Takeaways
- Climate physical risks like floods and sea-level rise could erode 5-25% EBITDA in manufacturing, property, and agriculture
- Climate transition risks from CBAM hit exporters with up to 50% cost hikes.
- 2024 floods cost RM933 million. Global projections warn $1.2 trillion annual losses by 2050s without action.
- Acknowledge risks, mobilise executives, build strategies, partner value chains, and engage board to build business resilience amid weather disruptions.
Malaysian CEOs navigate a landscape where climate disruptions are no longer distant threats but immediate boardroom imperatives. Physical risks from floods, heatwaves, and sea-level rise, combined with transition risks from policies like the EU’s Carbon Border Adjustment Mechanism (CBAM), endanger operations and profitability across key sectors. In 2024 alone, floods inflicted RM933 million in damages nationwide, underscoring the urgency for strategic resilience.
Table of Contents
What Is Climate Physical Risks
Climate physical risks, as defined in IPCC AR6 Working Group II reports, encompass acute events like cyclones, floods, and wildfires alongside chronic stressors such as rising temperatures, droughts, and sea-level rise. These hazards directly impair assets, halt supply chains, and erode workforce productivity. The IPCC highlights that risks intensify at 1.5°C warming, with “high to very high” impacts across sectors even under moderate scenarios.
In Malaysia, vulnerability amplifies due to its equatorial position and coastal exposure. Frequent monsoon floods and El Niño-induced droughts exemplify how global climate patterns localise into business crises.
Impacts of Physical Risks to Major Sectors in Malaysia
Manufacturing, a pillar of Malaysia’s economy, suffers repeated shutdowns from inundations. The 2024 floods caused RM1.2 million in direct factory losses, but indirect supply chain disruptions quadrupled impacts in Penang and Selangor hubs, delaying exports and inflating logistics costs.
Property and construction face existential threats from chronic sea-level rise projected at 0.4-0.7 meters by 2100, endangering low-lying developments in Johor Bahru and Port Klang. Flood damages to infrastructure tallied RM303 million in 2024, while erosion and subsidence compound repair bills and insurance premiums for high-rises and townships.
Agriculture, particularly palm oil plantations contributing 5% to GDP, contends with erratic monsoons slashing yields by up to 60% during off-seasons. Studies indicate a 2-8% production drop per 0.5-meter sea-level rise in coastal estates, alongside drought-stressed trees reducing fresh fruit bunches by 20-30%.
Globally, S&P Global forecasts $1.2 trillion annual physical risk costs for S&P 1200 firms by the 2050s, predominantly from heat (55%), drought (23%), and water stress (13%). Locally, BCG models suggest 5-25% EBITDA erosion by 2050, with Malaysia’s manufacturing zones facing amplified losses from recurrent flooding.
What Is Climate Transition Risks
Climate transition risks originate from societal shifts to mitigate climate change, including carbon pricing, regulatory mandates, technological disruptions, and evolving market preferences, per TCFD recommendations and IPCC AR6 Working Group III. These force companies to reprice emissions, retire assets prematurely, or pivot business models amid net-zero trajectories.
For Malaysian exporters, CBAM exemplifies acute transition pressure, imposing tariffs on carbon-intensive imports to the EU starting 2026.
Impacts of Transition Risks to Major Sectors in Malaysia
Manufacturing exporters, representing 75% of EU-bound shipments (8% of total exports), brace for CBAM hits on steel, aluminium, cement, and fertilisers. Fastener producers, for instance, could see operating expenses surge 45% by 2030 without decarbonisation. Non-compliant firms risk market exclusion, stranding export revenues worth billions.
Property and construction must integrate green standards amid Malaysia’s 2025 renewable energy target (31% of capacity) and Bursa Malaysia ESG mandates. Investors demand low-carbon buildings, inflating upfront costs by 10-20% but unlocking premiums in sustainable leasing markets.
Agriculture‘s palm oil sector confronts deforestation-linked scrutiny and EU Deforestation Regulation (EUDR), alongside Scope 3 demands for verified low-emission supply chains. Transition to regenerative practices could cost RM5-10 billion industry-wide but avert boycotts.
Quantitatively, carbon pricing in net-zero paths could halve EBITDA for emissions-heavy sectors by 2030. Malaysia’s exposed manufacturers may require $700 billion in annual compliance investments globally, with local stranded assets hitting 10-35% of fossil-dependent valuations.
How to Build Business Resilience Amid Weather Disruptions
To minimise the costs of inaction, Bernard Business Consulting recommends that businesses adopt the following Five-Step Resilience Plan:
Step 1: Acknowledge the Risk
- Map physical risks at asset, value chain, and system levels.
- Review past disruptions like 2024 floods to build leadership consensus.
Step 2: Mobilise Executive Action
- Assign Chief Risk Officer (risk assessment), Chief Operation Officer (operational integration), Chief Sustainability Officer (awareness and scenarios) roles tailored to Malaysian vulnerabilities.
Step 3: Develop a Resilience Strategy
- Embed resilience in capital allocation with financial tools, operational measures such as supplier diversification, and long-term innovations like flood-resistant designs.
Step 4: Partner Across the Value Chain
- Form coalitions with suppliers, customers, peers, and policymakers beyond tier-1 relationships.
Step 5: Engage the Board
- Leverage directors for oversight, challenging assumptions, and endorsing resilience objectives.
At Bernard Business Consulting, our practitioners draw on experience in carbon accounting, sustainability reporting, on-the-ground audits, data quality reviews, and training for Malaysian and global firms to deliver practical solutions. We translate real-world disruptions into actionable mitigation strategies, helping businesses build resilience in this constantly changing world.
Explore our climate-related consulting services to start building your business resilience.
References
Asian Development Bank & World Bank Group. (2021). Climate risk country profile: Malaysia. https://www.adb.org/publications/climate-risk-country-profile-malaysia
Boston Consulting Group. (2024, December 11). Act on climate risk today or face the high cost of inaction [Press release]. https://www.bcg.com/press/11december2024-climate-risk-cost-of-inaction
Department of Statistics Malaysia. (2025, March 18). Malaysia records RM933.4 million in flood losses in 2024. https://thesun.my/malaysia-news/malaysia-records-rm9334m-in-flood-losses-in-2024-dosm-PL13819868
Intergovernmental Panel on Climate Change. (2022a). Climate change 2022: Impacts, adaptation, and vulnerability. Contribution of Working Group II to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge University Press. https://www.ipcc.ch/report/ar6/wg2/
Intergovernmental Panel on Climate Change. (2022b). Climate change 2022: Mitigation of climate change. Contribution of Working Group III to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge University Press. https://www.ipcc.ch/report/ar6/wg3/
O’Neill, B., van Aalst, M., Zaiton Ibrahim, Z., Berrang-Ford, L., de Coninck, H., Durrant, R., et al. (2022). Chapter 16: Key risks across sectors and regions. In Climate change 2022: Impacts, adaptation, and vulnerability (pp. 1511–1664). Cambridge University Press. https://www.ipcc.ch/report/ar6/wg2/chapter/chapter-16/
S&P Global. (2025, March 9). For the world’s largest companies, climate physical risks have a $1.2 trillion annual price tag by the 2050s. https://www.spglobal.com/esg/insights/featured/special-editorial/ceraweek-physical-risk
Vetter, D. R. (2025, March 13). Climate inaction could cost 1/3 of global GDP by 2100, BCG warns. Forbes. https://www.forbes.com/sites/davidrvetter/2025/03/13/climate-inaction-could-cost-13-of-global-gdp-by-2100-bcg-warns/
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