Module 1: Energy, Resources, Climate
Three goals, one chain
Why SDGs 7, 12 and 13 describe one chain inside a business: energy goes in, materials go through, emissions and climate risk come out.
Learning Objectives - Explain how energy use, material use and emissions connect inside a business
- Identify the SDG 7, 12 and 13 targets that apply most to business
- Distinguish Scope 1, Scope 2 and Scope 3 emissions
- Summarise Malaysia's main climate and energy transition commitments
- Describe the cost, customer and risk case for acting now
What You'll Learn - Energy in, materials through, emissions out
- SDG 7: affordable and clean energy
- SDG 12: responsible consumption and production
- SDG 13: climate action
- Scope 1, 2 and 3 emissions in plain terms
- Malaysia's net-zero goal, NDC and energy transition roadmap
- The business case: cost, customers, finance and risk
Three Goals, One Chain
Every business, whether it bakes bread, prints labels or runs an office, does three things with physical resources. It
buys energy: electricity from the grid, diesel for a van or forklift, gas or LPG for an oven or boiler. It
turns materials into something: raw inputs become products, and packaging, offcuts, water and waste go in and out along the way. And it
gives off greenhouse gases, directly from fuel it burns and indirectly from the power stations, suppliers and transport it relies on.
The United Nations Sustainable Development Goals describe these three things in three separate goals.
SDG 7 is about energy that is affordable, reliable and clean.
SDG 12 is about responsible consumption and production, using fewer materials and wasting less.
SDG 13 is about climate action, cutting emissions and coping with a changing climate. For a government these are three policy areas. For a business they are one chain.
Energy In, Materials Through, Emissions Out - How SDGs 7, 12 and 13 Connect
Why the chain matters
Treating the three goals separately misses the point that they are linked by cause and effect. A factory that wastes 5% of its raw material has also paid for the energy to make, move and process that 5%, and has produced the emissions that came with it. A shop that leaves air-conditioning running in an empty storeroom pays for electricity it did not need and adds emissions from the power plant. Cut waste at the start of the chain and the end of the chain shrinks with it.
This is also why sustainability work in a small business usually starts with cost rather than with reports. Energy and materials are money that leaves the business every month. Emissions are mostly a measure of how much energy and material you use. When you reduce one, you nearly always reduce the others.
How this course is organised
The course follows the chain. Module 2 measures it, so you know where your energy, materials and emissions actually go. Module 3 cuts energy, first by wasting less and then by switching to cleaner electricity. Module 4 cuts materials and waste. Module 5 looks at why your customers, export markets and lenders now ask about all three. Module 6 deals with the climate risks you cannot avoid, and ends with a one-page plan. Throughout, a fictional company,
Kilang Maju Sdn Bhd, a 40-person maker of food packaging in Selangor, is used for every worked example.
Key Insight: Energy goes in, materials go through, emissions and climate risk come out. SDGs 7, 12 and 13 describe one chain, and cutting waste early in the chain shrinks cost and emissions together.
Real-World Example: Kilang Maju throws away about 5% of the plastic film it buys as offcuts and rejects. That waste carries the price of the film, the electricity used to print and cut it, the diesel used to deliver it, and the fee to haul it away, all for nothing. Cutting scrap is an energy saving and an emissions saving as well as a materials saving.
Q: Why does this course treat SDGs 7, 12 and 13 as one chain for a business?
Energy goes in, materials go through and emissions come out. Wasted material carries the energy and emissions used to make and move it, so reducing waste or energy use also reduces emissions and cost.
Think about your own business or workplace. What are the main kinds of energy it buys, the main materials it uses, and the main things it throws away? Which of these do you think costs the most?
What SDGs 7, 12 and 13 Ask
The 17 Sustainable Development Goals were adopted by all UN member states in 2015, with most targets set for 2030. Each goal is broken into targets, and each target has one or more indicators that countries use to track progress. Only a handful of the targets under SDGs 7, 12 and 13 speak directly to what a business does. These are the ones worth knowing.
SDG 7: Affordable and clean energy
The goal is to "ensure access to affordable, reliable, sustainable and modern energy for all". Two targets matter most to business.
Target 7.2 is to "increase substantially the share of renewable energy in the global energy mix" by 2030.
Target 7.3 is to "double the global rate of improvement in energy efficiency" by 2030, measured as energy intensity, the energy used per unit of economic output. Efficiency and renewables are exactly the two levers you will use in Module 3, in that order.
SDG 12: Responsible consumption and production
The goal is to "ensure sustainable consumption and production patterns".
Target 12.2 calls for "the sustainable management and efficient use of natural resources".
Target 12.3 aims to halve per capita food waste at the retail and consumer levels and reduce food losses along production and supply chains.
Target 12.5 is to "substantially reduce waste generation through prevention, reduction, recycling and reuse". And
Target 12.6 encourages companies, "especially large and transnational companies", to adopt sustainable practices and include sustainability information in their reporting. That last target is one reason large customers now ask their suppliers for data, as Module 5 explains.
SDG 13: Climate action
The goal is to "take urgent action to combat climate change and its impacts".
Target 13.1 is to "strengthen resilience and adaptive capacity to climate-related hazards and natural disasters".
Target 13.2 is to integrate climate change measures into national policies, strategies and planning, and one of its indicators is total greenhouse gas emissions per year. So SDG 13 has two halves: cutting emissions (mitigation) and coping with the climate that is already changing (adaptation). Module 6 covers the adaptation half for a business.
What this means for you
No SDG target places a legal duty on a business. They are commitments made by governments. But governments turn them into laws, tariffs and incentives, and large companies turn them into supplier requirements. That is how a 2030 UN target ends up in a purchase order.
Watch video: What SDGs 7, 12 and 13 Ask
Key Insight: The business-facing targets are 7.2 (more renewables), 7.3 (faster efficiency gains), 12.2, 12.3 and 12.5 (use resources well, cut food and other waste), 12.6 (sustainability reporting), 13.1 (resilience) and 13.2 (climate in national planning).
Q: Which target asks companies, especially large and transnational ones, to integrate sustainability information into their reporting?
Target 12.6 encourages companies to adopt sustainable practices and to integrate sustainability information into their reporting cycle. Its indicator counts companies publishing sustainability reports.
Which one of the SDG targets in this section is closest to something your business already does, even if you never called it "sustainability"?
Scopes 1, 2 and 3 in Plain Terms
When a customer or bank asks for your "carbon footprint", they almost always mean a footprint measured under the
GHG Protocol, the standard used by most companies and reporting rules worldwide. It sorts a company's greenhouse gas emissions into three groups called scopes. Results are given in tonnes of
carbon dioxide equivalent (CO2e), which converts other gases, such as methane and refrigerants, into the amount of carbon dioxide that would warm the planet by the same amount.
Scopes 1, 2 and 3 - Where a Small Factory's Emissions Come From
Scope 1: what you burn or release yourself
Scope 1 covers direct emissions from sources the business owns or controls. For a small business that usually means fuel burned in company vehicles, forklifts, generators, boilers and ovens, plus refrigerant gas that leaks from air-conditioners and chillers. Refrigerant leaks are easy to forget but can matter, because many refrigerants warm the planet hundreds or thousands of times more than the same weight of CO2.
Scope 2: the energy you buy
Scope 2 covers emissions from generating the electricity, steam, heat or cooling you buy. The fuel is burned at the power station, not on your premises, but you caused it by using the power. The GHG Protocol asks for Scope 2 in two ways. The
location-based method uses the average emissions of the grid you are connected to. The
market-based method reflects the electricity you have chosen to buy, such as a green tariff or renewable energy certificates. Module 3 explains those options.
Scope 3: everything else in your value chain
Scope 3 is every other indirect emission, split into
15 categories: 8 upstream, such as purchased materials, transport by others, waste, business travel and staff commuting, and 7 downstream, such as the use and disposal of the products you sell. For most companies Scope 3 is by far the largest part.
Why scopes connect businesses
One company's Scope 1 and 2 are part of its customers' Scope 3. When a multinational sets a target for its supply chain, it can only meet it if suppliers like Kilang Maju cut their own Scope 1 and 2. That is why the questions are now arriving at small firms.
Watch video: Scopes 1, 2 and 3 in Plain Terms
Key Insight: Scope 1 is fuel and gases you release yourself. Scope 2 is the electricity and other energy you buy. Scope 3 is everything else in your value chain, in 15 categories. Your Scope 1 and 2 are part of your customer's Scope 3.
Real-World Example: At Kilang Maju, diesel for the forklift and delivery van is Scope 1. Grid electricity for the printing and cutting lines is Scope 2. The plastic film and cardboard it buys, the lorries that deliver them, and the landfill that takes its waste are all Scope 3.
Q: A bakery buys grid electricity to run its ovens. Under the GHG Protocol, which scope are the emissions from generating that electricity?
Emissions from generating purchased electricity, steam, heat or cooling are Scope 2. Scope 1 would apply only if the bakery burned fuel itself, for example in a gas oven.
List one source of Scope 1, one of Scope 2 and two of Scope 3 in a business you know well. Which one do you think is the largest?
Malaysia's Commitments
A business does not need to follow national targets line by line, but it helps to know where national policy is heading, because that is where tariffs, rules and incentives will follow.
Net zero and the energy transition
Malaysia aims to reach
net-zero greenhouse gas emissions as early as 2050. Net zero means that any emissions still released are balanced by removals, for example by forests. The
National Energy Transition Roadmap (NETR), launched in 2023, sets out how the energy sector gets there. Its headline goal for electricity is to raise renewable energy to
31% of installed generating capacity by 2025, 40% by 2035 and 70% by 2050, with no new coal power plants. As the grid gets cleaner, the emissions from each unit of electricity you buy will fall, but more slowly than many businesses assume.
The national climate pledge
Under the Paris Agreement every country submits a
Nationally Determined Contribution (NDC). Malaysia's earlier NDC, from 2021, pledged to cut the carbon intensity of its economy, the emissions per ringgit of GDP, by 45% by 2030 compared with 2005. In October 2025 Malaysia submitted its third NDC, known as
NDC 3.0, which for the first time sets an
absolute target. Emissions are to peak no later than 2034, with an ambition to peak earlier, and then to fall by
15 to 30 million tonnes of CO2e below that peak by 2035. Up to 20 million tonnes of that cut is unconditional; the rest depends on international finance, technology and support.
Laws and prices still being built
Several pieces are announced but not yet in force, and you should treat them as signals rather than rules. A national
Climate Change Bill has been agreed in principle by the Cabinet but, as of October 2026, the final bill still awaited Cabinet approval and had not been tabled in Parliament. A
carbon tax was announced in Budget 2026, starting with the iron and steel and energy sectors, but no rate has been published, it is not yet in force, and in April 2026 the government said its timing was under review. A
National Carbon Market Policy was launched in April 2026, while a domestic emissions trading scheme is only under consideration.
For a small business, the practical message is that the direction is clear even where the details are not. Energy will be priced and regulated with emissions in mind, and the firms that know their numbers early will adjust at lower cost.
Watch video: Malaysia's Commitments
Key Insight: Malaysia aims for net zero as early as 2050. NETR targets 31% renewable capacity by 2025, 40% by 2035 and 70% by 2050. NDC 3.0 sets the first absolute target: a 15 to 30 MtCO2e cut below peak by 2035. The Climate Change Bill and carbon tax are announced but not yet in force.
Q: What is new about Malaysia's NDC 3.0, submitted in October 2025?
NDC 3.0 moves from an intensity target to Malaysia's first absolute target: emissions are to fall 15 to 30 million tonnes of CO2e below their peak by 2035. The 45% intensity target belonged to the earlier NDC, and the carbon tax is announced but not in force.
Which of the national measures in this section, the energy transition roadmap, the NDC, the Climate Change Bill or the carbon tax, do you think will affect your business first, and how?
The Business Case
Small business owners are right to ask what they get out of all this. The answer is that there are four separate reasons to act, and most firms are affected by at least two of them.
