MISC Integrated Annual Report 2020

// Key Messages / Highlights / Strategic Review / Sustainability / Financial Review ////// MISC Berhad / Integrated Annual Report 2020 4 88 MISC Berhad / Integrated Annual Report 2020 4 89 ////// Financial Review / Sustainability / Strategic Review / Highlights / Key Messages // Section Section OUR RISKS AND MITIGATION STRATEGIES Capitals Affected: Natural | Financial | Physical | Social and Relationship Capitals Affected: Financial | Physical | Social and Relationship | Human Capitals Affected: Natural | Social and Relationship | Financial | Physical Capitals Affected: Financial | Physical | Human | Intellectual Description: Regulators and lawmakers across industries, including in maritime, are moving towards stricter rules to meet international decarbonisation goals. This, in time, may result in higher CAPEX for the Group to equip its assets to meet these requirements. Potential implementation of carbon pricing by the shipping industry regulators may lead to higher operating costs. Description: Trade wars, territorial disputes, sanctions, terrorism and increase trend in piracy forms part of the overall increase in geopolitical instability that potentially result in adverse commercial impact (risk of decline in demand due to reduced global trade), operational safety and missed opportunities (i.e. inability to conduct business with sanctioned countries or entities). Description: The focus on peak oil risk has shifted from the global crude oil production and supply, towards the risk of its decline in demand. This resulted from the potential rise of alternative energy sources and new efficient technologies which are deemed as more environmentally friendly. Based on various research and publications, oil demand is projected to reach its peak somewhere between 2035 to the 2040s. Description: Fast-moving technology introduction in the maritime industry including the move towards automation, digitalisation, artificial intelligence and other maritime related technology may pose a threat, accelerate asset obsolescence and further requiring the reskilling of the workforce. Mitigation / Response: • The Group has proactively embarked on shipping decarbonisation initiatives such as the collaboration with other industry leaders to develop an ammonia-fuelled tanker. This is in line with the Group’s sustainability programme, whereby the objective is to support IMO’s 2030 and 2050 shipping industry targets • Continue investing in more sustainable and environmentally friendly shipping solutions such as the LNG dual-fuel and Volatile Organic Compound Systems Mitigation / Response: • Be selective and prudent in bidding for new projects and business opportunities, ensuring all factors are taken into account including the geopolitical aspect. A holistic risk assessment is performed on each project and business opportunity • Seek continuous improvement and further strengthen contracts and agreements to protect the Group’s interests • Increase operating controls on existing projects and tighten security of assets Mitigation / Response: • Identify climate-related risks and opportunities, and conduct scenario analysis to position MISC to be ready for the new industry landscape post-peak oil • Continue to explore opportunities to diversify our business portfolio and activities Mitigation / Response: • Direct adequate capital and resource investments into digitalisation upgrades and initiatives for assets, as well as transformation of internal processes and systems to accommodate the fast-changing environment and increasing demand for automation in the industry. Ensure that new orders/assets are equipped with latest technology (including roadmap for technology upgrades), which are consistent with the assets’ estimated lifespan • Continuously retool and reskill the workforce in adapting to new working environment CLIMATE CHANGE AND ENVIRONMENT INCREASING GEOPOLITICAL INSTABILITY PEAK OIL INCREASING AUTOMATION AND CONNECTIVITY Material Matters: Climate Change | Ocean Health | Natural Resource Use Material Matters: Project and Financial Performance Material Matters: Project and Financial Performance | Climate Change Material Matters: Project and Financial Performance | Customer Satisfaction EMERGING RISKS