IOI Group: Climate Change Action Initiative (CCAi)

Nature-based Solutions	Engineered Solutions	Supply Chain Management
●No Deforestation, No New Planting on Peat, No Social Exploitation (“NDPE”)	●Technology & Innovation	●Supplier Awareness & Capacity Building
●Reforestation, Rehabilitation & Protection of Conservation Areas	●Renewable Energy	●Climate-related Procurement Standards & Principles
●Enhance Biodiversity & Ecosystem	●7Rs of Circularity	●Efficient Green Supplier Selection Process

The management of Climate Change Action initiative (CCAi) within IOI are embedded within the organisation through:

Board Sustainability Committee (BSC) on behalf of the Board, shall have oversight of the sustainable development responsibilities within IOI and support the Board in setting high level direction and strategic focus on sustainable business models within IOI.
CCAi-related key performance index (KPI) inclusion for the GMD and its top management as reported in the ASR.
IOI Group Sustainability Steering Committee oversees and supports CCAi-related strategies, programmes and initiatives.
The Group Head of Sustainability and each sustainability units of the business divisions will undertake and oversee the implementation and monitoring of CCAi-related performance at the operations level.
IOI Climate Change Action (CCA) Financial Disclosure Committee quantifies climate-related risks and tracks financial investments to reduce our greenhouse gas emissions and achieve Net Zero.
Group’s Enterprise Risk Management (ERM) framework is used to assess sustainability-related risks and financial impacts towards the company business via a double materiality assessment.

To enable IOI to develop resilient strategies and financial plans in a more holistic way, a group-wide quantitative climate-related risks assessment had been conducted in 2021 (refer to ASR 2021 & 2022 for details). These risk assessments enabled IOI to make climate impact valuations which is in alignment with TCFD recommendations.

IOI Group’s strategy to combat climate change is developed around the following commitments:

To reduce our climate change impact by committing to achieve Net Zero by 2040.

To promote climate action plans and practices through continuous innovation, improving operational efficiency and support actions throughout the operations.

To increase IOI’s climate resilience through the use of climate-related scenario analysis in climate-related risk mitigation, adaptation and opportunity assessments and incorporating circular economy practices in our operations.

To further enable IOI to strategise in a more holistic way in responding to the potential climate risks, IOI conducted a quantitative group-wide climate change assessment forecasting climate scenarios for climate impact valuation.

Short-Term Target

(Achieved)

Achieved 40% reduction in Scope 1 and Scope 2 GHG emissions intensity by 2025 against the baseline year of 2015

Mid-Term Target

Achieve carbon neutral for Scope 1 and Scope 2 by 2030

Long-Term Target

Achieve Net Zero emissions for Scope 1, Scope 2 and Scope 3 by 2040

IOI is currently on track to meet our mid-term target in 2030. We will continue to reduce GHG emissions by leveraging on our nature-based and engineered solutions. This includes enhancing rehabilitation, tree planting in our conservation areas and installing more methane capture facilities.

Driving Climate Solutions:
Our Continuous Path to Lower Emissions

Group successfully achieved 42% GHG emissions reduction, ahead of its short-term target of 40% reduction by 2025

As one of the founding members of the Roundtable on Sustainable Palm Oil (RSPO), IOI Group recognises the importance of environmental protection to safeguard the future of our planet. Climate change is one of the biggest threats to our planet and we are committed to monitor and reduce our potential contributions to greenhouse gas (GHG) emissions. All our GHG calculations are aligned to the GHG Protocol methodology via RSPO PalmGHG for IOI Plantation and ISO14064 for IOI Refinery and Oleochemical.

Division’s Performance for GHG Intensity Reduction - Short Term Target

Plantation GHG Intensity
(tCO2e/MT CPO)

The GHG intensity has reduced significantly compared to previous years due to the inclusion of sequestration for 26,297 ha of palm trees aged over 25 years and repair of the two methane capture facilities. Additionally, our upcoming solar farm projects at our Plantation division as a renewable and alternative source of energy from fossil fuel, will also support further reduction in emissions.

Refinery GHG Intensity
(tCO2e/MT Product)

The division consisting of IOI Edible Oils and IOI Pan-Century Edible Oils has been consistently exceeding the target of achieving 34% GHG reductions by 2025. The division continues to reduce its emissions through automation, reducing power consumption and improving efficiency. For instance, IOI Edible Oils have achieved significant reductions in their emissions this year by reducing power consumption through implementing low-carbon initiatives and innovative solutions. These include upgrading infrastructure and equipment for higher efficiency, adopting process modifications and innovations, enhancing energy efficiency, embracing digitalisation and automation, reducing waste through the 7Rs concept, and utilising renewable biomass energy.

Oleochemical GHG Intensity
(tCO2e/MT Product)

Oleochemical emissions have increased 10% from our baseline in FY2024 due to higher volumes of value-added oleochemical derivatives as opposed to basic oleochemicals. The commissioning of the new and higher efficiency production plant at IOI Acidchem has however slightly reduced emission intensity over the last financial year. We are actively seeking ways to reduce our emissions by increasing efficiency, such as plans for another co-generation plant set up at our IOI Oleochemical Prai site and future solar panel projects.

Steps to Reduce GHG Emissions

Sustainable Cultivation and Processing

Green Energy and Waste Management

Methane Capture Facilities

Continuous Improvements

IOI Commitment to SBTi-FLAG – Net Zero by 2040

In line with our CCAi, IOI has formalised our commitment to the Science Based Target initiative in the Forest, Land and Agriculture sector (SBTi FLAG) on 6th March 2023. A formal announcement of IOI’s commitment to SBTi-FLAG was made during our inaugural Panel Discussion on IOI’s Pathway to Net-Zero on 21st March 2023.