1. Cost
Energy, materials and waste disposal are costs you pay every month. Efficiency measures, such as fixing compressed air leaks, servicing air-conditioners, switching to LED lighting and cutting scrap, often pay for themselves within a few years and keep saving afterwards. This is the reason that does not depend on anyone else, and it is the right place to start.
2. Customers
Large companies are measuring their supply chains. A 2024 analysis by
CDP and Boston Consulting Group found that companies' supply chain emissions are on average
26 times their own operational emissions. To cut those, they need their suppliers to cut theirs. Apple, for example, requires its direct manufacturing suppliers to use 100% renewable electricity for Apple production by 2030. Buyers in the European Union have their own pressure: under the EU's Carbon Border Adjustment Mechanism, importers of steel, aluminium, cement, fertilisers and some other goods must now report the emissions embedded in what they import and, from 2027, buy certificates to cover them. Module 5 explains what this means for you.
3. Finance
Banks are being asked to classify their loans by climate impact, and some funding is earmarked for firms that cut emissions. Bank Negara Malaysia's Low Carbon Transition Facility, for example, offers SMEs financing of up to RM10 million at a rate of no more than 5% a year for projects that help them move to low-carbon operations. Lenders increasingly ask what a business is doing about energy and emissions before they lend.
4. Risk
The climate is already changing. The floods of December 2021 caused about
RM6.1 billion in losses, according to the Department of Statistics Malaysia, including around RM0.9 billion in the manufacturing sector. Heat, floods and supply disruption are business risks whether or not you ever measure an emission.
Where to begin
The four reasons point to the same first steps: know your numbers, cut waste, and plan. A business that starts with cost will find it has also prepared for its customers, its bank and its own resilience.
Key Insight: There are four reasons to act: cost (energy and materials you pay for every month), customers (supply chain emissions average 26 times operational emissions), finance (lenders now ask, and green financing exists) and risk (the December 2021 floods cost about RM6.1 billion).
Real-World Example: Kilang Maju's finance manager listed the four reasons for the board. Cost: the electricity bill is the third-largest overhead. Customers: a multinational snack brand has sent a supplier emissions questionnaire. Finance: the bank asked about energy use when renewing a machine loan. Risk: the access road flooded in 2021 and deliveries stopped for four days.
Q: According to CDP and Boston Consulting Group, how do companies' supply chain emissions compare with their own operational emissions on average?
The 2024 CDP and BCG analysis found supply chain (Scope 3) emissions average 26 times operational (Scope 1 and 2) emissions. That is why large companies now ask suppliers to measure and cut their own emissions.
Of the four reasons in this section (cost, customers, finance and risk), which is the strongest reason for your business to act now? What would you tell your boss or business partner in one sentence?
Module 2: Measure Before You Cut
Your energy, materials and emissions baseline
Read your electricity bill, build an energy and materials baseline, and turn activity data into tonnes of CO2e with a worked SME footprint.
Learning Objectives - Read the charges on a Malaysian commercial electricity bill
- Build a 12-month energy baseline and normalise it for output
- Map the main material and waste flows through a business
- Convert activity data into emissions using emission factors
- Judge the quality of footprint data and choose suitable tools
What You'll Learn - Reading a TNB bill after the 2025 tariff reform
- Maximum demand, peak use and power factor
- Energy baselines and energy intensity
- Mapping materials, packaging and waste
- Grid emission factors and fuel factors
- A worked footprint for a small manufacturer
- Data quality, estimates and simple tools
Reading Your Electricity Bill
For most small businesses, the electricity bill is the single best record of energy use, and it arrives every month. Learning to read it properly is the first step in measuring the chain.
The 2025 reform
From
1 July 2025, the Energy Commission (Suruhanjaya Tenaga) introduced a new tariff structure for Peninsular Malaysia for the regulatory period running to the end of 2027, with an average base tariff of
45.40 sen per kWh. Bills from
Tenaga Nasional Berhad (TNB) now show the cost in separate parts, so a business can see what it is paying for. Sabah and Sarawak have their own utilities and tariffs.
The Parts of a Commercial Electricity Bill - Energy, Demand, Retail, AFA and Penalties
The main parts of the bill
The
energy charge is paid for every kilowatt-hour (kWh) used. A kWh is the energy used by a 1,000-watt appliance running for one hour. The
capacity charge and
network charge pay for the power stations and the grid that must be ready to supply you. For small low-voltage customers they are charged per kWh, but for larger medium-voltage customers they are charged per kilowatt (kW) of
maximum demand, the highest power you draw in any half-hour of the month. The
retail charge is a fixed monthly amount for billing and customer service.
On top of these comes the
Automatic Fuel Adjustment (AFA), which replaced the old six-monthly Imbalance Cost Pass-Through (ICPT). It is set every month to reflect fuel costs and can be a rebate or a surcharge; in September 2026, for example, it was a surcharge of 3.67 sen per kWh. Bills also carry a small levy for the Renewable Energy Fund, and some businesses pay a
power factor surcharge, covered in the next section.
What to record
From each bill, write down four numbers: the
kWh used, the
maximum demand in kW if shown, the
total amount in ringgit, and any
surcharges or penalties. Twelve months of these four numbers are the core of your energy baseline. If you rent space and the landlord bills you, ask for the same details, or at least the kWh from your sub-meter.
Divide the total ringgit by the kWh to find your
average cost per kWh. You will need it to value every saving in Module 3.
Watch video: Reading Your Electricity Bill
Key Insight: The July 2025 tariff splits the bill into energy (per kWh), capacity and network (per kWh for small users, per kW of maximum demand for medium-voltage users), a fixed retail charge, and the monthly Automatic Fuel Adjustment. Record kWh, maximum demand, total ringgit and penalties every month.
Real-World Example: Kilang Maju is on a medium-voltage tariff. Its October bill showed about 100,000 kWh used, a maximum demand of 260 kW, and a total of about RM57,000, an average of roughly 57 sen per kWh once demand, retail and AFA charges were included. About two-fifths of the bill was the demand charge. The operations manager put these figures into a spreadsheet, with one row per month going back a year.
Q: Under the July 2025 tariff, how are capacity and network charges billed for medium-voltage customers?
For medium-voltage customers, capacity and network charges are based on maximum demand in kW, the highest power drawn in any half-hour of the month. For small low-voltage customers they are charged per kWh.
Find your business's latest electricity bill. Can you identify the kWh used, the maximum demand (if shown), the total, and any surcharges? Which one surprised you?
Maximum Demand, Peaks and Power Factor
Two businesses can use exactly the same number of kWh in a month and pay very different bills. The difference is usually
how they use electricity, not how much.
Maximum demand
Maximum demand (MD) is the highest average power, in kW, that a premises draws over any half-hour in the month. Think of kWh as the distance a car travels and kW as how hard you press the accelerator. A factory that starts every machine, compressor and air-conditioner at 8 am creates a sharp peak, and for a medium-voltage customer that single half-hour sets the demand charge for the whole month.
The fix is often simple:
stagger start-ups so that large motors and chillers do not all start at once, run heavy batch processes at different times, and avoid running a spare compressor "just in case". These changes cut the demand charge without reducing output.
Time of use
Some tariffs charge different rates for
peak and
off-peak hours. Under the current time-of-use tariffs, weekday afternoons and evenings are peak and nights and weekends are off-peak. A business on such a tariff can save by moving flexible loads, such as charging forklifts, pumping water to storage, or running some batch work, into off-peak hours. Check which tariff you are on before planning around it.
Power factor
Motors, compressors and fluorescent lighting draw some current that does no useful work but still loads the grid.
Power factor measures how much of the current is doing useful work, on a scale from 0 to 1. TNB applies a
power factor surcharge to customers on supplies below 132 kV when their power factor falls
below 0.85: the surcharge is 1.5% of the bill for every 0.01 below 0.85, rising to 3% for every 0.01 below 0.75. A power factor of 0.80, for example, adds 7.5% to the bill.
The usual remedy is a
capacitor bank, installed and maintained by an electrician, which often pays for itself quickly where a surcharge is being paid. If your bill shows a power factor charge, it is one of the fastest savings you can make.
What to record
Add the time of your maximum demand, if your meter or TNB's online account shows it, and your power factor to the baseline spreadsheet.
Key Insight: Maximum demand is the highest half-hourly power draw and can set a large part of a medium-voltage bill: stagger start-ups to cut it. TNB charges a power factor surcharge below 0.85 (supplies under 132 kV) of 1.5% of the bill per 0.01 below 0.85, often fixed with a capacitor bank.
Real-World Example: Kilang Maju found its maximum demand was set at 8.15 am every weekday, when both compressors, three printing lines and all the air-conditioning started together. Staggering start-ups over 45 minutes cut the peak by about 40 kW, worth roughly RM3,500 a month in demand charges. It also found a power factor of 0.82, adding 4.5% to every bill, and installed a capacitor bank.
Q: A business on a supply below 132 kV has a power factor of 0.80. Under TNB's rule, what surcharge applies?
The surcharge is 1.5% of the bill for every 0.01 below 0.85. At 0.80, that is five steps of 0.01, so 5 x 1.5% = 7.5%. Below 0.75 the rate rises to 3% per 0.01.
When does your business switch on its biggest machines or air-conditioning each day? Could any of them start 15 or 30 minutes later without affecting work?
Building an Energy Baseline
A
baseline is a record of how much energy you used over a set period, usually twelve months, that you can compare against later. Without one, you cannot tell whether a saving is real, and you cannot answer a customer's questionnaire.
Gather all the energy, not just electricity
Most businesses use more than one kind of energy. Collect twelve months of records for each:
electricity bills in kWh;
diesel and petrol for vehicles, forklifts and generators, in litres, from fuel cards or receipts;
LPG or natural gas for ovens, boilers and kitchens, in kg, litres or the units on the gas bill; and any
purchased steam or chilled water. Note any on-site renewable electricity, such as solar, separately.
Normalise for activity
Energy use rises and falls with how busy you are. A bakery uses more gas during the festive season; a factory uses more electricity in a month with more orders. To see whether you are really becoming more efficient, divide energy by a measure of activity. This gives an
energy intensity, such as kWh per tonne of product, kWh per square metre of floor space, kWh per room night in a hotel, or kWh per customer served.
Choose the measure that best reflects what drives your energy use, and keep using the same one. If output rises by 10% and electricity rises by only 5%, your intensity has fallen, which is real progress even though the bill went up.
Look for patterns
Plot monthly kWh and intensity on a simple chart. Look for months that stand out and ask why. A jump may mean a new machine, a fault, longer hours, or hot weather driving up air-conditioning. A business that uses a lot of electricity on Sundays or public holidays, when it is closed, has equipment left running. A sub-meter on the largest loads, such as compressors or chillers, often pays for itself by showing exactly where energy goes.
Keep it simple and keep it going
A spreadsheet with one row per month and columns for each energy type, the cost, the activity measure and the intensity is enough. Update it every month when the bills arrive. In Module 6 you will set targets against this baseline, so the base year matters: pick a recent, typical year with reliable records.
Key Insight: A baseline is twelve months of records for every energy type: electricity, fuel, gas and any bought steam or cooling. Divide by a measure of activity, such as kWh per tonne, to get energy intensity, and update it every month.
Real-World Example: Kilang Maju's baseline for 2025 showed 1,200,000 kWh of electricity, 12,000 litres of diesel and 3,000 tonnes of packaging produced, an intensity of 400 kWh per tonne. The chart showed a spike every April and May, which turned out to be the air-conditioning struggling with the hottest months, and steady use on Sundays, when the factory was closed.
Q: Why does a business divide its energy use by a measure of activity, such as tonnes of product?
Energy intensity, such as kWh per tonne, removes the effect of being busier or quieter. If output rises faster than energy use, intensity falls, which shows real improvement even if the bill rises.
What single measure of activity best explains your business's energy use: tonnes produced, customers served, floor area, rooms let, or something else?
Mapping Materials and Waste
Energy is only the first link in the chain. To find the materials and waste that carry hidden cost and emissions, you need a simple map of what comes in and what goes out.
