MISC BERHAD 66 INTEGRATED ANNUAL REPORT 2023 67 www.miscgroup.com STRATEGIC REVIEW SECTION 6 Our Risks and Mitigation Strategies Risk management is a fundamental part of our business activities and decision-making. Sustaining the achievement of our business objectives necessitates an integrated approach to risk management across the Group, maintaining a balanced view of the risks taken against the rewards of business performance. Our approach to risk management is systematic and comprehensive, embodied in our Enterprise Risk Management (ERM) Framework. This structured framework is designed to identify, assess and mitigate risks effectively, ensuring that every potential challenge is managed efficiently and where possible turned into opportunities for growth and resilience. Risk Management in 2023 Upward Stable For further details on the Group’s risk management framework, please refer to our Statement on Risk Management and Internal Controls on page 185. Our Risks and Mitigation Strategies Shift in Stakeholders’ Preference Towards New Energy and Low-Carbon Solutions Definition • Reduced appetite among investors and financiers in the oil and gas industry and increasing customers’ preference for new energy and low-carbon solutions may result in loss in business opportunities, exclusion from sustainability indexes and reputational damage Impact on Value • Assets becoming obsolete or reduced demand due to an intensified shift towards renewable energy and solutions • Reduce competitive advantage due to escalating challenges in meeting stakeholders’ environmental expectations and requirements • Higher costs of borrowing Mitigation Strategies Actively pursuing future low-carbon solutions, while reducing the carbon footprint of our operations through: • Selective monetisation of assets and investments into dual-fuel conventional assets and pivot to clean energy • Collaborate with strategic partners to pursue opportunities in clean energy Risk Movements Key Capitals N Natural Capital P Physical Capital F Financial Capital Material Matters Climate Change Financial Performance Energy Management Ocean Health Increasing Climate-Related Regulations and Requirements Definition • Escalating climate-related policies and legislations, as well as an increase in demands from a diverse stakeholder base (capital providers, clients and regulators) to showcase our commitment to the global sustainability agenda, may potentially affect current operations and requirements Impact on Value • Rising cost of compliance due to higher CAPEX to retrofit existing assets to meet new requirements and potential carbon pricing • Increasing risk of fines and penalties • Potential loss of competitive edge to other players due to high carbon emissions and possible non-compliance to new laws • Negative impact on reputation among stakeholders, including investors and financiers Mitigation Strategies Risk Movements Execution of strategic initiatives in line with the MISC 2030 Aspiration target of reducing 50% of our GHG emissions by 2030 through collaborative efforts across the industry in: • Exploring innovative solutions such as low and zero-carbon emission vessels and carbon capture technologies • Developing ammonia fuel value chain and deployment of ZEVs • Pursuing the application of technologies and new approaches to shipping operations to achieve significant emission reductions Key Capitals Material Matters N Natural Capital H Human Capital Values, Governance and Business Ethics Climate Change Energy Management Ocean Health Waste Management F Financial Capital SR Social & Relationship Capital SR Social & Relationship Capital I Intellectual Capital Sustainable Supply Chain Digitalisation Sustainable Supply Chain Technology Developments Definition • New technologies in the maritime and oil and gas industry are rapidly advancing, thus, failure to embrace and adopt them may impact MISC’s competitive edge and accelerate obsolescences of existing assets Impact on Value • Reduced competitive advantage • Increase in CAPEX and OPEX to implement new low-carbon technologies in existing assets • Premature obsolescence of technology in existing assets • Missed business opportunities due to limitation in specialised workforce for new technologies Mitigation Strategies Risk Movements • Allocate adequate capital and resources for digitalisation upgrades and initiatives across assets • Continuously pursue the development and integration of latest technologies on both existing and new assets • Implement continuous upskilling and reskilling efforts to ensure workforce adaptability to changes in operational requirements and processes associated with new technologies Material Matters Climate Change Financial Performance Key Capitals N Natural Capital P Physical Capital F Financial Capital I Intellectual Capital SR Social & Relationship Capital Energy Management Digitalisation Cybersecurity Sustainable Supply Chain H Human Capital Mitigation Strategies • Assign relevant expertise and resources within the project management team to ensure efficient project execution and close monitoring throughout the project lifecycle • Adhere strictly to project management guidelines • Implement a robust project risk management process covering risk assessments and implementation of mitigation action plans throughout the project lifecycle, from pre-bid submissions to during and post-project phases Risk Movements Definition • Efficient and effective project planning and project execution are vital in mitigating risk of cost overrun, schedule slippage and poor quality in project delivery, which includes shipbuilding, asset construction and floater conversions, among others Impact on Value • Delay in project completion, cost overruns and quality deficiencies • Erosion of project returns • Potential imposition of Liquidated Damages (LD) from clients Project Management Material Matters Financial Performance Key Capitals H Human Capital P Physical Capital F Financial Capital SR Social & Relationship Capital I Intellectual Capital Sustainable Supply Chain Values, Governance and Business Ethics Human Rights Definition • Geopolitical instability in the form of war, sanctions, terrorism, trade wars, territorial disputes and piracy may lead to operational disruptions and impact new business opportunities Impact on Value • Exposure towards operational safety and adverse commercial impact on current contracts and new business opportunities • Disruption in supply chains • Escalation in cost of materials and services affecting operations and project execution • Delays in project completion and asset downtime Geopolitical Instability Mitigation Strategies Risk Movements • Conduct comprehensive and holistic risk assessment and identify potential exposures on geopolitical risks for projects and business opportunities • Perform detailed background checks on partners and clients to avoid dealing with sanctioned countries/persons • Increase monitoring and operating controls on projects and tightening of security on existing assets Material Matters Key Capitals H Human Capital P Physical Capital F Financial Capital SR Social & Relationship Capital Financial Performance Health and Safety Values, Governance and Business Ethics Security Sustainable Supply Chain
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