Protecting Against Potential Vulnerabilities Of Climate Change And Risk

Latest News 15 June 2024 Hits: 101

The insurance industry plays a critical role in the energy transition by identifying, mitigating, and transferring risks associated with emerging environmental challenges.

Insurers help businesses understand potential vulnerabilities related to climate change and provide financial mechanisms to manage those risks effectively. This includes underwriting policies that support investments in renewable energy and energy-efficient technologies, which are essential for sustainable growth and enhancing the resilience of the economy against climate-related disruptions.

Speaking today BusinessToday exclusively recently, Liberty General Insurance Berhad Chief Commercial Lines Officer Foo Yong Chiat saidrecent studies by the Small and Medium Enterprises Association of Malaysia (SAMENTA) revealed that less than 12 percent of SMEs surveyed indicated their readiness for ESG implementation.

“Although the National Industry ESG framework launched in October 2023 has offered businesses a transition period to adapt to the new guidelines for manufacturing companies, we’re hoping to see the same consideration for a transitional period be offered to other sectors as Malaysia continues on its route to pave the way for a greener economy.”

According to the United Nations Global Compact Network Malaysia and Brunei (UNGCMYB), it is paramount for SMEs to adopt ESG practices, noting that the lack of ESG information is often seen as a sign of business risk, which may negatively affect a company’s image and decrease its brand value.

Within the same report, the UNGCMYB also stated that non-compliance to these regulations may result in businesses facing increased difficulty in obtaining loans, given that ESG risks are classified as a substantial material risk.

Within the context of sustainability, commercial insurers aim to help companies better understand and manage their exposure to climate-related risks.

Awareness Grows

While the awareness of sustainability continues to grow, there is still limited understanding of climate-related risks by Malaysian companies, notably local SMEs (Small and Medium-sized Enterprises), which may be a challenge in meeting compliance requirements.

Additionally, integrating climate considerations into operations is a significant challenge, particularly for SMEs with limited resources. Understanding the full impact of climate change on business and implementing appropriate mitigation and adaptation strategies are crucial. This complexity can make it difficult for some SMEs to develop and implement effective climate resilience plans.

“However, at Liberty, we are committed to monitoring developments in climate risk management and enhancing our resilience strategies in alignment with global trends. We focus on integrating climate risk considerations throughout our governance, strategy, risk management, and reporting processes. Our efforts are aligned with broader initiatives that promote sustainable and orderly transitions within the industry, emphasising support for our clients in adapting to these changes efficiently and effectively,” Foo said.

With the integration of sustainability factors into business operations and investment decisions, this initiative will likely kickstart a roadmap to encourage the transition of companies towards climate-supporting activities by 2026, as mentioned by Bank Negara Malaysia.

As one of the leading general insurers in Malaysia and a global P&C, Liberty continues to focus on integrating sustainability into our business operations. We recently became a member of the United Nations Global Compact Network Malaysia and Brunei (UNGCMYB) as part of our commitment to sustainable practices.

Operational Resilience

Enhancing operational resilience will require Malaysian companies to put strong focus on ESG integration and advanced risk management.

Companies first need to set clear goals and performance indicators to ensure a focused approach towards sustainability, encompassing initiatives like energy efficiency, responsible sourcing, and ethical business practices.

The companies can then foster open dialogue with employees, customers, investors, and communities, facilitating a deeper understanding of stakeholder expectations and emerging ESG risks. Transparent communication about ESG efforts not only enhances trust, but also bolsters the company’s reputation and brand value.

Collaboration and partnerships with industry peers, government agencies, NGOs, and academia also play a pivotal role in this endeavour. By pooling resources, sharing best practices, and addressing shared challenges collectively, companies can amplify their impact and drive systemic change.

Liberty supports this initiative, especially guiding SMEs to incorporate sustainable practices into their operations, thereby not only safeguarding their business but also positioning them well for future challenges.

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