What comes in
Start with your purchase records for the last twelve months. List the
main materials you buy by quantity and cost: raw materials, components, ingredients, packaging, chemicals and consumables. For most businesses, a handful of items make up most of the spend. Twenty lines on a purchasing report are usually enough to cover the large majority. Record each in a consistent unit, preferably tonnes or kilograms, because that is how both waste and emissions are measured.
Do not forget
water, which costs money to buy and often more to treat or discharge, and which needs energy for pumping and heating.
What goes out
Next, list what leaves the business other than finished products. Your waste contractor's invoices usually show the number of collections or the weight of general waste, and any separate recycling or scheduled waste. Add
scrap and rejects from production records,
returns and damaged stock, and
packaging that arrives with incoming goods.
The simple mass balance
If you can, compare what goes in with what goes out. In a manufacturer, materials bought minus materials sold in products roughly equals scrap, waste and stock changes. A large gap is a sign of hidden waste. Expressing scrap as a
percentage of material used gives you a number to track, just like energy intensity.
Why this matters for emissions
The materials you buy carry emissions from the factories that made them. Those emissions appear in your
Scope 3 footprint as purchased goods, usually the largest Scope 3 category for manufacturers and retailers. You do not need to calculate all of them at the start. But knowing your top materials by weight tells you where the biggest Scope 3 items are likely to be, and where cutting scrap saves the most. Module 4 shows how to reduce them.
Key Insight: List your main materials by weight and cost, add water, then list everything that leaves other than products: waste, scrap, rejects, returns and packaging. Track scrap as a percentage of material used. Your top materials by weight point to your largest Scope 3 items.
Real-World Example: Kilang Maju's purchase records showed three items made up most of its material spend: plastic film (about 300 tonnes a year), corrugated board and printing ink. Comparing film bought with film shipped in finished products showed about 5% lost as offcuts and misprints, roughly 15 tonnes a year.
Q: In a manufacturer, what does a large gap between materials bought and materials shipped in products usually signal?
Materials bought minus materials sold in products roughly equals scrap, waste and stock changes. A large gap points to hidden waste worth investigating.
Which three materials does your business buy most of, by weight or by cost? Do you know how much of each ends up as waste?
From Activity Data to Tonnes
With twelve months of energy and materials data, you can calculate a first carbon footprint. The method is the same for every item:
activity data x emission factor = emissions.
Activity data is the quantity you used, such as kWh, litres of diesel or tonnes of material. An
emission factor is the amount of CO2e released per unit of that activity, taken from a published source.
The grid emission factor
For electricity, the Energy Commission publishes a
grid emission factor for Peninsular Malaysia each year. Its provisional figures, published in February 2026, are
0.769 kg CO2e per kWh for 2022, 0.760 for 2023 and 0.740 for 2024. The figure has been falling slowly as more renewable energy and gas replace coal. Use the factor for the year that matches your data, or the latest available, and always say which one you used. Sabah and Sarawak have separate grids with their own factors.
Fuel factors
For fuels, standard factors from national or international databases are used. Burning a litre of diesel releases roughly
2.7 kg of CO2e; a litre of petrol a little over 2.3 kg. These are well established and change little from year to year.
A worked example
A Worked Footprint - Kilang Maju's Scope 1, Scope 2 and Largest Scope 3 Item
Kilang Maju used 1,200,000 kWh in 2025. Using the latest factor of 0.740 kg per kWh gives 888,000 kg, or
888 tonnes of CO2e in Scope 2. Its 12,000 litres of diesel at about 2.7 kg per litre add about
32 tonnes in Scope 1. Its total for Scope 1 and 2 is therefore about 920 tonnes.
For Scope 3, it estimated only its largest item. Published factors for making polyethylene film range from roughly 2 to 3 kg of CO2e per kg. Even at the low end, 300 tonnes of film carry about
600 tonnes, and at the high end about 900 tonnes, as much as its electricity. That one estimate changed how the company saw its scrap problem.
Be honest about precision
Round sensibly and state your sources. A first footprint is an estimate, and that is fine as long as it is consistent and explained. It will get better each year as your records improve.
Watch video: From Activity Data to Tonnes
Key Insight: Emissions = activity data x emission factor. The Energy Commission's provisional Peninsular grid factor is 0.740 kg CO2e per kWh for 2024. Diesel releases roughly 2.7 kg CO2e per litre. Always state which factors and years you used.
Q: A business used 500,000 kWh of grid electricity in Peninsular Malaysia. Using the 2024 factor of 0.740 kg CO2e per kWh, what are its Scope 2 emissions?
500,000 kWh x 0.740 kg = 370,000 kg, which is 370 tonnes of CO2e. Activity data multiplied by the emission factor gives the emissions.
Using your own electricity use for last year and the factor of 0.740 kg per kWh, what is your business's approximate Scope 2 footprint in tonnes?
Data Quality and Simple Tools
A footprint is only as good as the data behind it. Customers and banks do not expect perfection from an SME, but they do expect figures that are consistent, explained and improving.
Measured, calculated and estimated
It helps to label each figure by how it was obtained.
Measured data comes directly from a meter or invoice, such as kWh on a TNB bill or litres on a fuel card.
Calculated data is derived from measured data, such as kWh multiplied by an emission factor.
Estimated data fills gaps, such as diesel use for a month when a receipt is missing, worked out from the average of other months. Estimates are acceptable, but say where they are used and how they were made.
Common gaps and how to fill them
In a rented premises, electricity may be included in the rent; ask the landlord for your share of kWh or install a sub-meter. Fuel bought with petty cash often goes unrecorded; switch to fuel cards or a simple logbook. Refrigerant top-ups are usually invisible; ask your air-conditioning contractor to record the type and amount of refrigerant added at each service, since any top-up means a leak. Waste weights may not be on invoices; ask the contractor, or weigh a sample.
Tools that help
You do not need specialist software to begin. A spreadsheet is enough for most SMEs. Free tools can help with the calculations. Capital Markets Malaysia, whose simplified ESG disclosure guide is covered in Module 5, offers a free calculator for Scope 1 and 2 emissions. The
SME Climate Hub, a global initiative, offers a free business carbon calculator and guidance. Whatever tool you use, keep the underlying bills and records, because the tool is only a calculator.
Keep a short method note
Write one page explaining your footprint: the period covered, which sites and activities are included, the data sources, the emission factors and their years, and where estimates were used. This note is what makes your numbers believable, and it saves time every time someone asks.
Then repeat the exercise every year, keeping the method the same unless you have a good reason to change it, and note any changes.
Watch video: Data Quality and Simple Tools
Key Insight: Label each figure as measured, calculated or estimated. Fill gaps with landlord data, fuel cards, refrigerant service records and contractor waste weights. A spreadsheet or a free calculator is enough; a one-page method note makes the numbers believable.
Real-World Example: Kilang Maju's method note covers calendar year 2025 for its one site. Electricity and diesel are measured from bills and fuel cards; emissions are calculated using the Energy Commission's 2024 grid factor; refrigerant is estimated as small because the service records show no top-ups; plastic film is estimated with the low end of published factors.
Q: Why should a business ask its air-conditioning contractor to record refrigerant added at each service?
Refrigerant only needs topping up if it has leaked, and leaked refrigerant is a direct Scope 1 emission, often with a high warming effect. Service records turn an invisible emission into a number.
Action step: write the first three lines of a method note for your business: the period, the sites included, and your main data sources. Which source is the weakest?
Module 3: Use Less, Then Switch
Energy efficiency and renewable electricity
Cut energy waste in cooling, motors, compressed air and lighting first, then switch to renewable electricity, with payback arithmetic for each step.
Learning Objectives - Apply the efficiency-first order to an energy reduction plan
- Identify the biggest efficiency opportunities in a typical SME
- Explain what the Energy Efficiency and Conservation Act 2024 requires and of whom
- Compare rooftop solar, green tariffs and corporate renewable supply
- Calculate simple payback for an efficiency or solar investment
What You'll Learn - Why efficiency comes before renewables
- Air-conditioning, motors, compressed air and lighting
- The Energy Efficiency and Conservation Act 2024
- Rooftop solar for self-consumption
- Green electricity tariffs and renewable energy certificates
- Corporate renewable energy supply
- Payback, ESCOs and green tax incentives
Efficiency First
Once you have a baseline, the obvious next question is: should we install solar panels? Usually not yet. The order in which you cut energy matters, and the right order is
efficiency first, then renewables.
Efficiency First - Stop Waste, Maintain, Upgrade, Then Switch to Renewable Electricity
Why this order
Every kWh you stop wasting is a kWh you never have to buy, generate or offset. Efficiency measures are usually cheaper per kWh saved than renewable energy is per kWh generated, and many cost nothing at all. They also make every later step smaller. If you cut your daytime load by 15% before sizing a rooftop solar system, you need a smaller system, which costs less and is easier to fit on the roof and to finance. If you buy green electricity, you buy less of it.
Recall that SDG target 7.3 is to double the global rate of improvement in energy efficiency, while target 7.2 is to raise the share of renewables. Both matter, but efficiency comes first because it reduces the problem renewables then have to solve.
The four steps
1. Stop waste. Switch off equipment that is not needed, especially after hours and at weekends, which your baseline may already have revealed. Fix compressed air and steam leaks. Set air-conditioning to a sensible temperature. Stagger start-ups to cut maximum demand.
2. Maintain. Dirty filters, clogged condenser coils, slipping belts and worn bearings all waste energy. Regular servicing keeps equipment running at its rated efficiency.
3. Upgrade. Replace inefficient equipment, starting with what runs the longest hours: LED lighting, efficient motors, variable speed drives on fans, pumps and compressors, and efficient chillers and air-conditioners. When equipment reaches the end of its life, buy the efficient option, because the extra cost is smallest then.
4. Switch. Supply the energy that remains from renewable sources: rooftop solar, a green electricity tariff or corporate renewable supply, covered later in this module.
Engage the people
Many savings in steps 1 and 2 depend on habits. Make one person responsible for energy, share the monthly baseline chart with staff, and ask the people who run the machines for ideas. They usually know where the waste is.
Key Insight: Cut energy in this order: stop waste, maintain, upgrade, then switch to renewable electricity. Efficiency is usually the cheapest saving and makes any solar system or green tariff smaller.
Q: Why should a business usually improve efficiency before installing rooftop solar?
Efficiency measures are usually cheaper per kWh saved, and they reduce the load that renewables must supply. A smaller daytime load means a smaller solar system, which costs less and is easier to fit and finance.
Which of the four steps (stop waste, maintain, upgrade, switch) has your business already started? Which step have you skipped?
Cooling, Motors, Compressed Air and Lighting
In most Malaysian businesses, four kinds of equipment use most of the electricity. Start where the kWh are.
Air-conditioning and cooling
In a hot, humid climate, cooling is usually the largest load in offices, shops, hotels and hospitals. A 2009 study of Malaysian office buildings found air-conditioning used about
57% of the energy, followed by lighting at about 19%. Practical savings include setting thermostats to around
24°C instead of 20°C or lower; cleaning filters and condenser coils regularly; closing doors and sealing gaps in cooled spaces; shading windows and roofs; switching off cooling in empty rooms; and, when replacing units, choosing inverter models with a high energy efficiency rating.
Motors, pumps and fans
In factories, electric motors drive pumps, fans, conveyors, mixers and compressors, and usually use the most electricity. Many run at full speed all the time even when the job needs much less. A
variable speed drive (VSD) matches motor speed to the load, and because the power a fan or pump needs falls steeply as its speed drops, the savings can be large. Also check that motors are correctly sized, that belts are tight and that equipment is switched off when not needed.
Compressed air
Compressed air is one of the most expensive forms of energy in a factory, because most of the electricity used by a compressor becomes heat rather than useful air. Leaks are common: in many plants they waste
20% to 30% of compressor output. Find leaks by listening when the factory is quiet, or with an ultrasonic detector, and fix them. Lower the pressure to the minimum the tools need, switch compressors off out of hours, and never use compressed air for cleaning or cooling where a fan or brush would do.
Lighting
LED lights typically use around half the electricity of fluorescent tubes for the same light, last much longer, and give off less heat, which also reduces the cooling load. Add sensors in stores, toilets and corridors, and use daylight where you can.
