Addressing the Climate Crisis
|TCFD Recommendation Areas|
|GOVERNANCE||STRATEGY||RISK MANAGEMENT||METRICS AND TARGETS|
|Section in the reports where the disclosures in alignment with the TCFD recommendations are covered||
Risk and Opportunities
Impact on Business
Details of Scope 1 & 2
|Chairman’s Statement (page 12)|
|GMD’s Questions and Answers (page 18)|
|Sustainable Value Creation (page 76)|
|Group Risk Management Framework (page 107)|
|Sustainability Committee Report (page 101)|
|GMD’s Statement (page 3)|
|Addressing the Climate Crisis (page 65)|
|Sustainability Governance (page 113)|
|Greenhouse Gas Emissions (page 75)|
Key Climate Risks
The Group’s Enterprise Risk Management Framework includes the assessment of internal and external climate-related risks, and are reported to the Board Risk Management Committee. However, key climate-related risks are also deliberated at the Board Sustainability Committee, which are summarised in the table below. The horizons used are short-term (2025 or earlier), medium-term (2030) and long-term (2050 or above).
Rising Sea Levels
Based on the latest climate change data released in IPCC Sixth Assessment Report, the Group’s Research and Development department conducted a review of a previous study to understand the potential impact of rising sea levels on concession areas. The review looked at various climate change scenarios articulated in the report, namely the different Shared Socio- Economic Pathways (SSPs).
Potential Impact: Lower Materiality
Based on the review that was done for a period of up to the year 2100, the R&D team has identified areas which are considered as “Very High Risk” to flooding due to potential rising sea levels.
The review has also identified infrastructure which are at risk to flooding.
There would potentially be a decrease in plantable areas as these high-risk areas may not be suitable for plantation operations in the long-term.
In the immediate term, mitigation actions are currently underway at the Group’s operations located at coastal areas, which are prone to flooding. This includes the development of bunds surrounding these areas to ensure that sea water does not intrude into plantation areas.
In the long-term, further studies are to be carried out to assess the suitability of these high-risk areas for future replanting cycles, and renewal of long-term leases.
Changing Weather Patterns
With the potential changes in weather patterns, there will be a risk of different weathers experienced by the Group in its various operating locations. This includes potential changing rainfall patterns and prolonged droughts, which are not normally experienced by the operations.
One example includes the extreme rainfall experienced in Malaysia at the end of 2021, which resulted in flooding in flood-prone areas throughout Peninsular Malaysia.
Potential Impact: Higher Materiality
Extreme weather conditions would potentially have a direct impact on productivity of the upstream operations, where the flooding resulted in the affected estates and mills being unable to operate. If these extreme weather conditions are to be experienced on a more frequent manner in the future, it would have a more significant impact on the productivity of the Group’s operations if not mitigated.
|Short to Medium Term||
In the immediate term, the operations have already begun to implement mitigation actions at high-risk areas. Examples include the building of bunds in flood-prone areas, and water bodies for water catchment in areas experiencing droughts.
The operations team, together with the R&D team are exploring long-term solutions to ensure that operations are less impacted by the changing weather patterns. R&D is also exploring and leveraging on its genomics programme to build crop resilience to climate change impacts. For more information on SDP's GenomeSelect™, please click here.
Increase in Temperature
The Group’s R&D team conducted a literature review of the impact of temperature rise on oil palm yields. Based on the latest literature available, a temperature increase by 1 to 4℃ would have a decrease on the yield between 10% to 41% (Sarkar et al (2020)).
The Sarkar report conflicts with previous literature which stated that an increase in temperature of 5℃ would eliminate any yield increase from the rise of CO2 levels (Corley (2016)).
Potential Impact: Higher Materiality
Any climate scenario or SSP which predicts an increase in temperature of more than 1℃ would potentially have an impact to the yield of existing oil palm trees if the Sarkar report is accurate.
|Medium to Long Term||
Due to the conflicting nature of the various studies reviewed, the Group’s R&D team is currently undertaking its own internal study to simulate and validate the effect of temperature rise on yields and generate additional scientific data.
In the medium to long-term, the R&D team is also exploring and leveraging on its genomics programme to build crop resilience to climate change impacts. For more information on SDP's GenomeSelect™, please click here.
Increase Regulatory Requirements
As an outcome of COP26, and the increased attention to climate change globally, governments are introducing policy and regulatory frameworks at a faster pace in their efforts for climate action.
Markets such as the EU are introducing due diligence requirements of supply chains into the EU on deforestation and sustainability, and the Carbon Border Adjustment Mechanism, amongst others.
Malaysia has made a commitment to become a net zero nation by 2050 and plans to introduce regulatory measures to support that commitment. This includes the introduction of a local carbon market in the future. The Indonesian Government will also be gradually introducing a carbon tax.
