Developing a decarbonization strategy for a SE Asian conglomerate
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Published August 21, 2024
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Challenge
With a rapidly growing economy and relatively high vulnerability to physical climate risks, climate change mitigation and adaptation are top priorities for Southeast Asian countries like Malaysia. In 2021, Malaysia set a Nationally Determined Contribution (NDC) to cut carbon intensity against GDP by 45% by 2030 compared to 2005 levels. Several Malaysian-based companies set similar goals honoring the country’s NDC, including its sovereign wealth fund, Khazanah Nasional Berhad, which set a goal to achieve net zero emissions within its portfolio by 2050.
Specifically, the institution’s Investment Stewardship Policy states that all investee companies are expected to set, implement, and track emissions reduction targets that align with the Fund’s net zero target and Just Transition strategy by 2050. As a portfolio company of the fund, UEM Edgenta viewed this moment as an opportunity to support its investor’s goals, achieve compliance mandates, and capture the growing market opportunity for net zero solutions in Southeast Asia.
About UEM Edgenta
UEM Edgenta is a conglomerate with a complex greenhouse gas (GHG) footprint that includes several hard-to-abate sectors. The team understood that prolonged inaction put them at risk for reputational damage and compliance penalties. To align with country-level ambitions and the expectations of its investor-owner, our client calculated an initial GHG inventory and created a 2030 sustainability roadmap. While this baseline provided a good starting point, UEM Edgenta needed more granular action plans and specific decarbonization initiatives to meet its goals.
The business faced several challenges to achieving a more holistic, science-based decarbonization pathway, including:
Despite strong collaboration between business units, the 3-person ESG team lacked the capacity to formalize and oversee initiatives across the conglomerate’s expansive territories and functions (e.g., healthcare, cleaning, digital services, technology, etc.).
As a grassroots initiative, the ESG team was still learning about climate change, net zero standards, and decarbonization fundamentals.
Many climate technologies available in other parts of the world have yet to penetrate SE Asian markets. For instance, the lowest-impact refrigerants can be difficult to access, and carbon capture utilization and storage (CCUS) technologies are only just emerging.
At the departmental level, there was a lack of willingness among business units to make immediate capital expenditure investments towards sustainability initiatives. Reflective of SE Asia’s profile as a developing economy, Edgenta’s business units often prioritized delivering on financial targets over other types of initiatives.
However, at the firm-wide level, Edgenta’s Board and C-suite leadership recognized the importance of curating a net zero target compatible with Malaysia’s NDC, which accelerated a top-down initiative to appoint sustainability advisors.
Despite strong collaboration between business units, the 3-person ESG team lacked the capacity to formalize and oversee initiatives across the conglomerate’s expansive territories and functions (e.g., healthcare, cleaning, digital services, technology, etc.).
As a grassroots initiative, the ESG team was still learning about climate change, net zero standards, and decarbonization fundamentals.
Many climate technologies available in other parts of the world have yet to penetrate SE Asian markets. For instance, the lowest-impact refrigerants can be difficult to access, and carbon capture utilization and storage (CCUS) technologies are only just emerging.
At the departmental level, there was a lack of willingness among business units to make immediate capital expenditure investments towards sustainability initiatives. Reflective of SE Asia’s profile as a developing economy, Edgenta’s business units often prioritized delivering on financial targets over other types of initiatives.
However, at the firm-wide level, Edgenta’s Board and C-suite leadership recognized the importance of curating a net zero target compatible with Malaysia’s NDC, which accelerated a top-down initiative to appoint sustainability advisors.
UEM Edgenta needed a scientifically sound decarbonization target and a viable strategy to achieve it. The conglomerate engaged Earth Finance to develop a science-based reduction target aligned to international standards and identify near- and long-term decarbonization projects to submit for approval from the Board.
Our approach
Over 5 months, our team partnered with UEM Edgenta’s ESG team to build capacity, engage stakeholders, surface climate-related risks and opportunities, and formalize 2030 reduction targets and decarbonization pathways. Here’s a closer look at our approach:
1) Landscape analysis and benchmarking. First, we researched SE Asia's geopolitical, macroeconomic, and technological landscape to identify decarbonization levers that could inform our forward-looking quantitative scenario analysis. Part of this workstream included net zero benchmarking of SE Asian companies and international peers.