Where to start
Walk through your premises with your baseline in hand. Note every large load, how many hours it runs and whether it needs to. The biggest savings are usually in the equipment that runs longest.
Watch video: Cooling, Motors, Compressed Air and Lighting
Key Insight: Cooling, motors, compressed air and lighting use most of the electricity in a typical business. Set air-conditioning to about 24°C and service it, fit variable speed drives on motors, fix compressed air leaks (often 20-30% of output), and switch to LED.
Real-World Example: At Kilang Maju, a quiet Sunday walk-round found eleven compressed air leaks, one of them, on a quick-release coupling, costing about RM1,500 a year on its own. Fixing all eleven, lowering the system pressure and switching the compressors off at weekends saved about 40,000 kWh a year for a repair bill of about RM3,000.
Q: In many factories, roughly how much compressor output is wasted through leaks?
Leaks commonly waste 20% to 30% of a compressor's output. Because compressed air is expensive energy, finding and fixing leaks is one of the quickest savings in a factory.
Which of the four big loads (cooling, motors, compressed air, lighting) is largest in your workplace? What is one change you could make to it this month?
The Energy Efficiency and Conservation Act 2024
For the largest energy users, efficiency is no longer only a choice. The
Energy Efficiency and Conservation Act 2024 (Act 861), together with its regulations, came into force on
1 January 2025. It applies in Peninsular Malaysia and the Federal Territory of Labuan and is administered by the Energy Commission.
Who it covers
The main duties fall on
energy consumers whose use reaches
21,600 gigajoules (GJ) or more over twelve consecutive months. That threshold covers all forms of energy, not just electricity. In electricity terms, 21,600 GJ is about
6 million kWh a year. Most SMEs are well below it; Kilang Maju, at 1.2 million kWh plus a little diesel, is about a fifth of the way there. But large factories, hotels, hospitals, malls and data centres often exceed it.
What covered consumers must do
An energy consumer at or above the threshold must appoint a
registered energy manager, put in place an
energy management system, carry out an
energy audit, and submit regular
energy efficiency and conservation reports to the Energy Commission. The Regulations set deadlines that run from the Commission's notice, for example appointing a registered energy manager within three months.
Buildings and products
The Act also covers
buildings: certain types of building listed in the Act must display an
energy intensity label and meet minimum energy efficiency requirements. And it covers
energy-using products: manufacturers and importers must register them and meet
minimum energy performance standards (MEPS), and products such as air-conditioners and refrigerators carry energy efficiency labels with star ratings. For any business buying equipment, those labels are the simplest guide to choosing efficient models.
Why it matters to SMEs
Even if your business is far below the threshold, the Act matters in three ways. Your large customers may be covered, and their energy managers will look for savings in their supply chains. Your landlord may be covered, which can bring energy monitoring and new rules to a rented premises. And the Act's method, a named person, a management system, an audit and a regular report, is good practice for any business. Adopting it voluntarily is exactly what this course recommends.
Key Insight: The Energy Efficiency and Conservation Act 2024 came into force on 1 January 2025 in Peninsular Malaysia and Labuan. Consumers using 21,600 GJ or more over twelve consecutive months (about 6 million kWh) must appoint a registered energy manager, run an energy management system, audit and report.
Q: Under the Energy Efficiency and Conservation Act 2024, what is the threshold at which an energy consumer takes on the main duties?
The duties apply to energy consumers using 21,600 GJ or more over twelve consecutive months, about 6 million kWh a year. They must appoint a registered energy manager, run an energy management system, carry out audits and report.
Is your business, your landlord or your largest customer likely to be above the 21,600 GJ threshold? How might that affect you?
Rooftop Solar for Your Own Use
Once efficiency has cut your daytime load, rooftop solar is often the next step. A business that uses most of its electricity in daylight can use most of what its panels generate.
How much a system produces and costs
In Malaysia, each kilowatt-peak (kWp) of solar panels typically generates around
1,200 to 1,400 kWh a year, depending on location, orientation and shading. Installed costs for commercial systems in 2026 are commonly quoted at roughly
RM2,500 to RM4,000 per kWp, with larger systems cheaper per kWp.
The programmes
The old Net Energy Metering (NEM) programme ended in June 2025. Its successor, the
Solar Accelerated Transition Action Programme (Solar ATAP), run with the
Sustainable Energy Development Authority (SEDA), began on
1 January 2026 for TNB customers. For non-domestic customers, a system can be up to
100% of maximum demand, to a maximum of 1,000 kW, subject to TNB's technical assessment, and the contract runs for
10 years, after which the system is for self-consumption only. Electricity exported to the grid is credited against your bill, but for non-domestic users the credit is based on the
system marginal price, a wholesale rate well below what you pay, and guides to the programme report that unused credits lapse at the end of each billing period.
The lesson is clear:
size the system to what you use in daylight, not to the size of your roof. Exported electricity is worth far less than electricity you use yourself.
A worked example
Kilang Maju runs from 8 am to 6 pm on weekdays, and after its efficiency work its maximum demand is about 220 kW, so its system can be up to 220 kW. A
200 kWp system at about RM3,000 per kWp would cost about
RM600,000 and generate about 1,300 x 200 =
260,000 kWh a year, about a quarter of the electricity it still uses after its efficiency work. Valued at 34 sen per kWh, the energy charge plus AFA it would avoid, that is about
RM88,400 a year, a simple payback of about
6.8 years before tax incentives. It would also avoid about 260,000 x 0.740 = 192 tonnes of CO2e a year.
That assumes almost all the output is used on site. Power generated at weekends, when the factory is closed, would be exported at the much lower system marginal price, so the real payback would be longer unless weekend loads, such as cold storage, can use it.
Paybacks are shorter for businesses on low-voltage tariffs, where capacity and network charges are billed per kWh rather than per kW of demand, and after tax allowances, covered later in this module.
Watch video: Rooftop Solar for Your Own Use
Key Insight: Solar ATAP began on 1 January 2026, replacing NEM. Non-domestic systems can be up to 100% of maximum demand, capped at 1,000 kW, on 10-year contracts; exports are credited at the lower system marginal price. Size the system to your daylight use, not your roof.
Q: Why should a business size rooftop solar to its daylight electricity use rather than its roof area?
For non-domestic Solar ATAP users, exports are credited at the system marginal price, a wholesale rate well below the tariff, and unused credits are reported to lapse each billing period. Electricity used on site saves the full energy charge.
When does your business use most of its electricity: daytime, evening or around the clock? What does that mean for how useful rooftop solar would be?
Buying Green Electricity
Not every business can install solar. Tenants, firms with small or shaded roofs, and businesses that use most of their power at night can still switch to renewable electricity by buying it.
The Green Electricity Tariff
TNB's
Green Electricity Tariff (GET) lets a customer pay a premium for electricity matched with renewable energy. With the tariff reform of July 2025, the premium became a single rate for domestic and non-domestic users that depends on the length of subscription:
5 sen per kWh for one year, 4 sen for two years and 3 sen for three years. GET subscribers are also exempt from the Automatic Fuel Adjustment on the electricity covered by their subscription. When the AFA is a surcharge, as it has been since mid-2026 at roughly 2.6 to 3.8 sen per kWh, a three-year GET subscription costs about the same as the AFA it replaces.
Renewable energy certificates
Green tariffs work through
renewable energy certificates (RECs). Each certificate represents one megawatt-hour of electricity generated from a renewable source. In Malaysia these are known as
mRECs. A business can also buy RECs separately. Under the GHG Protocol's
market-based method for Scope 2, covered in Module 1, electricity matched by valid certificates can be reported with lower emissions. Under the
location-based method, it still counts at the grid average. Report both, and explain which is which.
Corporate renewable energy supply
For larger users, the
Corporate Renewable Energy Supply Scheme (CRESS), which began in September 2024, allows a renewable energy developer to supply electricity directly to a corporate buyer through the TNB grid, for a
system access charge. In September 2026 the government announced a package that cut the system access charge for firm supply for projects operating by 31 December 2028, on 10-year contracts; the final rate was still being settled in late 2026. CRESS is designed for large consumers, but it shows where the market is heading.
Choosing an option
For most SMEs the choice is between rooftop solar, which saves money but needs a roof and capital, and a green tariff, which costs a little more but needs no investment. Many firms do both: solar for the daytime load, and a green tariff or certificates for the rest. Either way, cut waste first, so that you buy as little as possible.
Key Insight: TNB's Green Electricity Tariff premium is 5, 4 or 3 sen per kWh for one, two or three years, and subscribers are exempt from the AFA on the green electricity they buy. Green tariffs rely on renewable energy certificates, which lower market-based Scope 2. CRESS, from September 2024, lets large users buy renewable power through the grid.
Real-World Example: Kilang Maju's planned 200 kWp solar system would cover about a quarter of its electricity. For the rest, it compared a three-year GET subscription at 3 sen per kWh with the AFA surcharge it would avoid, then about 3.7 sen in September 2026. Because the two were close, the green tariff added little to its costs while cutting its market-based Scope 2 emissions.
Q: What is the premium for a three-year subscription to TNB's Green Electricity Tariff under the July 2025 structure?
Since the July 2025 reform, the GET premium is 5 sen per kWh for one year, 4 sen for two years and 3 sen for three years.
If your business could not install solar, would you consider a green tariff? What would you need to know about the AFA and your electricity use before deciding?
Paying for It
Good energy projects pay for themselves. The task is to show how quickly, choose the order, and find the money.
Simple payback
The simplest test is
payback: the cost of a measure divided by the money it saves each year. A measure that costs RM30,000 and saves RM15,000 a year pays back in two years. To value savings, use your average cost per kWh from Module 2, or, for measures that do not reduce maximum demand, the energy charge plus AFA. Payback ignores savings after the payback date, so a long-lived measure such as solar or a new chiller can be worth much more than its payback suggests.
Simple Payback for Kilang Maju - Four Efficiency Measures and a Rooftop Solar System
Kilang Maju's four efficiency measures together save about 175,000 kWh a year, about 15% of its electricity, for RM78,000, a combined payback of under two years. Solar pays back more slowly but saves more in total, and avoids about 190 tonnes of CO2e a year. Done in this order, the savings from the quick measures help to pay for the larger ones.
Tax incentives
The
Green Investment Tax Allowance (GITA) lets a company offset part of the cost of qualifying green assets against its taxable income. For assets for a company's own use, certified through the
Malaysian Green Technology and Climate Change Corporation (MGTC), renewable energy and energy efficiency assets qualify for an allowance of
60% of qualifying capital expenditure, and some assets, such as battery storage and green buildings, for
100%, in each case set against up to 70% of statutory income. The current scheme covers spending from 1 January 2024 to
31 December 2026, and Budget 2027, tabled in October 2026, proposes extending the green incentives to the end of 2030 with revised tiers. Check the current MGTC guidelines and your tax adviser before you commit.
Other ways to pay
An
energy service company (ESCO) can design, finance and install efficiency measures under an
energy performance contract, in which it is paid from the savings achieved. Solar companies offer
leasing and
power purchase agreements, where they own the panels on your roof and sell you the electricity. Green loans, including Bank Negara's Low Carbon Transition Facility, are covered in Module 5.
Present projects in a table like the one above, with cost, saving, payback and emissions avoided. It is what your board, your bank and your customers all want to see.
Key Insight: Payback = cost divided by yearly saving. Do quick, cheap measures first and use their savings for larger ones. GITA offers 60% of qualifying spend on renewable energy and efficiency assets (100% for some, such as battery storage) against up to 70% of statutory income, for spending up to 31 December 2026, with an extension to 2030 proposed in Budget 2027.
Q: A measure costs RM40,000 and saves RM20,000 a year. What is its simple payback?
Simple payback is the cost divided by the yearly saving: RM40,000 / RM20,000 = 2 years. It ignores savings after that date, so long-lived measures can be worth more than payback suggests.
List two energy measures you could take in your business. Roughly what would each cost and save, and what would their payback be?
Module 4: Circular Production
Getting more value from fewer materials
Design out waste, rethink packaging, and keep products and materials in use through reuse, repair, remanufacture and new business models.
