole of society approach is inevitable.

As a relatively young nation, we can blaze a trail of our own, as custodians of mega-biodiversity, as stewards of critical yet limited natural resources such as arable land, rainforests and water, which not only anticipates and meets the sustainability ambitions of our trading partners, but is simply the right thing to do. How do we put all this together into something meaningful for our corporate world?

As long-term stewards providing leadership within the organisation and with other stakeholders, it is essential that all corporate directors are sufficiently climate literate to be able to navigate multiple aspects of the critical transition journey that lies before us.

Datin Seri Sunita Rajakumar is founder and the chair of Climate Governance Malaysia (CGM), the national chapter of the World Economic Forum’s Climate Governance Initiative (CGI). This column is part of a series coordinated by CGM. The CGI is an effort to support boards of directors in discharging their duty of care as long-term stewards of the companies they oversee, specifically to ensure that climate risks and opportunities are adequately addressed.

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