We are currently at the second stage of SBTi FLAG target setting: to develop and submit reduction targets for validation. Our commitment progress towards the SBTi is showcased in the SBTi Target Dashboard.

IOI has conducted a quantitative group-wide climate-related transition and physical risks assessment modelling using different climate scenarios (i.e., RCP 2.6, RCP 4.5, RCP 8.5) until 2050.

Climate Related Risk and Opportunities

The climate-related transition and physical risks analysed are in alignment with the Task Force on Climate-Related Financial Disclosures (TCFD) and are based upon IOI’s specific sourced data as well as data from well-known international climate organisations and other relevant third-parties.

Internal Carbon Pricing

IOI uses Internal Carbon Pricing (ICP) as a risk mitigation tool to prepare for climate related risk events such as resource availability, supply chain disruption, etc., and for planning decarbonising projects to mitigate our GHG emissions as we transition to a low-carbon economy. IOI has established an ICP shadow price which considers the effects of future regulations and cost related to all scopes of GHG emissions for the investments in our CCAi to mitigate GHG emissions across our operations and supply chains. The ICP was set for Plantations at RM 60/MT CO2e and Resource-based manufacturing at RM 80/MT CO2e for Malaysia and EUR 30/MT CO2e for our operating sites in Germany, respectively. Information on our financial investments regarding our decarbonisation activities are available in page 155 of Financial Section of our AR 2023.

Our Transition Risk

Transition Risk	Timeframe	Impact	Opportunities
POLICY AND LEGAL
International environmental related regulations and compliance costs such as imposition of carbon tax or pricing	Short to medium-term	Potential trade restrictions, penalties, or fines Increased cost of doing business from GHG emissions due to higher compliance cost	Reduce fossil fuel dependency through use of renewables while also utilising energy efficient processes to move towards a low-carbon economy Continued implementation of best practices and emission reduction technologies to reduce likelihood of incurring fines/penalties
TECHNOLOGY
Alternative products from innovation that are deemed more climate-friendly Increasing costs associated with outdated energy intensive systems	Medium to long-term	Products that are not climate friendly may not be competitive Higher capital expenditure required for investments into decarbonisation	Innovating our products to be climate-friendly by adopting circular economy practices Upgrading outdated processes and machinery may lower operating costs and increase profit margins
MARKET
Growing demand of low-carbon products	Short to medium-term	Loss of market share and impacting bottom line	Increasing production of low-carbon products may increase profit and the company’s competitive advantage and brand recognition
REPUTATION
Increased scrutiny on sustainability performance of palm oil industry players	Short to medium-term	Increased negative perceptions of the company, impacting shareholder and consumer confidence	Transparent strategy, risk identification and management reduces the risk of climate litigation and increases shareholder and consumer confidence Brand recognition as a climate-friendly business

Our Physical Risk

Physical Risk Exposure for Operations

Footnote: Physical risks resulting from climate change to the operating units were quantitatively assessed by using climate modelling datasets and relevant hazard models based on different severity of climate change scenarios until 2050.

Type of Physical Risk	Risks	Opportunities
Acute	IOI facilities and landholdings are located at areas that have low or stable acute risks so that operational disruption due to extreme weather event is low	Exploration in technology and innovation to prevent facility inundation, diversification of products and climate-resistant materials.
Chronic	A number of facilities and landholdings are expected to be exposed to heatwave and water stress. Few of the facilities and landholdings that are located close to the coast are expected to have risk of sea level rise.	To explore alternative water source and water retention facilities which will increase operational resilience as well as reduce operational costs in the long run. Mitigation plan to address the risk of sea level rising can be put in place.

While climate change present significant risk to all the companies at different magnitude, they also create significant opportunity and competitive advantage for companies that are able to recognise those as part of the risks and subsequently explore mitigation and adaptation solutions. Below are the mitigation and adaptation solutions for the identified transition and physical risks in IOI operations:

Transition Risks	Project Impacts	Mitigation Solutions
Carbon pricing	IOI's carbon pricing risk exposure for financial year 2050 range from USD144 million to USD591 million under low to high carbon price scenarios	Continual adoption and innovation in low carbon technologies to reduce emissions Enhance supply chain engagement for Scope 3 emission reductions Implementation of internal carbon pricing (IOI Plantation Division = RM60/MT CO₂e; Resource-based manufacturing divisions = RM80/MT CO₂e for Malaysian and EUR 30/MT CO₂e for Germany operations) to drive decarbonisation efforts

Physical Risks	Risk Trend	Impacted Regions	Mitigation	Adaptation
Heatwave	Increasing	Malaysia Indonesia	Ensuring facilities were equipped with adequate ventilation equipment Ensuring proper water management of peatlands and planted areas	Monitoring worker productivity and considering adjustments to suitable working hours
Water stress	Increasing	Peninsular Malaysia	Increase the amount of water recycled and reused in manufacturing operations Implementing smart water management systems to better manage and control water consumption	Developing a water stress resistant oil palm variety through research Ensuring cover crops are maintained to keep soil moist
Sea level rise	Stable	Peninsular Malaysia Indonesia	Installed water gates in estates to prevent flooding Ensuring proper installation and maintenance of drainage systems and canals for irrigation purposes Installing sea walls and storm surge barriers to protect key facilities from flood	Elevating the foundation or relocation of critical machinery

Climate Change Action Initiative

Driving Nature Positive Impacts

IOI’s Pathway to
Net Zero by 2040

Driving Nature Positive Impacts

Our Governance

Strategy

Risk Management