Learning Objectives - Contrast linear and circular ways of making and selling
- Apply the waste hierarchy to a business's material flows
- Explain extended producer responsibility and what it means for packaging
- Evaluate reuse, remanufacture and product-as-a-service models
- Identify resource efficiency savings in a small operation
What You'll Learn - From take-make-waste to circular
- The waste hierarchy and the cost of waste
- Packaging and extended producer responsibility in Malaysia
- Food and production waste
- Reuse, repair and remanufacture
- Selling services instead of products
- Industrial symbiosis: one firm's waste, another's input
From Take-Make-Waste to Circular
Most businesses still run on a
linear model. Materials are taken from nature, made into a product, used, and then thrown away. Every step uses energy and money, and at the end the value is buried in a landfill. For a business, that lost value shows up as purchasing costs, scrap, disposal fees and the energy embedded in all of it.
A
circular economy tries to keep products and materials in use for as long as possible, at their highest value. The
Ellen MacArthur Foundation, which did much to popularise the idea, describes three principles:
eliminate waste and pollution,
circulate products and materials at their highest value, and
regenerate nature.
Linear Versus Circular - Take, Make, Waste Compared With Keeping Products in Use
Inner loops keep more value
Not all circular options are equal. Repairing a machine or reusing a crate keeps almost all the value and energy that went into it. Remanufacturing a part, by rebuilding it to an as-new standard, keeps much of it. Recycling breaks the product down to raw material, so most of the value and much of the energy used to shape it is lost, and new energy is needed to process it again. The rule of thumb is to keep the loop as small as you can: repair and reuse before remaking, and remake before recycling.
Why this is an energy and climate issue
Making materials takes energy, often a great deal of it. Plastics, metals, glass, paper and cement all carry emissions from the factories that produced them. When you use less material, or keep it in use longer, you avoid those upstream emissions, which appear in your Scope 3 footprint as purchased goods. For many manufacturers and retailers, purchased materials are a larger share of the footprint than their own electricity.
Where Malaysia is heading
Malaysia's housing and local government ministry, KPKT, published the
Circular Economy Blueprint for Solid Waste 2025-2035 in 2024. It uses tools such as extended producer responsibility and zero-waste-to-landfill certification, and in June 2026 KPKT set a target of diverting
53% of waste away from landfill by 2035. Malaysia's national recycling rate reached
37.9% in 2024, up from 35.38% in 2023. The direction is towards paying more to dispose of waste and being expected to recover more of it.
Watch video: From Take-Make-Waste to Circular
Key Insight: A circular economy keeps products and materials in use at their highest value. Repair and reuse keep the most value, remanufacture keeps much of it, and recycling keeps the least. Using less material also cuts the upstream emissions in your Scope 3.
Q: According to this section, which circular option usually keeps the most value and energy in a product?
Repair and reuse keep almost all the value and energy already put into a product. Recycling breaks it down to raw material, so much of that value is lost and new energy is needed to process it.
Pick one product or material your business buys regularly. Where does it go when you have finished with it, and which inner loop (repair, reuse or remanufacture) could keep it in use longer?
The Waste Hierarchy and the True Cost of Waste
The
waste hierarchy ranks ways of dealing with waste from best to worst. It is written into the European Union's waste law and used by governments and businesses worldwide. The order is
prevent, reuse, recycle, recover and dispose.
The Waste Hierarchy - From Prevention at the Top to Landfill at the Bottom
Reading the hierarchy
Prevention is at the top because waste you never create costs nothing to handle. It covers better product design, ordering only what you need, and tighter processes that make fewer rejects.
Reuse keeps items in their current form, such as returnable crates, pallets and refillable containers.
Recycling turns waste back into material.
Recovery means getting some value, usually energy, from waste that cannot be recycled.
Disposal to landfill is the last resort.
The true cost of waste
Most businesses see only the disposal fee on the invoice from their waste contractor, and so underestimate what waste costs them. The true cost is usually much higher, because a tonne of scrap has already been paid for several times. You bought the material. You paid for the electricity and labour to process it. You may have paid to store and move it. And then you paid someone to take it away. A useful exercise is to price waste at the full cost of what went into it, not just the cost of getting rid of it.
Finding the waste
Start by looking in the bins, literally. A short
waste audit, where staff sort and weigh a day or a week of waste by type, quickly shows what is being thrown away and where it comes from. Typical findings in a small manufacturer are offcuts from cutting, products rejected for print or quality faults, damaged stock, packaging from suppliers, and food waste from the canteen. Each type points to a different fix: a better cutting pattern, a maintenance schedule, a returnable packaging deal with a supplier, or a smaller canteen order.
Once you know the types and quantities, work down the hierarchy for each one. Prevent what you can, reuse what you cannot prevent, recycle what you cannot reuse, and only then dispose of the rest.
Key Insight: The waste hierarchy is prevent, reuse, recycle, recover, dispose. The true cost of waste includes the material, energy, labour and handling already spent on it, not just the disposal fee.
Real-World Example: Kilang Maju's waste contractor charges about RM900 a month. A one-week waste audit found that offcuts and misprinted rolls made up most of the weight. Priced at what the film, ink and machine time had cost, that scrap was worth more than ten times the disposal fee. A new cutting layout and a print check at the start of each run became the first two projects.
Q: Which step sits at the top of the waste hierarchy?
Prevention is at the top because waste that is never created costs nothing to handle and carries no wasted material or energy. Reuse comes next, then recycling, recovery and disposal.
Action step: this week, ask one team to sort and weigh a single day of their waste by type. What is the biggest item, and what did it cost before it became waste?
Packaging and Extended Producer Responsibility
Packaging is often the most visible waste a business produces and the one its customers notice. It is also where new rules in Malaysia are heading first.
What extended producer responsibility means
Extended producer responsibility (EPR) makes the companies that put products and packaging on the market responsible for what happens to them after use. In practice, producers usually pay into a scheme, often run by a producer responsibility organisation, that funds collection, sorting and recycling. The idea is that if producers pay for the end of life of their packaging, they have a reason to use less of it and to design it to be recycled.
EPR in Malaysia
KPKT has set out a phased approach for packaging. A
voluntary phase starts in 2026, and EPR is planned to become
mandatory for major producers from 2030. The scheme covers six packaging materials:
plastic, paper, aluminium, glass, iron-based metal alloys and cartons. The details of fees and reporting are still being developed, so a business should watch for updates rather than assume the final rules.
Other packaging rules are set locally. There is no nationwide ban on plastic bags; instead, states such as Penang, Negeri Sembilan and Perak have their own rules, with Perak's ban starting in March 2026. The
Malaysia Plastics Sustainability Roadmap 2021-2030 remains the national reference for plastics.
What a business can do now
Even before EPR fees arrive, there are savings in packaging.
Right-size it: boxes that are too big need more cardboard and more void fill, and take up more space on a lorry.
Use one material where possible, since a pouch made of a single plastic is easier to recycle than one laminated from several.
Switch to returnable transit packaging, such as plastic crates and pallets, for regular deliveries between the same sites. And
ask your suppliers to take back their packaging or deliver in reusable containers.
If you sell packaged goods to large retailers or brands, expect questions about recycled content and recyclability. Keep a simple record of the weight and material of each type of packaging you place on the market. It is the starting point for any EPR report.
Key Insight: EPR makes producers pay for what happens to their packaging after use. In Malaysia a voluntary phase starts in 2026 and EPR is planned to be mandatory for major producers from 2030, covering plastic, paper, aluminium, glass, iron-based metal alloys and cartons.
Q: Under KPKT's phased approach, when is packaging EPR planned to become mandatory for major producers?
A voluntary phase starts in 2026, and EPR is planned to become mandatory for major producers from 2030. The scheme covers plastic, paper, aluminium, glass, iron-based metal alloys and cartons.
List the packaging your business puts on the market or receives from suppliers. Which item could be right-sized, made from a single material, or swapped for a returnable alternative?
Food and Production Waste
Food waste is the largest single part of Malaysia's solid waste, and it matters to far more businesses than restaurants. Any business with a canteen, a pantry, catering at events or a food product line is involved.
The scale
According to KPKT, food makes up about
44.5% of the roughly 40,000 tonnes of solid waste Malaysia generates each day, about 18,000 tonnes. Of that, SWCorp estimated that around
6,000 tonnes a day was edible food that could have been eaten. Recall from Module 1 that SDG target 12.3 aims to halve per capita food waste at the retail and consumer levels and to reduce food losses along production and supply chains by 2030.
Food waste is a climate problem twice over. Producing, transporting and cooking food uses energy, so wasted food wastes that energy. And when food rots in a landfill without oxygen, it produces methane, a greenhouse gas far more powerful than carbon dioxide over the short term.
Reducing food waste in a business
The waste hierarchy applies here as well.
Prevent first: measure what is thrown away, order and cook to actual numbers, use first-in first-out stock rotation, and offer smaller portions.
Redistribute surplus edible food, for example to food banks, where it is safe to do so.
Recycle the rest through composting or anaerobic digestion, which turns food waste into biogas and fertiliser. Landfill should be the last option.
Production waste in other industries
For non-food manufacturers the same logic applies to production waste: offcuts, rejects, start-up scrap when a machine is set up for a new job, and expired materials. The fixes are usually about process discipline rather than new technology. Common ones include better nesting of shapes when cutting sheets, standard settings for each job so the first products off the line are right, preventive maintenance to stop faults that cause rejects, and buying in quantities that match usage so materials do not expire.
Measure scrap as a percentage of material used, by line or product. A number tracked every week tends to fall.
Key Insight: Food makes up about 44.5% of Malaysia's roughly 40,000 tonnes a day of solid waste, and about 6,000 tonnes a day of edible food was wasted in 2025. Prevent first, redistribute safe surplus, then compost or digest the rest. For production waste, track scrap as a percentage of material used.
Real-World Example: Kilang Maju's canteen served 40 lunches a day but cooked for 50 "to be safe". After a month of counting plates and leftovers, the caterer cooked to a daily headcount sent at 10 am. Leftovers fell by more than half, and the remaining food scraps now go to a composting service instead of the general bin.
Q: According to KPKT, about what share of Malaysia's solid waste is food?
KPKT estimates that food makes up about 44.5% of the roughly 40,000 tonnes of solid waste generated each day, about 18,000 tonnes a day.
Where is food or production material wasted in your workplace? What one number could you start tracking every week to make that waste visible?
Reuse, Remanufacture and Selling Services
Circular business models change how a company earns money, not just how it handles waste. Three are worth knowing because they can work for small firms as well as large ones.
Reuse and repair
The simplest model is to make products that last and to keep them working. That might mean offering repair services, selling spare parts, refurbishing returned items for resale, or running a deposit scheme so that containers come back to be refilled. Many Malaysian businesses already do this without calling it circular: workshops that rebuild motors, shops that refurbish phones and laptops, and drinks suppliers that collect returnable bottles or gas cylinders.
Remanufacturing
Remanufacturing rebuilds a used product, or a major part of one, to an as-new standard, usually with a warranty. It is common for engines, gearboxes, pumps, printer cartridges and industrial components. Because most of the original material and the energy used to shape it are kept, a remanufactured part typically needs far less new material and energy than a new one. For a business that buys expensive equipment, asking for remanufactured parts can cut cost and Scope 3 emissions together.
Selling a service instead of a product
In a
product-as-a-service model, the customer pays for what a product does rather than owning it. The supplier keeps ownership, maintains it and takes it back at the end. Because the supplier pays for repairs and replacement, it has a strong reason to make products that last and use little energy.
A well-known example is Amsterdam's Schiphol airport, which in 2015 agreed a lighting-as-a-service deal with Philips and the contractor Cofely. Schiphol pays for the light it uses, while Philips owns the fittings and is responsible for their performance, reuse and recycling. The partners said the system would use 50% less electricity than conventional lighting. Similar models exist for compressed air, chillers, tyres, carpets and office equipment.
What to look for
For a buyer, the question is whether paying for a service would be cheaper over the life of the equipment once energy, maintenance and disposal are counted. For a seller, the question is whether you could earn more by selling the use of your product, its upkeep or its return, rather than only the product itself.
