MISC BERHAD 60 INTEGRATED ANNUAL REPORT 2023 61 www.miscgroup.com STRATEGIC REVIEW SECTION 6 Our Operating Environment Clean Energy Transition What Happened in 2023? How We Were Impacted The Group has established MISC 2030 Aspiration, which includes achieving 25% of CFO from clean energy solutions. This would require capital to be redeployed towards clean energy initiatives. The Group will explore strategic partnerships and other inorganic opportunities to effectively mitigate risks and accelerate our clean energy pivot. During the year, MISC has signed a Term Sheet with PETRONAS CCS Ventures and MOL for potential joint venture in developing and monetising LCO2 carriers for CCS projects in Malaysia. The Group has also secured AiP for FCSU and FCSU-I, jointly developed with SHI. In the renewable energy sector, MISC Group through MHB, has secured the first international offshore wind project to build an Offshore Substation (OSS) HVDC platform. Additionally, MISC has launched the world’s first newbuild FPSO (NBFPSO) with sustainable technologies incorporated into the design, which makes it one of the largest and greenest NBFPSO in the world. Global investments in the clean energy sector reached approximately USD1.8 trillion in 2023, based on International Energy Agency (IEA) estimates. In addition, the UN’s 28th annual climate meeting (COP28) has made 3 pledges on energy transition which include accelerating the deployment of renewables and doubling energy efficiency, establishing mutual recognition schemes for renewable and hydrogen, as well as bolstering investment into the green economy. This reflects the accelerated pace at which renewables solutions are gaining commercial scale, driven by the commitments and investments in the sector. The rise in the development of alternative energy sources and clean technologies as substitutes for oil and gas, is a long-term trend that will affect energy players. Reduction in costs have made it attractive to deploy solar and wind infrastructures. However, this would require additional resources including financing and R&D to improve energy storage technologies such as batteries, in order to overcome the energy intermittency limitations of renewables. Meanwhile, the increase in demand for climate change action by various stakeholders is affecting the appetite for investments and funding of oil and gas projects. Similarly, governments will continue to enhance their energy policies to meet the Net-Zero carbon emission initiatives by 2050. The scope and rate of carbon tax may increase in the near to medium-term. Our Operating Environment Advancements in Technology and Digitalisation in the Maritime Industry What Happened in 2023? MEDIUM TO LONG-TERM How We Were Impacted MISC’s strategic investment with our partners in climate tech start-up, Daphne Technology, aims to develop solutions that convert toxic and GHG pollutants into non-hazardous by-products which are either released into the environment or transformed into valuable products. As part of the digitalisation initiatives, MISC has embarked on a Finance Transformation Programme to leverage on automation and data analytics to enable strategic data-driven business decisions. The digitalisation of contract management and procurement processes and policies through new platforms will improve visibility of contract management and procurement activities as well. The adoption of technology in the maritime sector accelerated in 2023, driven by commercial and environmental requirements. The integration of advanced technologies such as vessel tracking, autonomous ships and artificial intelligence in the maritime industry will enable industry players to strategically cater to customer requirements and demands. Alongside this, R&D focusing on new fuels and propulsion systems, as well as technology for reducing emissions are becoming more prominent. Similarly, the energy sector is also undergoing a rapid pace of digitalisation, as reflected in the increasing investments made in digital technologies over the last few years. Oil and gas companies are seeking strategic partnerships with companies in the fields of technology, transportation and commerce, as they focus on developing cost-effective clean solutions across their value chain. The investments in digitalisation and technology will continue to grow, particularly in the clean energy sector. Accelerated technological advancements, coupled with cross-sector collaborations are set to redefine the maritime industry. Digitalisation will play a major role in enabling the maritime transport sector to cater to increased demand by enhancing safety and efficiency, while green technology will bring about cost-effective and environmentally-sustainable operations. Risks Material Matters Key Capitals F Financial Capital I Intellectual Capital H Human Capital Talent Development and Retention Technology Developments Increasing Climate-Related Regulations and Requirements Shift in Stakeholders’ Preference Towards New Energy and Low-Carbon Solutions SR Social & Relationship Capital Cybersecurity Climate Change Digitalisation Cybersecurity Talent Development and Retention Outlook It is forecasted that 80% of the annual global investment in 2030 will be related to the renewable energy sector. New forms of clean fuel such as hydrogen, ammonia and methanol are expected to be widely used by the end of this decade, presenting MISC with opportunities in the clean energy segment. In addition, natural gas will remain a key component of the energy mix and will continue to grow, wrestling away market share mainly from coal. In the longer term, demand for hydrocarbon is projected to decline, starting with coal and oil. Nevertheless, oil is expected to continue playing a significant role in global energy mix even until 2050. Material Matters Risks Climate Change Energy Management Increasing Climate-Related Regulations and Requirements Talent Development and Retention Shift in Stakeholders’ Preference Towards New Energy and Low-Carbon Solutions Technology Developments Asset Availability, Utilisation and Marketability Ocean Health Key Capitals N Natural Capital H Human Capital F Financial Capital SR Social & Relationship Capital Financial Performance Outlook
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