PETALING JAYA: The Securities Commission’s (SC) plan to ask major listed companies on forward-looking mitigation plans for El Nino next year is putting the spotlight on a growing business risk.
The economic cost of prolonged heat, drought and recurring haze has prompted some corporates to relook at earnings forecasts, as well as shift trajectories for future plans.
A Reuters report said SC chairman Datuk Mohammad Faiz Azmi had planned to write to major companies regarding this, then follow up with discussions next year to assess whether their preparations had worked.
The initiative is intended to test whether companies’ climate-risk disclosures translate into practical contingency measures, particularly as businesses have historically relied on Malaysia’s relatively abundant water resources and may be underprepared for prolonged drought.
Experts have warned of a potentially powerful El Nino, which in turn, could intensify dry conditions across South-East Asia, raising the risk of forest fires, transboundary haze and disruptions to economic activity.
For businesses, the threat extends beyond environmental compliance.
The haze can reduce worker productivity, disrupt outdoor operations, raise healthcare expenses and discourage consumers from travelling, shopping and dining out.
This, inadvertently, has impacted stocks across different sectors.
The aviation industry has been singled out for being directly exposed to deteriorating visibility, which could cause flight delays, cancellations or diversions.
Last month, Hong Leong Investment Bank (HLIB) Research said companies like AirAsia Group Bhd could face near-term operational and demand risks if the haze persists.
The company’s share price has seen a steady downturn since it hit a high in January this year at RM2.27. At the time of writing, the aviation group was trading at 44 sen.
The plantation sector faces a more complicated outlook because El Nino can affect both production and commodity prices.
Prolonged dry weather can disrupt harvesting, fertiliser application and estate maintenance, while water stress and reduced rainfall may eventually affect fresh fruit bunch (FFB) yields.
The impact on oil palm production can also emerge with a lag, meaning the full consequences of adverse weather may only become obvious months later.
In its report titled Malaysia 3Q26 Advance GDP Estimate, Apex Securities said it will remain cautious on overall growth momentum. Part of the reason includes agriculture output remaining volatile amid potential El Nino disruptions to palm oil yields.
“Furthermore, growth moderation could become more pronounced in the fourth quarter of 2026 due to the high base from last year’s strong performance, with lingering haze conditions posing downside risks to domestic activities,” it said.
Similarly, CIMB Securities said one of the key lessons to be learned from 2015 and 2016 during the El Nino was the progression of the cycle and how countries began feeling the impact in phases.
“Indonesia experienced severe rainfall stress first in 2015, followed by drought in Malaysia in early 2016, while the resulting production decline and inventory drawdown emerged with a lag. We see the potential for a similar two-stage weather risk in 2026 and 2027. Indonesia is already experiencing the first phase of rainfall stress, with the biological impact potentially weighing on FFB production in forecast 2027, while rainfall in Malaysia could weaken if El Nino persists into the first half of 2027,” it said.
Some companies are already showing signs of pressure – SD Guthrie Bhd
’s share price has fallen since early September as its plantations have become more vulnerable.
Nevertheless, going by what happened during the Covid-19 pandemic, not all sectors are set to suffer. Just like how glovemakers raked in the big bucks, the haze has also had some positive impact on sectors like healthcare and utilities.
Healthcare players like KPJ Healthcare Bhd are the more obvious ones, particularly since it has direct exposure to Sarawak through three specialist hospitals.
Other more subtle ones include Tenaga Nasional Bhd, which could benefit from people using less solar power because of the lack of sunlight.
The insurance industry, however, is in sort of a limbo. MBSB Research said the haze could bring further complications to a sector that was already facing many headwinds.
“Risks include elevated reinsurance and claim costs, higher difficulty in passing on costs to consumers from fears of regulatory backlash, and uncertainty on whether medical haze cases are one-off or recurring,” the research firm said.
Meanwhile, BIMB Securities deputy head of research, Ben Shane, told StarBiz he did not see a meaningful direct impact on local companies. He reckoned the haze could spur some outbound tourism as Malaysians seek relief from the haze. This could reverse some of the pressures for companies like AirAsia Group.
As for commodities, Shane said the bulk of the earnings risk lies with weather-sensitive sectors like agriculture. “We expect to see plantation yields drop across the board. However, weather forecasts suggest Indonesian planters will be hit much harder. In turn, Malaysian planters should be net beneficiaries with the higher CPO prices offsetting the production downside. In short, we prefer Malaysia-centric planters over those with high acreage exposure in Indonesia. Additionally, planters operating in Indonesia face heightened regulatory risk.”
He also said El Nino was likely to peak in the next month or so, and moderate at the beginning of 2027.
Ultimately, the extent of the economic fallout will depend on how severe and prolonged the El Nino episode becomes, as well as companies’ ability to manage operational disruptions and rising costs.
For investors, the key will be to distinguish temporary market reactions from structural risks to profitability.
The SC’s initiative is a strong reminder that climate awareness is something that businesses will need to reevaluate to build resilience.