Watch video: Reuse, Remanufacture and Selling Services
Key Insight: Circular business models include reuse and repair, remanufacturing to an as-new standard, and product-as-a-service, where the supplier keeps ownership and so has a reason to make products last and use less energy.
Real-World Example: When two of Kilang Maju's air compressors neared the end of their life, a supplier offered "compressed air as a service": it would install, own and maintain efficient units and charge per cubic metre of air delivered. Kilang Maju compared five years of costs, including electricity and repairs, before deciding.
Q: In a product-as-a-service model, why does the supplier have a reason to make products that last?
The supplier owns the product, maintains it and takes it back, so every breakdown or early replacement is its own cost. That gives it a reason to design for durability and low energy use.
Is there equipment your business owns that you would rather pay for by use, such as lighting, compressed air or chillers? Or could you sell the use of your own product as a service?
Industrial Symbiosis
Industrial symbiosis is when one company's waste or surplus becomes another company's input. Steam, heat, water, by-products and scrap that would otherwise be thrown away are sold or swapped between neighbouring firms, saving money for both and cutting the need for new materials and energy.
The classic example
The best-known case is in
Kalundborg, a port town in Denmark. It began in 1972, when a refinery started supplying surplus gas to a neighbouring plasterboard factory. Over the following decades it grew into a network of public and private companies, including a power station, a refinery and pharmaceutical and enzyme makers, exchanging steam, cooling water, gas, gypsum, sludge and other resources. None of it was designed from the top; it grew deal by deal, as each firm found that a neighbour could use something it was paying to get rid of.
What can be exchanged
The exchanges that work best are of things that are bulky, regular and costly to dispose of.
Heat and steam from one process can warm another.
Water used for cooling can be reused for washing.
By-products, such as gypsum from power stations, fly ash for cement, or palm oil mill residues for biomass fuel, become raw materials.
Clean scrap of one plastic or metal is worth more to a recycler than mixed waste. And
pallets, drums and packaging can be swapped between firms.
Making it work locally
Industrial estates are natural places for symbiosis, because firms are close together and often use similar inputs. A small business can start without any formal programme. List your three largest waste streams by volume and your three largest material inputs. Then talk to neighbours, your industrial estate management and your waste contractor about who might use what you discard, or who throws away what you buy.
The barriers are usually practical rather than technical: steady volumes, consistent quality, storage and transport. A written agreement on quantities, quality and price helps both sides. Start with one exchange and build from there, which is exactly how Kalundborg grew.
Watch video: Industrial Symbiosis
Key Insight: Industrial symbiosis turns one firm's waste or surplus into another's input. Kalundborg in Denmark began in 1972 and grew deal by deal. The best candidates are bulky, regular streams that are costly to dispose of.
Real-World Example: Kilang Maju's clean offcuts of a single plastic film were going into general waste. A plastics recycler on the same industrial estate agreed to collect them weekly if they were kept separate and dry. The disposal bill fell, and the recycler gained a steady, clean supply.
Q: How did the Kalundborg symbiosis in Denmark develop?
Kalundborg began in 1972 with a refinery supplying surplus gas to a neighbour, and grew exchange by exchange as companies found uses for each other's surplus. It was not planned from the top.
Name your business's three largest waste streams. For each one, who nearby might be able to use it as an input?
Module 5: The Supply Chain Is Asking
Customers, regulators and lenders
Why buyers, exporters' markets, Bursa-listed customers and banks now ask SMEs for energy and emissions data, and how to answer credibly.
Learning Objectives - Explain why large customers ask suppliers for emissions data
- Describe what the EU Carbon Border Adjustment Mechanism asks of exporters
- Summarise the national sustainability reporting framework and how it reaches SMEs
- Identify green financing open to Malaysian SMEs
- Avoid misleading environmental claims
What You'll Learn - Scope 3 and supplier questionnaires
- Multinational supplier requirements
- The EU Carbon Border Adjustment Mechanism
- Bursa Malaysia and the National Sustainability Reporting Framework
- Simplified ESG disclosure for SMEs
- Green financing and the climate taxonomy
- Carbon pricing at home and greenwashing risk
Why Your Customers Want Your Numbers
For years, sustainability was something large companies reported on and small suppliers could ignore. That has changed, and the reason is
Scope 3. As Module 1 explained, a large company's supply chain emissions are on average about 26 times its own operational emissions, according to CDP and Boston Consulting Group. A company cannot cut its footprint, or report it credibly, without information from its suppliers.
Customers, EU Importers, Listed Firms and Banks - Four Routes for Climate Questions to Reach an SME
What the questionnaires ask
Supplier questionnaires vary, but most ask the same core questions. How much
electricity did you use last year, and how much of it was renewable? How much
fuel did you burn? What are your
Scope 1 and Scope 2 emissions, and how did you calculate them? Do you have a
reduction target, and what actions are you taking? Some also ask about waste, water, recycled content in your products, and whether you have an environmental policy or certification. Large buyers often send these through a platform, such as CDP's supply chain programme or a rating service, rather than by email.
How to answer well
Three habits make the difference between a weak answer and a strong one. First,
answer from records, not guesses. The baseline you built in Module 2, with twelve months of bills, fuel receipts and waste invoices, is exactly what a questionnaire needs. Second,
state your method: say which emission factors you used and for which year, and whether figures are measured or estimated. Buyers trust a modest, well-explained number more than a precise one with no method. Third,
show progress. A buyer wants to know you are moving, so describe the actions from Module 3 and Module 4 with dates and results.
Measure once, answer many times
Many suppliers find they are asked similar questions by several customers, their bank and sometimes a trade association. Keep one set of records for energy, fuel, materials, waste and emissions, updated every month or quarter, and draw every answer from it. That avoids giving different numbers to different people, which damages trust.
If a question is beyond you, say so and explain when you will have the answer. A clear plan to measure next year is better than a made-up figure today.
Key Insight: Supplier questionnaires usually ask for electricity and fuel use, the renewable share, Scope 1 and 2 emissions and the method, targets and actions. Answer from records, state your method, show progress, and keep one set of numbers for every request.
Real-World Example: Kilang Maju's largest customer, a multinational snack brand, asked for its 2025 electricity use, Scope 1 and 2 emissions and any reduction target. The operations manager answered from the twelve-month baseline, named the grid emission factor and year used, listed the LED and compressed air projects already done, and stated a target to cut electricity per tonne of output by 15% by 2028.
Q: According to this section, what makes a supplier's emissions answer most credible to a buyer?
Buyers trust modest, well-explained numbers based on records, with the emission factors and estimates made clear, and evidence of actions taken. Inconsistent or unexplained figures damage trust.
Has your business been asked for energy or emissions data by a customer, bank or partner? If not yet, which of your customers is most likely to ask first, and what would they want to know?
Multinational Supplier Requirements
Some large companies go beyond asking questions and make climate action a condition of doing business. These requirements usually appear in a
supplier code of conduct, a sustainability clause in a contract, or a scorecard used when choosing suppliers.
A clear example
Apple's Supplier Code of Conduct requires its direct manufacturing suppliers to use
100% renewable electricity for all Apple production by 2030. More than 320 suppliers have committed, covering about 95% of Apple's direct manufacturing spend. Many of those suppliers operate in Asia, including in Malaysia's electronics clusters, and the requirement flows down to their own suppliers as they try to meet it. The pattern is common in electronics, cars, consumer goods and retail, where brands have public targets for their supply chains.
The usual requirements
Although each company has its own wording, the requirements tend to come in a familiar order. First,
disclose: report your energy use and Scope 1 and 2 emissions every year. Second,
set a target, sometimes one validated by the Science Based Targets initiative, which Module 6 covers. Third,
act: buy or generate renewable electricity, improve efficiency, and cut the emissions in the products you supply. Some buyers also ask for recycled content, packaging reductions or a certified environmental management system such as ISO 14001.
What this means for a small supplier
For an SME, a requirement like this is both a risk and an opportunity. The risk is losing a contract, or being moved down a buyer's preferred supplier list, if you cannot show progress. The opportunity is that suppliers who can provide reliable data and credible plans are easier to buy from, and some buyers help their suppliers with training, tools or joint purchasing of renewable energy.
A practical approach is to find out what your top three customers have committed to. Their annual sustainability reports usually state their supply chain targets and what they expect of suppliers. If a customer has a 2030 target, assume that the questions will become requirements well before 2030. Then use their timeline to plan your own baseline, efficiency projects and renewable electricity.
Key Insight: Large buyers turn their supply chain targets into supplier requirements: disclose your energy and emissions, set a target, then act. Apple, for example, requires direct manufacturing suppliers to use 100% renewable electricity for Apple production by 2030.
Real-World Example: Kilang Maju read the latest sustainability reports of its three largest customers. Two had 2030 supply chain targets and asked key suppliers to report emissions annually; one had begun scoring suppliers on climate action. Kilang Maju used the earliest of those dates as its own deadline for a renewable electricity plan.
Q: What is the usual order of climate requirements that large buyers place on suppliers?
Buyers usually ask suppliers first to disclose energy use and Scope 1 and 2 emissions, then to set a reduction target, and then to act, for example through efficiency and renewable electricity.
Action step: find the latest sustainability report of your biggest customer and look for its supply chain target and supplier expectations. What deadline does it imply for your business?
The EU Carbon Border Adjustment Mechanism
The European Union prices carbon for its own heavy industry through its emissions trading system. To stop that industry being undercut by imports from places without a carbon price, and to stop emissions simply moving abroad, the EU created the
Carbon Border Adjustment Mechanism (CBAM). It puts a carbon cost on certain imports, based on the emissions released when they were made.
What it covers and when
CBAM covers
cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. A transitional period ran from 2023 to 2025, when importers only had to report. The
definitive regime began on 1 January 2026. Importers must now buy CBAM certificates to cover the embedded emissions of what they import, although certificate sales start on
1 February 2027, and the first annual declaration and surrender of certificates for 2026 imports is due by
30 September 2027.
A simplification adopted in October 2025 added a
50-tonne threshold: an importer bringing in no more than 50 tonnes a year in total of covered iron and steel, aluminium, fertiliser and cement goods is exempt. Most CBAM obligations therefore fall on larger importers. The European Commission has also proposed extending CBAM to many downstream steel and aluminium products from 2028; the proposal is still being negotiated.
Why a Malaysian exporter is affected
CBAM is paid by the EU importer, not by the exporter. But to calculate what it owes, the importer needs the
embedded emissions of each product, measured at the factory that made it. If the producer cannot supply verified data, the importer must use
default values, which are set conservatively and usually cost more. A carbon price already paid in the country of origin can reduce the certificates owed. So an exporter with good emissions data is cheaper to buy from than one without it.
For Malaysia this matters most in steel and aluminium. In 2025 Malaysia exported about
752,000 tonnes of iron and steel to the EU, worth about RM3.23 billion, around 13% of the value of its iron and steel exports. Smaller firms are often affected indirectly, by supplying parts, coatings or services to those exporters, or by making steel or aluminium products that may be covered when CBAM extends downstream.
The lesson goes beyond Europe. CBAM shows how a customer's carbon cost becomes a supplier's data requirement.
Watch video: The EU Carbon Border Adjustment Mechanism
Key Insight: CBAM covers cement, iron and steel, aluminium, fertilisers, electricity and hydrogen. The definitive regime began on 1 January 2026; certificates go on sale on 1 February 2027. The EU importer pays, but needs the producer's embedded emissions data, or must use costlier default values.
Real-World Example: A Malaysian maker of steel brackets exports to a German distributor. In 2025 the distributor asked for the embedded emissions of each product line, including the steel bought in. The bracket maker asked its steel supplier for verified emissions per tonne, added its own electricity and gas use, and sent both figures with a short note on method.
Q: Under CBAM, who buys and surrenders the certificates for covered goods imported into the EU?
CBAM is an obligation on the EU importer. The importer needs the embedded emissions of the goods from the producer, and if verified data is not available, it must use default values that usually cost more.