Potential Impact: Higher Materiality
If SDP does not decarbonise its operations in line with future regulatory expectations, there will be potential additional compliance costs which may be incurred by the Group to access these markets. Failure to meet these future compliance requirements may also lead to potential limitations to SDP’s access to these markets.
The Group has already embarked on its decarbonisation journey since 2012. Key efforts taken by the Group to decarbonise its operations include:
The Group is also currently exploring options on how to achieve Net Zero emissions.
For more information on SDP's response to climate change, go to page 23.
Increase Customer Requirements
As global expectations have increased for corporations to accelerate climate action, there is already an increase in scrutiny from customers with strong sustainability commitments to extend their climate commitments to their supply chains.
Currently the Group complies with customers’ NDPE requirements, especially on deforestation. As a result, SDP’s strategy as a Group has shifted to focus on increased productivity and the downstream business expansion rather than upstream landbank expansion.
Customers with more progressive sustainability commitments are being more actively involved in reducing their Scope 3 emissions by working with their suppliers to implement programmes to reduce supply chain emissions.
The trajectory of this may potentially lead to stronger climate change requirements as part of customers’ responsible sourcing policies in which the Group would need to comply with.
Potential Impact: Highest Materiality
If SDP does not decarbonise its operations in line with future customers’ requirements and expectations, there may be a potential for an increase in compliance costs to further reduce SDP’s carbon intensity, or potentially the risk losing to these customers.
The Group has already embarked on its decarbonisation journey since 2012. Key efforts taken by the Group taking to decarbonise its operations include:
SDP is actively partnering with customers to collaborate in various climate action initiatives.
SDP is also actively working with customers to jointly implement initiatives to combat climate change. For more information on SDP's response to climate change, please click here
The Group’s GenomeSelect™ programme by R&D mitigates the issue of landbank expansion by potentially increasing yields on existing landbank to improve productivity.
A Deep Dive into Physical Risk: Rising Sea Levels
The latest Intergovernmental Panel on Climate Change (IPCC) Report released in 2021, named Shared Socio-Economic Pathways (SSPs), defined various climate change scenarios. Each SSP covers a broad range of GHG and Air Pollutant futures with scenarios of with and without climate change mitigation pathways.
Risk Zone Category
- Cat 1, Very High
- Cat 2, High
- Cat 3, Medium
(Elevation, m asl)
less than 5
5 to 10
10 to 15
Risk Zone Category
- Cat 4, Low
- Cat 5, Very Low
- Cat 6 & 7, None
(Elevation, m asl)
15 to 20
20 to 50
more than 50
GHG emissions[GRI 3-3, 305-1, 305-2, 305-4, 305-5]
SDP uses the GHG Protocol accounting standards to calculate our Scope 1 (direct emissions from our owned and controlled sources) and Scope 2 emissions (indirect emissions generated from purchased electricity, steam, heating, and cooling) at our upstream and downstream operations. We have begun mapping our most material Scope 3 emissions across the SDP supply chain and target to start disclosing in 2023.
In 2021, our Group operational GHG emissions amounted to 2,814,766 tonnes of carbon dioxide equivalent (MT CO2e): 2,653,795 MT CO2e for Scope 1 and 160,970 MT CO2e for Scope 2. These figures cover our upstream and downstream business units and now include three additional downstream facilities: our soya refinery in Thailand and our two copra crushing facilities in Papua New Guinea10. Due to the inclusion of these units, our operational GHG emissions were 2.1% higher than 2020. As we generate our own electricity at our upstream operations in Indonesia, PNG and Solomon Islands, we do not have Scope 2 emissions in those countries.
Our primary emission source derives from methane emissions from treating effluent mainly from mill processes, accounting for 66% of our total generated emissions in 2021. Emissions from boilers at mills (12%), fertiliser use at plantations (8%) and purchased electricity (6%) are the next biggest emitters.
We also use the latest version of the RSPO PalmGHG calculator to understand our emissions from land-use change, which is key for agricultural companies assessing the impact of converting natural land. In 2021, emissions from our planting and replanting activities amounted to 6,073,182 MT CO2e. However, our operations also sequestered 5,374,301 MT CO2e from all oil palm trees. Including our operational GHG emissions and crop sequestration, our net GHG emissions were 3,513,648 MT CO2e.
In future reports, we will include sequestration data from our conservation initiatives. To date, we have planted over 1.89 million trees that have the potential to sequester an estimated 90kg CO2e per tree planted after five years of planting, resulting in more than 84,000 MT CO2e annually.
Our renewables business, under Sime Darby Plantation Renewable Energy Sdn Bhd (SDPRE), is primarily focused on three main strategies to reduce carbon emissions.
