how climate change affects MISC Berhad
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Published: Mon, 5 Dec 2016
The aim of this report is to identify the effects of climate change towards MISC Berhad. MISC berhad is a company renowned for its shipping services throughout the world. As one of the biggest firms in Malaysia, MISC has a reputation to maintain as not only as one of the longest shipping companies established, but also one of the largest shipping company in the world. Without a doubt, climate is a crucial issue in the present and also the upcoming future. Due to the effects of climate change, mankind itself is at risk to hazardous and even fatal threats. The world has come united to find ways to reduce emissions of developed or developing countries to the minimal as possible, like in the Copenhagen Summit. None the less, Malaysia took minor but meaningful steps like the “no plastic bag” days in selected states in the country.
The four bottom lines were used to evaluate the performance of MISC Berhad. To counter the ever changing needs, MISC Berhad implements economic and financial bottom line, social, environmental and corporate governance bottom line to fill the needs and ensure its survival in the industry. Through group brainstorming, it would be assumed that MISC Berhad would be affected by climate change in various aspects. Pressure from external forces, a decrease in total sales, delay of shipping time, the well-being of employees on board the ship and an increment in cost are problems the company would face through climate change. The problems would be ranked through K.T. Situational Appraisal which would in turn result in knowing the main problem, which in this case is the pressure from external forces. The the duncker diagram, KT Problem Analysis and Decision Analysis was then prepared in accordance to the main problem.
As the climate differs from time to time, MISC Berhad would need to prepare itself for the threats faced and ensure that problems would be of minimal impact to the company. MISC Berhad would need to eradicate the pressure from external forces to keep a good reputation in hand. The company would report its status to the stakeholders on a timely basis and make necessary amendments to the company to further enhance its performance. The company should also practice environmental friendly activities within the company and not only reduce its carbon footprint of its operations.The report also further discusses some solutions to the main problem face by MISC berhad, where MISC Berhad should negotiate with the WWF and other environmentalist organizations to reach an applicable and practical solution to the carbon footprint left by the company to mother earth.
Table of Contents
1.1 Bottom lines – a. Economic and Financial
d. Corporate Governance
Problem Statement and Ranking & Selection
Rationale & Recommendation
The idea of this report is to study how climate change is impacting on MISC Berhad and how MISC Berhad is responding to the changes. MISC Berhad was integrated in 1968 as Malaysia International Shipping Corporation Berhad and is the top international shipping line of Malaysia (MISC Berhad 2010. It is currently the third largest shipping corporation in the world by market capitalization (MISC Berhad 2010). From being merely a shipping line in 1968, MISC has become a fully integrated maritime, offshore floating solutions, heavy engineering and logistics services provider (MISC Berhad 2010). Now, with a modern and well-diversified task force, MISC provides steadfast, safe, well-organized and competitive shipping services both locally and internationally. MISC’s vision is to be a global champion in the provision of logistics services and supply chain solutions (2004 MISC Integrated Logistics Sdn Bhd). In addition, its goal is to entirely service its customers’ global oil transport requirements.
Lately climate change has taken a first-time turn in the recent past. Global warming has caused climate change due to the increase of average earth temperature in accordance of what is known as the greenhouse effect. As the greenhouse gases accumulate in the atmosphere the Earth gets hotter (Young People Trust for the Environment). In addition to that, Televisions, lights and computers use electricity that is created mainly from burning coal. Every time we switch on a light we are adding to the greenhouse effect (Young People Trust for the Environment).
Due to the climate change, protecting the environment in which the ships operate is vital. The company are conducting tests for use of a new hull coating system to reduce emissions that will pollute the environment (Impressions of AET 2009). Oil spill training was organised to aware them of the oil spill awareness.
1.1 Bottom Line
a. Economic and Financial
MISC berhad reports its company’s cash flow and financial statuses through a series of statements which are available in the annual report. The company recorded an operating profit of RM1, 914.4 million from RM2, 585.7 from year of 2008. Data shows that the company suffered a reduction in profit of RM671.3 million which is equivalent to 26% against the profit of year 2008. MISC berhad reports that this loss was mainly caused by the loss in the Integrated Linear Logistics segment (MISC Annual Report 2009).
MISC would be affected economically and financially by climate change as MISC is a shipping company and serious weather alterations would greatly impact on shipping schedule and arrival of shipments. Customers of MISC would be in risk of having important deliveries arriving on a delayed period where not only would MISC suffer a loss of profit, but also the customer would be losing valuable resources which are in need. Consumers of MISC`s services would have unsatisfactorily deny usage of the company`s service as due to climate change, consumers would rather use companies of nearer distance or even opt to pay more for on time deliveries. MISC might lose credible customers and thus be reduced of profit to the company. Knowing the risks involved in the climate changes occurring, MISC can opt for the transporting vehicles used to be upgraded to a faster speed to reduce travelling period. MISC can also consider using eco-friendly upgrading to further ensure reduced problems in the future as the transportation used by the company consumes a high capacity of fuel which will in turn harm the environment.
b. Corporate Social Responsibility
The social bottom line pays concern on the effects of every action taken by a company towards the society welfare (Elkington 2005). CSR is about the interaction of the corporation with the legal and social obligations of the societies in which it operates, and how it accounts for those obligations (WBCFD 2010).