Does your business export to the EU, or supply a company that does? If so, which of your products contain steel, aluminium or other covered materials, and who would hold their emissions data?
Bursa, the NSRF and Simplified ESG Disclosure
Sustainability reporting rules in Malaysia apply to listed and very large companies, not to SMEs directly. But because those companies must report on their value chains, the rules reach their suppliers.
The National Sustainability Reporting Framework
The
National Sustainability Reporting Framework (NSRF), launched in September 2024 by the Securities Commission and the Advisory Committee on Sustainability Reporting, adopts the international ISSB standards, IFRS S1 on general sustainability disclosures and IFRS S2 on climate. It is phased in by group.
The National Sustainability Reporting Framework - Phased Adoption From FY2025 to FY2027
Group 1, Main Market issuers with a market capitalisation of RM2 billion or more, started from financial year 2025.
Group 2, other Main Market issuers, starts from 2026.
Group 3, ACE Market issuers and large non-listed companies with revenue of RM2 billion or more, starts from 2027. There are transition reliefs, including a period before Scope 3 emissions must be reported: two years for Groups 1 and 2 and three years for Group 3.
Bursa's existing rules
Before the NSRF,
Bursa Malaysia had already tightened its listing rules in 2022. Listed companies must disclose Scope 1 and Scope 2 emissions, and Scope 3 emissions from business travel and employee commuting at least, with Main Market companies reporting from financial years ending on or after 31 December 2023. Uptake has been slow: KPMG found that only 21% of 975 listed companies disclosed those Scope 3 items in their 2023 reporting cycle. When the Scope 3 relief ends, listed companies will need much more data from their suppliers.
A simpler route for SMEs
To help SMEs answer these requests, Capital Markets Malaysia published the
Simplified ESG Disclosure Guide (SEDG) for SMEs in supply chains in 2023, with 35 disclosures. It has since become the
ASEAN Simplified ESG Disclosure Guide, whose second version (November 2025) has
38 disclosures at basic, intermediate and advanced levels. Capital Markets Malaysia also offers a free calculator for Scope 1 and 2 emissions. An SME can use it to build one standard set of disclosures and share it with every customer that asks.
The simplest preparation is to start at the basic level, using the baseline from Module 2, and add more as your customers ask.
Watch video: Bursa, the NSRF and Simplified ESG Disclosure
Key Insight: The NSRF phases in ISSB standards: Main Market issuers with market cap of RM2 billion or more from FY2025, other Main Market issuers from FY2026, ACE and large non-listed companies from FY2027. SMEs are not covered directly, but can use the 38-disclosure ASEAN Simplified ESG Disclosure Guide to answer customers.
Q: Which companies are in Group 3 of the National Sustainability Reporting Framework, starting from FY2027?
Group 3 covers ACE Market issuers and large non-listed companies with revenue of RM2 billion or more, from FY2027. Large Main Market issuers are Group 1, and SMEs are not covered directly.
Which of your customers are listed on Bursa Malaysia or are very large non-listed companies? What do you think they will ask you for once their Scope 3 relief ends?
Green Finance and the Climate Taxonomy
Banks are part of the supply chain of climate questions too. They lend to businesses, and they now have to understand the climate risks and impacts of their loans. That changes what they ask borrowers and what they offer them.
How banks classify activities
In April 2021 Bank Negara Malaysia issued the
Climate Change and Principle-based Taxonomy (CCPT), which banks and insurers use to classify their financing by its climate impact. It rests on five guiding principles: contributing to
climate change mitigation, contributing to
adaptation, causing
no significant harm to the environment, taking
remedial measures to transition, and avoiding
prohibited activities. Using these, each activity is placed in one of five classes, from
C1, Climate Supporting, through
C2 and C3, Transitioning, to
C4 and C5, Watchlist.
For a borrower, the practical point is that the bank will want to know what a loan is for and whether it reduces emissions. A loan for efficient equipment, rooftop solar or waste reduction is easier to classify as climate supporting or transitioning, while an activity with high emissions and no plan to change may end up on the watchlist.
Green financing for SMEs
Several schemes support SMEs that invest in cleaner operations. Bank Negara's
Low Carbon Transition Facility, launched in 2022 with RM1 billion from the central bank matched by participating banks, offered financing of
up to RM10 million per SME at a rate of
no more than 5% a year, until it is fully used; check with your bank whether funds are still available. It funds projects that help SMEs move to low-carbon and sustainable practices, such as efficiency upgrades and renewable energy. Banks also run their own green loan products, and Module 3 covers the tax incentives and government schemes for green technology.
Preparing to borrow
A loan application for a green project is stronger with the same evidence a customer questionnaire needs: your baseline energy use and emissions, the expected savings from the project in kWh, ringgit and tonnes of CO2e, and the payback period. Module 3 shows how to calculate these. A bank that can see the numbers can classify the loan more easily and may offer better terms.
Over time, firms that cannot explain their emissions may find borrowing slower or more expensive, while firms with a credible plan will find it easier.
Key Insight: Bank Negara's CCPT classifies financing from C1 Climate Supporting, through C2-C3 Transitioning, to C4-C5 Watchlist. The Low Carbon Transition Facility offers SMEs up to RM10 million at no more than 5% a year. Bring your baseline, expected savings and payback to the bank.
Real-World Example: Kilang Maju applied for financing for a rooftop solar system and new compressors. Its application included twelve months of electricity data, the expected annual saving in kWh and ringgit, the emissions avoided, and a simple payback of under five years. The bank classified the project as climate supporting and processed it under its green loan programme.
Q: Under Bank Negara Malaysia's CCPT, which class is "Climate Supporting"?
The CCPT places activities in five classes: C1 is Climate Supporting, C2 and C3 are Transitioning, and C4 and C5 are Watchlist.
If your business applied for a loan for an efficiency or solar project tomorrow, which numbers could you already show the bank, and which would you still need to work out?
Carbon Pricing at Home and Greenwashing Risk
Two final pressures complete the picture: carbon prices that may reach Malaysian businesses directly, and the growing risk of making environmental claims you cannot back up.
Carbon pricing in Malaysia
As Module 1 noted, Budget 2026 announced a
carbon tax starting with the iron and steel and energy sectors. As of October 2026 it is not yet in force and no rate has been published. In April 2026 the government launched a
National Carbon Market Policy, which covers voluntary and compliance carbon credits, while a domestic emissions trading scheme is still only under consideration. Because CBAM allows a carbon price paid at home to reduce what EU importers owe, a domestic carbon price could keep some of that money in Malaysia rather than sending it to Europe. For most SMEs the effect will be indirect at first, through higher prices for steel, electricity or other inputs.
A word on offsets
Carbon credits, or offsets, let a business pay for emissions to be cut or removed elsewhere. They have a place for emissions that genuinely cannot yet be avoided, but they are not a substitute for cutting your own. Buyers, banks and regulators increasingly look at what a firm has reduced, not what it has bought. The Kyoik course
Introduction to Carbon Market covers credits in depth.
Greenwashing
Greenwashing means making environmental claims that are vague, exaggerated or misleading. Malaysia has
no dedicated greenwashing guideline, but the
Consumer Protection Act 1999 already prohibits misleading claims about goods and services. Rules abroad are tighter. From
27 September 2026, an EU directive bans generic claims such as "eco-friendly" or "green" unless backed by recognised excellent environmental performance, and bans claims that a product has a neutral, reduced or positive climate impact because of offsetting. Malaysian firms whose products are marketed to EU consumers, directly or through their customers, need to follow these rules.
How to make claims safely
Make claims
specific: "this box contains 60% recycled fibre" rather than "eco-friendly box". Make them
measurable and keep the evidence. Talk about
what you have reduced rather than calling yourself "carbon neutral" on the strength of offsets. And make sure your sales team, website and packaging all say the same thing.
Watch video: Carbon Pricing at Home and Greenwashing Risk
Key Insight: Malaysia's carbon tax is announced but not in force, and a National Carbon Market Policy was launched in April 2026. Offsets do not replace cutting your own emissions. Avoid greenwashing: make specific, measurable claims you can prove, especially as EU rules from 27 September 2026 ban generic and offset-based claims.
Q: From 27 September 2026, what does the EU directive on environmental claims ban?
The directive bans generic claims such as "eco-friendly" unless backed by recognised excellent performance, and bans outright claims of neutral, reduced or positive climate impact based on offsetting.
Look at your website, brochures or packaging. Is there any environmental claim that is vague, or that you could not prove with evidence today? How would you reword it?
Module 6: Adapt and Plan
Climate risk and your transition plan
Assess flood and heat risk to your operations, then build a one-page transition plan with targets, a budget and a 90-day action list.
Learning Objectives - Assess physical climate risks to a business's sites, staff and suppliers
- Choose practical adaptation and continuity measures
- Set credible reduction targets, including the SME target route
- Build a one-page transition plan with owners and a budget
- Report progress honestly to customers, staff and lenders
What You'll Learn - Floods, heat and supply disruption in Malaysia
- A simple physical risk assessment
- Adaptation and business continuity
- Setting targets: absolute and intensity
- Science-based targets for SMEs
- The one-page transition plan
- Your first 90 days
Floods, Heat and Supply Disruption
Modules 2 to 5 were about cutting energy, materials and emissions, the mitigation half of SDG 13. This module turns to the other half:
adaptation, coping with the climate that has already changed. However quickly the world cuts emissions, more heat and heavier rain are already on the way, and businesses need to prepare for them.
Floods are already expensive
The floods of December 2021, which hit the Klang Valley especially hard, caused losses of about
RM6.1 billion, around 0.4% of GDP, according to the Department of Statistics Malaysia (DOSM). The manufacturing sector lost about RM0.9 billion and business premises about RM0.5 billion. Floods since then have been smaller but regular: DOSM put losses at
RM933.4 million in 2024 and
RM636.9 million in 2025. Its 2025 report also found, in its case studies, that only
5.5% of the flood victims surveyed had insurance, which means most losses fall on the people and businesses affected.
Heat is rising
The Malaysian Meteorological Department (MetMalaysia) has recorded warming of about
0.2°C per decade in recent decades, with nights warming faster than days. For a business, heat shows up as higher air-conditioning loads and electricity bills, machines that overheat or need more cooling, food and materials that spoil faster, and staff who are less productive and at greater risk of heat stress, especially in factories, warehouses, kitchens and outdoor work.
Disruption travels along the supply chain
A business does not have to be flooded itself to be hit. If a key supplier's factory floods, a port closes, or roads are cut, materials stop arriving and orders cannot ship. Staff may be unable to get to work, or may be dealing with damage to their own homes. In December 2021 many firms that stayed dry still lost days of production because of these knock-on effects.
Policy is still catching up
Malaysia began preparing a
National Adaptation Plan (MyNAP) in January 2025, with funding from the Green Climate Fund. It focuses on five sectors: health; infrastructure and cities; water and coastal areas; agriculture and food security; and forestry and biodiversity. As of October 2026 it has not been finalised, so for now each business has to plan for itself.
Watch video: Floods, Heat and Supply Disruption
Key Insight: DOSM put flood losses at about RM6.1 billion in December 2021, RM933.4 million in 2024 and RM636.9 million in 2025, and only 5.5% of 2025 victims surveyed were insured. MetMalaysia records warming of about 0.2°C per decade. Supply chain disruption can hit even firms that stay dry.
Real-World Example: In December 2021 Kilang Maju's factory stayed dry, but its access road flooded and deliveries stopped for four days. Two staff could not get to work for a week, and its main film supplier, in a flooded area of Shah Alam, could not ship for twelve days. The total cost was more than a month's profit.
Q: According to DOSM's 2025 case studies, what share of flood victims surveyed had insurance?
DOSM's 2025 flood report found that only 5.5% of the flood victims surveyed had insurance, so most losses fall on the households and businesses affected.
Think back to the last flood, heatwave or supply disruption in your area. How did it affect your business, your staff or your suppliers, even if your premises stayed dry?
A Simple Physical Risk Assessment
A climate risk assessment for a small business does not need models or consultants. It needs an honest look at what could go wrong, how likely it is, and how bad it would be.
