MISC Integrated Annual Report 2020

OVERVIEW VICE PRESIDENT’S REMARKS EMRAN OTHMAN Vice President, Corporate Planning The events of the past year have been a huge lesson for all of us at MISC, as we persevered and became more resilient, to continue on course with our strategic value creation journey. In hindsight, the 2020 theme of ‘One Heart, One Mind and One Dream’, launched by our President/Group CEO at the beginning of the year, aptly articulated MISC’s shared purpose as a driving force uniting us. Our swift and agile response enabled us to rise above the challenges and minimise the impacts of the COVID-19 pandemic on our business. Our IT team was instrumental in accelerating the Group’s shift towards utilising digital platforms for employees who were working from home, and our front liners working on board our vessels, floating assets, ports and yards. Tapping into technology and digital platforms to bridge connections, we were able to overcome limitations as a result of social distancing and movement restrictions, and ensured minimal disruptions to our business. Our strong HSSE culture coupled with our robust risk management approach has sustained our operations through these trying times. The business that was most impacted by the pandemic, the Marine & Heavy Engineering segment, vigorously TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) Approach to Climate Change Our sustainability strategies and practices are guided by global best practices set by organisations such as the TCFD. MISC is in support of the TCFD, and we strive to embrace this best practice, where practicable, to strengthen our sustainability practices and disclosures while cultivating greater sustainable practices within the wider market. In the long-term, the emphasis on sustainability will ensure greater growth and value being created for our stakeholders. Below we have outlined how the Group's policies on climate change are aligned to the four basic recommendations put forward by the TCFD: ‘Governance’, ‘Strategy’, ‘Risk Management’, and ‘Metrics and Targets’. This is also in line with our ‘Towards Decarbonisation’ commitment and current initiatives. Future Activities As our response to the TCFD recommendations, MISC is committed to strengthening our management of climate-related risks by including climate-related risks as part of our Enterprise Risks, quantitatively evaluating anticipated future risks with scenario analysis, and discussing measures at the management and board level. We will formulate and execute business strategies in a forward looking way, by refining the scenario analysis in steps and ensure we understand the potential risks and opportunities. At the same time, we will actively promote the search for alternative fuel in efforts to decarbonise our operations and make efforts to resolve this issue at industry level. Going forward, we will continue to make further enhancements to provide consistent and transparent disclosures to our stakeholders in line with the TCFD recommendations. Item Recommended disclosure Our initiatives Read more in relevant sections Governance Organisational governance of climate-related risks and opportunities Board Governance and Risk Committee (BGRC) has been formed to provide governance of climate-related risks and opportunities See BGRC report Page 290 Strategy Impacts of climate- related risks and opportunities on business As part of our efforts to ensure better integration of relevant climate change risks and opportunities in business strategy and financial planning, we are embarking on our TCFD journey in 2021 to embed climate change as part of our related risk assessment process which includes conducting scenario analysis for our business units and subsidiaries in a phased approach. Over the next few years, MISC’s ‘Towards Decarbonisation’ commitment is to invest in low-carbon environmentally friendly vessels with technologies designed to reduce GHG emissions and increase energy efficiency. Inclusion of these elements into the design of our current and future vessels will also reap long-term benefits for MISC in terms of cost savings and risk management. See Anchoring Sustainability @ MISC Page 119 Risk Management How climate- related risks and opportunities are identified, assessed and managed At MISC, prioritisation of risks and opportunities including those related to climate challenges, are conducted based on the severity of the potential impacts of the risk, as well as the scale of the opportunities. MISC adopts the PETRONAS Resiliency Model (PRM) which provides an integrated view for managing risks and is also guided by international best practice as per ISO 31000. See Our Risks and Mitigation Strategies Page 88 Metrics and Targets Metrics and targets used to assess and manage climate- related risks and opportunities MISC’s GHG emissions performance including the evaluation against carbon reduction targets that has been set at the strategic level is presented to the MISC HSSE Council (which includes members of the Risk Management Committee) on a quarterly basis. See Operating Safely and Sustainably Pages 214 to 219 assessed risks and implemented the right decisions to ensure operational continuity. Our international shipping operations minimised disruptions by working closely with various authorities, whilst ensuring full compliance with the myriad COVID-19 standard operating procedures (SOPs) enforced in different countries. Our project deliveries were guided by a focused approach that took into account all the factors required to ensure efficient project management and execution in adherence to SOPs. To mitigate against supply chain disruptions, we expanded our supplier base to ensure the continuous availability of any equipment required for our operations and projects. In 2020, MISC successfully secured new projects of approximately USD2.8 billion in CAPEX value, more than double the value that we secured in 2019. Our various business segments were able to deliver on business growth as a result of the focused execution of our strategic plan with several first project wins for MISC such as the Mero 3 FPSO project in Brazil, the acquisition of six VLECs and the award for two dual-fuel LNG VLCCs. We also completed the construction of Dry Dock 3 and commenced operations in December 2020, thus expanding our capacity to provide regional marine repair services. The Group’s value creation activities for the year have laid out a clear path for our sustainable growth and profitability into the future, as the projects we secured in 2020 will add to our secured revenue streams. Our efforts have also further diversified our customer base to include international clients and reputable energy majors. The climate change agenda is, without doubt, of critical concern for the entire world. Shareholders, investors, financiers and clients are paying greater attention to the outcomes of companies’ efforts towards combating climate change. MISC is cognisant of the need for our organisation to responsibly and transparently disclose our performance in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). We aim to be fully TCFD compliant by 2023 and have established the roadmap to implement the TCFD recommendations over the next two years. 2021 also marks the inception of our new MISC 2021–2025 Sustainability Strategy. Our Sustainability Strategy aligns to the Group’s United Nations Sustainability Development Goals (UNSDGs) commitments and integrates environmental, social and governance (ESG) factors into our overall business strategy. The plan focuses on areas such as industry decarbonisation, sustainable talent pipeline as well as enhancement of strong corporate governance and business ethics, all of which are important for MISC to sustain our operations as a responsible organisation. Over the past few years, we have remained on a steady growth trajectory to generate sustainable value for our shareholders and stakeholders. As we continue our onward moving journey, we are mindful of the threats that continue to challenge the world. MISC’s strategic priority for the year ahead is to ensure excellence in executing the major projects we have secured in 2020. A key emphasis is the Mero 3 FPSO project, given its large size and it being our maiden project of such type in Latin America. Despite the strong headwinds of the past year, MISC continues to stay the course as a result of our focused strategies and unwavering commitment of our employees. We reaffirm our steadfastness to sustain our value creation efforts regardless of the challenges that may come our way, to build meaningful and tangible value for our shareholders and stakeholders. EMRAN OTHMAN Vice President, Corporate Planning // Key Messages / Highlights / Strategic Review / Sustainability / Financial Review ////// MISC Berhad / Integrated Annual Report 2020 4 58 MISC Berhad / Integrated Annual Report 2020 4 59 ////// Financial Review / Sustainability / Strategic Review / Highlights / Key Messages // Section Section