Private investors can back innovators developing A&R solutions, such as startups creating AI-driven platforms for water management.
MALAYSIA is highly vulnerable to climate risk. We are identified as the second most vulnerable country amongst the 48 largest economies of the world.
As the country faces escalating threats posed by climate change, the need for climate adaptation and resilience (A&R) strategies has never been more critical.
The nation’s geographical location makes it highly susceptible to climate-induced adversities. In recent decades, the frequency and extremity of flood events have increased, underscored by the 2021 floods, which led to the evacuation of approximately 400,000 individuals and economic losses of around US$1.3bil.
By the end of the 21st century, predictions by the National Water Research Institute of Malaysia (NAHRIM) suggest that some parts of the country may receive close to 24% more rainfall.
South-East Asia was also hit by a rare “once-in-200-years” heatwave in April and May 2023, impacting Vietnam, Cambodia, Laos, Myanmar, and Malaysia.
This combination of increased rainfall and extreme temperatures highlights the need to develop and implement comprehensive A&R strategies to safeguard Malaysia’s future against the challenges posed by climate change.
A&R finance: The elephant in the room
One of the most significant obstacles in driving climate A&R in Malaysia is securing adequate funding.
Despite the urgent need highlighted by the increasing frequency and severity of climate disasters, attracting investments from the private sector and international funders has been challenging. The nation’s need for an estimated US$85bil (around RM392bil) to adapt to climate change over the next 50 years is compounded by its middle-income status, which limits Malaysia’s eligibility for many concessional funding windows.
The 'bankability' of these projects further poses a challenge. It is difficult for investors and the private sector to see the immediate benefits of investing in A&R projects, as their value often lies in avoiding the costs of inaction (a metric strongly recommended by Boston Consulting Group (BCG) for assessing these investments) and these costs are often ‘societal’, not company specific.
Unlocking finance for A&R requires unprecedented cooperation, and a new public-private partnership.
New momentum at COP28
Nonetheless, COP28 last year marked a great stride forward, with increasing interest and collaboration on this agenda. For example, the Malaysia pavilion dedicated a day to A&R, featuring close to 30 speakers and attracting over 2,000 attendees, both in person and online, and signalling a ‘whole-of-nation’ approach. This included candid discussions on mobilising A&R finance, with many innovative ideas proposed.
Natural Resources and Environmental Sustainability (NRES) Minister Nik Nazmi Nik Ahmad highlighted that Malaysia’s A&R efforts are closely tied to the Madani framework, emphasising adaptation as essential for protecting the nation’s communities and economies against the escalating impacts of climate change.
On a global level, a detailed framework of targets for the Global Goal on Adaptation was established, aimed at enhancing the resilience of countries to climate change.
As we continue to build momentum on this topic, how do we effectively unlock A&R for Malaysia?
The three unlocks for a more climate-resilient Malaysia
The following three keys are essential to enhance Malaysia’s A&R capabilities:
1.Developing a National Adaptation Plan (NAP):
The government is earmarking US$3mil (around RM14mil) in grants from the Green Climate Fund (GCF) to develop Malaysia’s NAP, a framework outlining the country’s adaptation strategies across critical areas like health, agriculture and food security, forestry, biodiversity, water resources and security, as well as infrastructure and cities.
In our experience, a robust and effective NAP has four key elements:
First, it must start with robust analytics that estimate the cost of inaction, the impact on GDP and jobs, and the cost-benefit of various interventions, as prioritisation will be key given limited fiscal resources.
Second, the NAP must go from macro to micro, taking a sector-specific approach, with clear plans for all different sectors that will need to adapt, including cities, agriculture, energy, and communications infrastructure.Third, the process is as important as the outcome: the NAP must be developed based on wide-ranging stakeholder collaboration, bringing in the best of the country’s academia, think tanks, civil society, and the state governments, ensuring a whole-of-country approach.
Finally, the NAP should be actionable and pragmatic, providing a clear implementation roadmap and highlighting priority themes and projects. This is key to facilitate capital mobilisation and resource allocation for high impact adaptation actions and laying the groundwork for long-term climate resilience.
2.Mobilising private capital:
While concessional capital is needed, we believe private financing is the next frontier of A&R efforts. For local businesses and private investors, funding A&R is an opportunity for positive change and economic gain. In our experience, here are three specific opportunities the private sector can leverage:
> The “Protect” opportunity: Malaysian businesses can invest in A&R measures to safeguard their assets, supply chains, and operations against the impacts of climate change. For example, an agribusiness might invest in regenerative agriculture practices or a water stewardship initiative with farmers, to protect its supply chain from climate-induced irregularities.
> The “Grow” opportunity: Private investors can back innovators developing A&R solutions, such as startups creating AI-driven platforms for water management. By investing in such ventures, investors not only introduce new A&R product lines but also contribute to climate-resilient revenue streams and expand the market for A&R solutions.
> The “Participate” opportunity: The private sector can partner with the government to finance and implement capital projects that enhance climate resilience. For instance, the private sector can jointly invest with the government in resilience infrastructure for a special economic zone that is in a highly climate-vulnerable area.
3.Fostering public-private partnerships (PPPs):
A&R requires a new paradigm of PPPs, leveraging both sectors’ strengths to share risks and resources in climate adaptation efforts.
A best-in-class example is the Stormwater Management and Road Tunnel (SMART) in Kuala Lumpur. Initiated by the federal government to combat flooding, the project was executed through a joint venture between MMC Corporation Bhd and Gamuda Bhd, alongside the Department of Irrigation and Drainage Malaysia and the Malaysian Highway Authority.
Since its opening in 2007, the SMART tunnel has mitigated 45% of Kuala Lumpur’s flood events, diverting floodwaters on 40 occasions and preventing an estimated RM1.4bil in damages.
This project shows the kind of innovation needed for PPPs in climate adaptation and the necessity for Malaysia to explore similar innovative projects to enhance its resilience against climate impacts.
A time for action to safeguard Malaysia’s future
Malaysia’s urgent climate challenges demand action, and complacency is not an option.
Immediate and impactful A&R efforts are vital for long-term sustainability. In our experience, developing a robust, inclusive, and pragmatic NAP, mobilising private capital, and fostering PPPs are critical key success factors.
Above all, the effectiveness of Malaysia's response to climate change rests on the collective effort of all stakeholders. By combining forces and embracing collaboration, Malaysia can convert the big threat of climate risks into an opportunity to invest in its long-term success.
Article by Boston Consulting Group (BCG) partner and director Varad Pande, senior analyst Ian Tan, and BCG Malaysia head Nurlin Mohd Salleh.