2) Capacity building and stakeholder engagement. We then educated key stakeholders on climate change, net zero standards, and carbon accounting basics in preparation for an executive-level net zero workshop. We also conducted in-person interviews with stakeholders across the organization, from analysts to heads of business units and members of the parent sovereign wealth fund.
These interviews clarified the appetite and feasibility of various climate initiatives, barriers to implementation, gaps in technologies and systems to monitor progress, and more. For instance, in our interviews with the sovereign wealth fund, we learned that investors saw great reputational promise in setting net zero targets and hoped UEM Edgenta would set an example for the rest of its portfolio companies.
3) Net zero workshop and scenario analysis. Next, we hosted a net zero workshop with 100 UEM Edgenta team members to uncover how climate-related risks and opportunities influenced each business unit. Following International Energy Agency (IEA) guidelines, we used the identified risks and opportunities to generate 3 climate scenarios accounting for corporate growth based on revenue and emissions and a business-as-usual scenario assuming 4°C of temperature rise.
4) Scope 1 and 2 target setting. Given UEM Edgenta’s net zero data gaps, we used emissions data from the IEA to formalize a 2050 GHG reduction target and a near-term Scope 1 and 2 reduction target of 26% by 2030. These targets aligned with global standards while allowing for a near-term emissions increase, given that it can be tougher for SE Asian countries to decarbonize as quickly as developed economies. As part of this workstream, we also tested how transition risks (policy, technology, regulation, and digitization) or revenue growth could impact target achievement.
5) Pilot project identification. To help UEM Edgenta reach its newly set 2030 GHG reduction target, we identified several initiatives to drive meaningful emissions reductions. These included near-term pilot projects around green materials and refrigerants, energy efficiency, electric vehicles, and onsite solar and some exploratory, medium-term opportunities like clean energy procurement and carbon capture and storage.
6) Scope 3 training. We completed the project with Scope 3 training to lay the foundation for a formal Scope 3 GHG inventory. This 2-part training, based on the GHG Protocol’s Scope 3 Guidance, was tailored to UEM Edgenta’s operations and featured cross-functional representatives from sustainability, procurement, and key business units.
Project outcomes
UEM Edgenta now has a clearer path to reach its 2030 GHG reduction target. In addition to receiving positive press following the creation of its target, the conglomerate is backing its re-envisioned roadmap with operationally and financially feasible initiatives that demonstrate the business case for sustainability.
The team is empowered to:
Implement strategies that generate tangible, near-term emissions reduction wins.
Conduct a more accurate Scope 3 inventory and gather high-quality data from thousands of suppliers.
Position themselves more favorably with the Board and demonstrate climate leadership to their investor.
Align with international climate and sustainability reporting guidelines (e.g., TCFD, ISSB, and CDP).
Impact at a glance
100+ trained
Internal stakeholders trained on climate topics
10 interviews
1:1 interviews with team members and the investor-owner team
4,900 MT CO2e
Estimated emissions savings from 6 pilot initiatives
4 unique models
Climate scenario models accounting for 2% to 12% emissions growth per year
This project laid the groundwork for material climate action within UEM Edgenta’s diverse businesses. During the first year of implementation, our client surpassed its minimum annual GHG reduction target by almost half a percent and has already established robust net zero performance metrics, such as business unit scorecards, to track progress on emissions reduction at the departmental level.
Moving forward, UEM Edgenta is institutionalizing other governance and sustainability strategies into its operations, such as an internal carbon price. The firm recently implemented a carbon budgeting process that allocates an emissions cap to each business unit, and every department must now produce a 5-year decarbonization plan aligning with Edgenta’s 2030 target.
As we get closer to 2030, our client strives to further integrate climate-related thinking into core decision-making processes.
Need help setting science-based targets and developing your own climate transition roadmap? Our team helps organizations of all sizes and industries build, finance, and deploy practical climate solutions.