MISC had built the youth development which focuses on education that related to their core business and personal development. Moreover, MISC had built a maritime training academy which is known as Akademi Laut Malaysia (ALAM) to ensure that youth have the skilled and competent personnel as well as to stay on course towards becoming a leading maritime nation. Furthermore, MISC also provided sponsorship for students to further their education for both locally or overseas. Consequently, MISC are also caring for their corporate citizen as to create avenue for their personnel.
d. Corporate Governance
The Board of Directors of MISC Berhad is devoted in ensuring the highest standards of corporate governance are practise throughout the MISC Berhad Group (MISC Berhad Annual Report 2009). The Board fully supports the principles of Corporate Governance as laid down in the Malaysian Code of Corporate Governance. Corporate Governance is the key to achieve competent and high quality shipping operations that delivers quality to customers and stakeholders (MISC Berhad Annual Report 2009). The Board of Directors of public listed companies are required to maintain a sound system of internal control to safeguard shareholders’ investment and the Group’s assets (MISC Berhad Annual Report 2009).
Additionally, the company is coping with low global demand and reductions in trade volume (MISC Berhad Annual Report 2009). They will find out new value-added services and realign its business strategies in the non-energy section to improve its position in the coming year (Impressions of AET 2009). The business keeps its shareholders and other stakeholders informed of its decision making process by defining risk parameters and standards guided by the corporate objective (Impressions of AET 2009). This is to maximise long term shareholders’ value at the same time as meeting the needs of the customers, employees and all related stakeholders.
2.0 Background Issues
The main issue discuss by our group is the pressure from the external force followed by less profit generated due to decrease in sales and shipping time delayed.
The green organizations are established to give limits and encourage companies to reduce their emissions that can harm the environment. Thus, this is one of the pressures from the external force that can be able to influence the customer’s perspectives. For example, WWF will notify the company to reduce shipping activities due to the emission of CO2 and if no action is taken, the company would face serious hardship.
As the world is working towards saving the environment, there will fewer purchases on petroleum, coal that will harm the environment. If certain companies would want to save the environment and prevent less of climate change that drastic, this will affect MISC’s sales too. This will cause a fall in the number of sales.
Thirdly, the shipping time to reach its destination might be delayed. The melting of polar ice causes sea level rises which makes more difficult for the ship to harbor. The company might want to be prepared for the extreme and highly variable environmental conditions, principally in the Southern Ocean, for example (Impacts of Climate Change on the Maritime Industry Conference 2008).
3.0 Problem Statement Ranking & Solution
According to the K.T situational appraisal (Appendix 1), it ranks the problem by their importance (Fogler & LeBlanc 2008). In this case, the top ranked issue of climate change that affect MISC is the pressure from external force such as WWF and IMO. According to WWF Malaysia (2010), they recognises that the role of Business and Industry (B&I) as catalysts to reduce the CO2 emission and may at best become part of the solution to CO2 reduction. Therefore, this will directly affected the MISC as WWF aims to engage with B&I in working towards changing practices as a solution to climate change. For IMO (2009), work on prevention of air pollution and control of greenhouse gas emissions from ship engaged in international trade is their main objective.
Secondly, the issue for MISC would be the sales decreased. This is due to the production of petroleum and chemical is the cause of climate changed, thus it will force to reduce the production and directly affected the sales of MISC. Moreover, the third ranked problem is the shipping time delayed as the sea level had increase due to the ice melting in the North Pole lead vessel difficult to anchor safely. The forth ranked issue is the safety of employees as the natural disaster could cause in danger situation during shipping time. Lastly, the fifth ranked problem for MISC is the cost increased as they need to build more advances mechanism for their ships that has clean emission.
K.T. Problem Analysis (Appendix 2) is one of the most useful tools in troubleshooting an operation (Fogler & LeBlanc 2008). The major problem is the pressure from external force but is not from the internal force. The distinction is the WWF put pressure on MISC as the emission from shipping caused air pollution which is the WWF’s concern. The problem occurred globally but not only happened in Malaysia. The reason is the emission of CO2 is not confined by territorial borders but in the atmosphere. The problem occurs when shipping activities are operating on the ocean but not anchor on the harbour. However, shipping activities is the main business for MISC. The extent of the problem is the related to the business field which produce CO2 lead global warming but not the business field that doesn’t affect the climate change. The distinction is able to track and control the amount of CO2 that emitted.
From the Duncker diagram (Appendix 3), the top problem for MISC is the pressure from external forces. If okay to solve the problem, the solution would be the try to fulfil WWF’s concern by reducing the shipping activities. Besides that, it can negotiate with the external force which is to make agreement with the IMO or WWF. Moreover, MISC can change the major transportation from shipping to submarine or airplane. On the other hand, if it is not okay to solve the problem, the solution can be increase the corporate social responsibility by sponsoring for environmental campaign. Furthermore, it also can try to fulfil other stakeholders by providing better service for customers.
As the main issues is the pressure from the external force, less profit generated due to decrease in sales and shipping time delayed.
The suggested solutions to encounter the pressure from the external force would be trying to fulfill WWF’s concern by reducing shipping activities or negotiate with WWF to come out with an agreement. In addition, upgrading the tanker that can reduce the emissions of gas will be another suggested ways.
On top of that, to maintain the profit, the company would have to lower the price of the petroleum as it would be less expensive compared to an alternative ways that is less harmful to the environment.
Lastly, the company would have to upgrade the tanker engine and set up branch companies in overseas land. This mean they would have the storage there and then, so whenever there is orders nearby it could be deliver as soon as possible.
5.0 Rational & Recommendation
After deliberation and a further understanding of the company`s needs, our group would recommend MISC Berhad to negotiate and reach a consensus with the IMO. Besides that, MISC Berhad should also put its involvement in caring for the environment as one of its major priorities. Our group also recommends the shipping company to place a larger sum of its revenue into research to reduce the current level of emissions given out by the company`s operations. These steps would aid MISC berhad to have peaceful and good remarks from multiple major environmentalist organizations as the company has taken a huge leap into achieving an eco-friendly company. It would build a reputable name for the company and it would also be seen as a pioneer of shipping companies which took the first steps into reaching an environmental goal.
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