A Simple Climate Risk Matrix - Likelihood Against Impact for Floods, Heat and Supply Disruption
Step 1: list what matters
List your
sites (premises, warehouses, branches), your
people (which staff work where, how they travel), your
critical equipment (machines, servers, cold rooms, stock), and your
key suppliers and customers, especially any you depend on alone.
Step 2: identify the hazards
For each item, ask three questions.
Could it flood? Check whether the site or its access roads have flooded before, whether it is in a low-lying area or near a river or drain, and what public flood maps and the local council show.
Could it overheat? Think about rooms without enough cooling, roofs that absorb heat, equipment that trips in hot weather and staff working in hot spaces.
Could it fail because of someone else? Consider suppliers in flood-prone areas, single routes for deliveries, and dependence on one port or one utility connection.
Step 3: rate likelihood and impact
Give each risk a simple rating for
likelihood (how often it could happen) and
impact (how much it would cost or disrupt). Plot them on a matrix like the one above. Risks that are both likely and severe need action now. Severe but unlikely risks need a plan. Frequent but minor risks are worth reducing because they add up. Minor and unlikely risks can be watched.
Step 4: write it down and review it
Record the result on one page: the risk, its rating, what you will do, who owns it, and by when. Review it once a year and after any event. Ask your staff too, because the people who work on the floor or drive the van often know where water collects and which rooms are unbearable in the afternoon.
The same assessment helps with insurance. Insurers and banks increasingly ask about climate exposure, and a business that can show it has assessed and reduced its risks is in a better position to get cover and finance.
Key Insight: A simple risk assessment has four steps: list sites, people, equipment and key suppliers; ask whether each could flood, overheat or fail because of someone else; rate likelihood and impact; write it down with owners and review it every year.
Q: On a likelihood and impact matrix, which risks need action now?
Risks that are both likely and severe go in the "act now" box. Severe but unlikely risks need a plan, frequent minor risks are worth reducing, and minor unlikely risks can be watched.
Action step: list your sites, critical equipment and three most important suppliers. For each, write one sentence on whether it could flood, overheat or fail because of someone else.
Adaptation and Business Continuity
Once you know your main risks, adaptation measures fall into three groups:
protect the business from the hazard,
prepare to keep running when it strikes, and
recover quickly afterwards.
Protect
For flood risk, practical steps include raising electrical panels, servers, critical machines and valuable stock above known flood levels; installing flood barriers or sandbag stocks for doorways; keeping drains clear; and moving the most valuable stock or records to higher shelves or upper floors before the rainy season. For heat, measures include roof insulation or reflective roof coatings, shading, better ventilation, and servicing air-conditioning before the hottest months. Several of these also cut energy use, linking back to Module 3: a cooler roof lowers both heat stress and the electricity bill.
Prepare
A
business continuity plan sets out how the business will keep its most important activities going during a disruption and get back to normal afterwards. For an SME it can be a few pages covering: who decides what in an emergency, how staff will be contacted and kept safe, which customers and orders come first, where critical data is backed up, and which alternative suppliers, premises or transport can be used. Keeping a second approved supplier for critical materials is one of the cheapest and most effective steps.
Heat needs its own plan for staff: water, rest breaks, shifting heavy work to cooler times of day, and knowing the signs of heat stress.
Recover
Insurance is the main tool for recovering financially. Check whether your policies actually cover flood and business interruption, what the limits and excesses are, and whether stock and equipment are insured at replacement value. Remember that only a small share of the 2025 flood victims DOSM surveyed were insured. Keep photographs of premises and an inventory of equipment, stored away from the site, to speed up any claim.
Test the plan
A plan nobody has read does not help. Walk through it with staff once a year, ideally before the year-end monsoon, and update it after any real event.
Watch video: Adaptation and Business Continuity
Key Insight: Adaptation means protecting the business (raise critical equipment, flood barriers, cool roofs), preparing to keep running (a short continuity plan, a second supplier, heat plans for staff), and recovering (insurance that really covers flood and business interruption). Test the plan once a year.
Real-World Example: After 2021, Kilang Maju raised its main electrical panel and server by a metre, bought flood barriers for two doorways, approved a second film supplier in Penang, and moved its order data to a cloud backup. It also checked its insurance and added business interruption cover. The whole package cost less than the four days of lost production in 2021.
Q: Which of these is a "prepare" measure in a business continuity plan?
Preparing means having arrangements to keep running during a disruption, such as a second supplier, staff contact lists and data backups. Raising panels and cool roofs are protection measures; insurance claims are recovery.
If your premises or your main supplier were cut off by a flood for a week, which three things would you most need to keep the business going? Which of them is not yet in place?
Setting Targets, Including the SME Route
A target turns good intentions into a plan that can be checked. Customers, banks and staff increasingly ask not only what a business emits but what it aims to achieve and by when.
Absolute and intensity targets
An
absolute target cuts total emissions or energy use, for example "reduce Scope 1 and 2 emissions by 40% by 2030 compared with 2025". An
intensity target cuts emissions or energy per unit of output, for example "reduce electricity use per tonne of product by 15% by 2028". Intensity targets suit a growing business, because they reward efficiency even when output rises. But total emissions can still go up, so customers with absolute targets of their own may ask for an absolute target as well. Recall from Module 1 that Malaysia itself moved from an intensity pledge to an absolute target in NDC 3.0.
Good targets have a
base year with reliable data, a clear
scope (which emissions or which sites), a
target year, and an owner responsible for tracking them.
Science-based targets for SMEs
The
Science Based Targets initiative (SBTi) checks whether company targets are in line with what climate science says is needed. Large companies go through a full validation, but SBTi offers a simpler
SME route. To qualify, a company must emit
fewer than 10,000 tonnes of CO2e across Scope 1 and location-based Scope 2, and meet at least three of four conditions:
fewer than 250 employees,
turnover under EUR 50 million,
total assets under EUR 25 million, and
not being in a mandatory forest, land and agriculture (FLAG) sector. Financial institutions, oil and gas companies, companies that must use sector-specific methods, and subsidiaries of large groups cannot use the route.
Under the SME route, the company adopts a
predefined near-term target for Scope 1 and 2 emissions, rather than designing its own, and commits to measure and reduce its Scope 3 emissions without having to set a formal Scope 3 target. There is a fee for validation. SBTi is revising its standards, so check the current rules on its website before applying.
Do you need SBTi?
Not every small business does. If a major customer asks for an SBTi-validated target, the SME route is the most practical path. If not, a clear, well-measured target that you track and report honestly is a good start, and can be upgraded later.
Watch video: Setting Targets, Including the SME Route
Key Insight: An absolute target cuts total emissions; an intensity target cuts emissions per unit of output. The SBTi SME route is for companies under 10,000 tCO2e (Scope 1 and location-based Scope 2) meeting at least three of four conditions: under 250 staff, turnover under EUR 50 million, assets under EUR 25 million, and not in a mandatory FLAG sector.
Real-World Example: Kilang Maju set an intensity target, a 15% cut in electricity per tonne of output by 2028 against 2025, because it expects to grow. Its snack-brand customer later asked for an absolute target as well, so it added a 30% cut in Scope 1 and 2 emissions by 2030, relying on efficiency and rooftop solar.
Q: Why does an intensity target suit a growing business?
An intensity target measures energy or emissions per unit of output, so it rewards efficiency while the business grows. Total emissions can still rise, which is why some customers also want an absolute target.
Would an absolute target or an intensity target suit your business better right now? What would you measure it against, and what year would you choose as your base?
The One-Page Transition Plan
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transition plan brings everything in this course together: where you are, where you are going, how you will get there, what it will cost, which risks you face, and how you will track progress. For a small business it fits on one page, and that is the point. A short plan that people use beats a long one nobody reads.
The One-Page Transition Plan - Baseline, Targets, Actions, Budget, Risks and Tracking
The six parts
1. Baseline. Your energy use, fuel, main materials, waste and Scope 1 and 2 emissions for a base year, from Module 2. Note how the figures were calculated.
2. Targets. One to three targets with base years and target years, from the previous section. Include at least one energy or emissions target and, if materials are a large cost, one for scrap or waste.
3. Actions, owners and dates. The projects that will deliver the targets, drawn from Modules 3 and 4, in the order of efficiency first, then renewables, then circular changes. Give each one a single named owner and a date.
4. Budget and finance. For each action, the cost, expected annual saving and simple payback, and how it will be paid for: cash, a green loan, a service contract or an incentive.
5. Climate risks. The top risks from your risk assessment and the protect, prepare and recover measures for each.
6. Tracking and reporting. Which numbers you will track each month, who reviews them, and how you will report to customers, lenders and staff, using one set of figures for everyone.
Making it real
Get the owner or board to approve the plan, so that spending decisions follow it. Share it with staff, because many savings depend on daily habits. Review it once a year: update the baseline, check progress against targets, and add the next round of actions. A plan that is revised each year will keep improving as your data and experience grow.
Key Insight: A one-page transition plan has six parts: baseline, targets, actions with owners and dates, budget and finance, climate risks, and tracking and reporting. Get it approved, share it with staff and review it every year.
Q: In the one-page transition plan, what should each action have?
Each action needs one named owner and a date, plus its cost, saving and payback in the budget section. Clear ownership is what turns a plan into results.
Draft the first two parts of your own plan: your baseline (even if some figures are estimates) and one target. What is the hardest number to find?
Your First 90 Days
The best plan is one that starts. Here is a practical sequence for the first 90 days, using what you have learned in this course. It assumes no special budget, only time and attention.
Days 1 to 30: measure
Collect twelve months of electricity bills, fuel receipts and waste invoices, and enter them in a simple spreadsheet. Note your maximum demand and any power factor charges. Run a one-week waste audit. Walk the site during working hours and again after hours, listening for compressed air leaks and noting lights, air-conditioning and machines left running. Calculate your Scope 1 and Scope 2 emissions using the emission factors in Module 2. You now have a baseline.
Days 31 to 60: fix the obvious
Act on the no-cost and low-cost measures you found: switching off equipment when it is not needed, fixing air leaks, setting air-conditioning to a sensible temperature, servicing filters and coils, and improving cutting layouts or print checks to cut scrap. At the same time, get quotes for the larger items, such as LED lighting, efficient motors or compressors, and rooftop solar, and calculate the payback for each.
Days 61 to 90: plan and commit
Complete your risk assessment and the protect and prepare measures that cost little, such as raising critical equipment, approving a second supplier and backing up data. Set one or two targets. Draft the one-page transition plan, including the larger projects and how you will finance them, and get it approved. Tell your staff what you are doing and why, and ask for their ideas. If a customer has asked for data, send your answer from the new baseline.
After 90 days
Track your key numbers every month: electricity per unit of output, fuel, scrap rate and emissions. Review the plan once a year. Each year, the data will be better, the next projects will be clearer, and the answers to customers, banks and regulators will be easier.
The chain, one last time
Energy goes in, materials go through, emissions and climate risk come out. Measure the chain, cut waste at the start, switch to cleaner energy when the numbers work, keep materials in use, answer the questions honestly, and prepare for the climate that is coming. That is what SDGs 7, 12 and 13 ask of a business.
Key Insight: Days 1-30: measure (bills, fuel, waste audit, site walk, Scope 1 and 2). Days 31-60: fix the no-cost and low-cost items and price the larger ones. Days 61-90: assess risks, set targets, approve a one-page plan and tell your staff. Then track monthly and review yearly.
Real-World Example: Kilang Maju's 90 days: in month one the operations manager built the baseline and found an air leak costing about RM1,500 a year in electricity. In month two, leaks were fixed, air-conditioning set points were raised to 24°C, and three solar quotes were obtained. In month three, the board approved the one-page plan and its first green loan application.
Q: In the 90-day sequence, what is the main task of days 1 to 30?
The first 30 days are about measurement: twelve months of bills and receipts, a waste audit, a site walk and a first Scope 1 and 2 calculation. Fixes and plans follow once you know where the waste is.
Action step: put the first three tasks of your own 90-day plan in your calendar now, each with a date and the person who will do it. What will you do first?
