MISC Integrated Annual Report 2020

MEDIUM TO LONG TERM CLIMATE CHANGE AND INCREASING ENVIRONMENTAL AWARENESS Environmental issues are attracting broader attention and calls for climate action are growing louder. The crisis caused by COVID-19 could create new momentum for climate change initiatives, by triggering ‘green’ government funding to rebuild the economy and spur long- term changes within many sectors towards a low-carbon economy. The new US administration has set forth an ambitious agenda to achieve net zero emissions and rejoined the Paris climate accord. A growing number of oil and gas companies have set carbon reduction aspirations and leading players in the shipping industry have pledged to continuously reduce emissions to meet more stringent targets set by the International Maritime Organization (IMO). Sources: IMO, GMF Source: BBC OUTLOOK AND OPPORTUNITIES OUR RESPONSE Natural gas remains key in the energy mix going forward and will continue to grow, taking market share mainly from coal. Renewables are gaining momentum and will cannibalise demand for coal and oil, but oil will continue to play a major role in the world’s energy mix even until 2050. In the longer term, hydrocarbons may be out of favour, and demand is projected to decline. Renewables will see the biggest growth in the world’s energy mix in the next 20 years driven by technological advances. For the shipping sector, the IMO has set the ambition of reducing the industry’s GHG emissions by at least 50% by 2050 compared to 2008; and reducing the carbon intensity of ships by 40% by 2030, and 70% by 2050 compared to 2008 levels. An important consideration is that a commercial vessel is capital-intensive with a typical life span of 20-25 years. To deliver on IMO 2050 targets, zero-emission vessels will need to enter the commercial fleet by 2030. For the moment, LNG-fuelled vessels offer the best bridging solution, as technological solutions to fully achieve IMO 2050 targets are not yet available. However, ammonia and hydrogen are touted as zero-carbon emission alternatives to carbon-based marine fuel. Potential technological breakthroughs in ammonia and hydrogen might result in them eventually displacing LNG as the clean fuel of choice for shipping. Sources: IMO, GMF MISC is currently formulating a long-term strategy to ensure our continued competitiveness and relevance towards a low and zero carbon economy. In the meantime, MISC is already taking steps to evolve and stay ahead in the industry through the following efforts: • • MISC is a founding member of ‘The Castor Initiative’, an alliance among six industry players to jointly develop commercially-viable deep-sea zero-emission vessels by 2030 using ammonia as a fuel • • In addition to pursuing conventional LNG shipping, LNG Assets Solutions will tap further on LNG bunkering opportunities as demand for LNG as marine fuel is expected to pick up. Potential technological breakthroughs in ammonia and hydrogen will provide the segment new opportunities to grow its non-conventional market • • Petroleum & Product Shipping segment is a pioneer in LNG dual-fuel vessels and is committed to growing its fleet of LNG-powered vessels. It aspires to accelerate its own emissions reduction effort and meet the IMO 2030 goals earlier. The segment is focusing on participation in other low-carbon maritime services either on its own or through strategic partnership • • Marine & Heavy Engineering segment is capitalising on its oil and gas fabrication capabilities to cater to fabrication of structures for the offshore wind farm market • • Offshore Business segment is exploring opportunities and collaboration with clients on addressing climate change on existing assets, future projects and new business lines For more details, refer to Business Review section on pages 136 to 169 and Anchoring Sustainability @ MISC section on page 105. Material Matters Risks Gigatonnes of CO 2 equivalent Emissions* and expected warming by 2100 2020 2040 2060 2080 2100 0 50 100 150 If countries do not act 4.1 - 4.8ºC Following current pledges (not enacted) 2.5 - 2.8ºC Following current policies (enacted) 2.8 - 3.2ºC * Emissions are in Gigatonnes of CO 2 equivalent Peak oil Ocean health Natural resource use Climate change and environment Climate change OUR OPERATING ENVIRONMENT // Key Messages / Highlights / Strategic Review / Sustainability / Financial Review ////// MISC Berhad / Integrated Annual Report 2020 4 78 MISC Berhad / Integrated Annual Report 2020 4 79 ////// Financial Review / Sustainability / Strategic Review / Highlights / Key Messages // Section Section