KUALA LUMPUR: Malaysia must expand green finance, strengthen local technology capacity, as well as broaden participation across sectors and regions to fully leverage the global shift towards sustainability and turn climate risk into a competitive edge in green value chains.
In its recently published Country Climate and Development Report, the World Bank said significant barriers – such as low research and development investment, workforce skills gaps and weak industry-academia collaboration risk limiting innovation – remained as Malaysia accelerates its national green transition.
“While Malaysia has introduced green policies and fiscal tools, domestic private sector investment remains cautious, and innovation ecosystems are still developing.
To drive this transformation further, Malaysia should also invest in sustainability-linked services and knowledge-based sectors,” the bank said in the report.
The World Bank noted that global demand for activities, backed by strong environmental, social, and governance (ESG) standards, is rising, and green finance, climate risk analytics, sustainable certification and environmental auditing are emerging as growth areas.
It added that Malaysia has a competitive edge in the ESG, thanks to its mature financial sector, digital infrastructure, and multilingual workforce.
“Building capabilities in these high-value services will diversify exports and embed sustainability across supply chains,” the World Bank said, adding that states like Penang and Selangor could become green industrial clusters, drawing sustainable investment and talent.
At the same time, the bank said rural and smaller states must be enabled to benefit from low-carbon growth, whether through green agro-processing, circular economy ventures, or eco-tourism.
It added that supporting small and medium enterprises, investing in regional innovation hubs, and empowering local governance would ensure Malaysia’s green transition is inclusive, resilient, and a foundation for shared prosperity.
The World Bank said climate change is expected to cost Malaysia up to 8.3% of its gross domestic product (GDP) by 2050 under the most pessimistic scenario, with larger losses possible.
It added that half of the predicted costs of climate change have already been realised in lower GDP figures, with crop losses, flooding, and heat-related productivity declines being major drivers of projected economic losses.
World Bank said agriculture alone could see up to 18% of its production value eroded by mid-century, and these cascading impacts would reverberate across society, affecting business continuity, employment, health outcomes, and the broader stability of the economy.
“If a one-in-20-year flood were to hit following an extended heatwave, GDP losses could exceed 20% in a single year, making climate resilience an economic imperative,” said the World Bank.
It added that adaptation measures could offset up to half of Malaysia’s projected climate-related economic losses, with tackling heat stress a key strategy.
The World Bank said raising air-conditioning coverage in workplaces from 42 to 75% by 2050 could significantly preserve labour productivity at a modest annual cost of US$40 million (RM158.8 million).
“However, broader action is needed. Climate-resilient land use plans could reduce flood and landslide risks, while climate-smart agriculture and integrated water resource management would help to sustain food and water security,” it added.