Overview of renewable energy projects
|Country||Installed and operational||Under development in 2022||Future plans|
|Malaysia||8 biogas plants||7 biogas plants||Additional 7 biogas plants by 2023|
|5 SDP solar systems||5 SDP solar systems||62 SDP solar systems by 2025|
|1 large scale solar project||12 large scale solar projects||-|
|Indonesia||2 biogas plants||1 biogas plant||Additional 7 biogas plants by 2030|
|PNG and Solomon Islands||2 biogas plants||1 biogas plant||Additional 5 biogas plants by 2027|
Installing methane capture facilities and biogas plants at our mills is vital to our carbon reduction strategy. Methane captures target fugitive methane emissions released as by-products of the anaerobic digestion of palm oil mill effluent (POME). The methane is either flared and converted to carbon dioxide with a much lower warming potential or further processed as biogas to generate energy – either as electricity that feeds into the national grid, bio-compressed natural gas, or captive power.
As of December 2021, we have 12 operational biogas plants across Malaysia, Indonesia and Papua New Guinea. Of these, four were newly commissioned in Malaysia: one in 2020 and three in 2021. In total, our biogas plants have contributed to an estimated 499,617 MT CO2e reduction in total emissions, representing 71,603 MT CO2e or 16% more than 2019, when only nine biogas plants were in operation.
Moving forward, we will significantly expand our biogas programme, which is critical to our carbon reduction and net zero strategy. Five biogas plants are under construction and will be operational by 2022, and we have plans to commission an additional 16 by 2025, half of which should be completed by 2023. We aim to have 68 plants in operation by 2030 – or at least one at every mill we operate.
1. Total emission reduction calculations exclude two facilities in Malaysia because they were under repair.
2. It can take up to one year for a facility to reach full capacity and achieve optimum efficiency. Therefore, emission figures are not directly correlated to the number of facilities year-on-year but reflect those operating at their respective efficiencies in previous years.
To support our carbon reduction plans, SDP Malaysia began installing photovoltaic (PV) systems in 2021. These are situated on the rooftops of our buildings and our land assets. As of December 2021, five solar systems have been completed at each of our regional upstream offices and our biodiesel plant in Carey Island. The five completed PV systems generate 1,154,218 kilowatt-hours (kWh)/year, which can power up to 279 houses a year, and the electricity generated in 2021 resulted in 658 MT CO2e of emissions avoided.
A further five systems are under construction. We plan to install 62 systems across all our Malaysian operations by the end of 2025 and expect to generate 22,991,590 kWh/year, contributing to a reduction of 13,105 MT CO2e.
Supporting Malaysia’s carbon reduction plans
SDP has also long-supported Malaysia’s national carbon emission reduction agenda, the Malaysia Renewable Energy Roadmap (MyRER). In 2018, SDP leased land to PLB Green Solar Sdn Bhd for the development of a 20-megawatt (MW) solar project for national consumption under the country’s Large Scale Solar 1 (LSS1) scheme.
This project covers 28 hectares in our Byram Estate in Penang, Malaysia and generates 29,200,000 kWh/year – enough electricity to power 7,053 houses a year.This facility has contributed to a 16,644 MT CO2e against Malaysia’s emission reduction targets.
The Malaysian Government recently approved plans for the construction of 12 additional plants on SDP land under the LSS4 scheme in 2022 and 2023.Once operational, these systems will generate almost 490,000 megawatt-hours (MWh) of electricity, contributing to a reduction of 279,611 MT CO2e against Malaysia’s emission reduction targets.
We recycle the by-products of our upstream processes back into our operations as biomass. Our empty fruit bunches (EFB) are reused at our plantations as compost, POME is treated and used to irrigate fields, and palm kernel shells (PKS) are used as fuel for boilers at our mills. We are also exploring opportunities to sell EFB, PKS and oil palm trunks (available after trees are felled) to interested companies in Japan for fuel. Doing so will significantly support our plans to reuse waste and offset emissions.
In 2021, our Group-wide upstream operations used 28,405,157 gigajoules (GJ) of energy. Over 80% of the energy consumed comes from renewable sources, namely biomass, biodiesel and other liquid biofuels. The remaining 20% of our energy comes from non-renewable sources such as diesel, electricity, petrol, and liquefied petroleum gas. Embracing renewable energy has led to approximately 1.8 million MT CO2e of emissions avoided to date/annually.
Controlling air emissions at mills
Unlike our refineries, which operate on natural gas, we recognise that our mill operations generate significant emissions, including dust and smoke emitted through chimneys and dust from mill operations, such as crushing plants. Individual operating units report their air emission performance through our online Continuous Emission Monitoring System (CEMS). We have also implemented pollution control systems across our mills to ensure we are compliant with regulatory air emissions standards.