Climate Series 7: Extreme weather events and sea level rise are threatening commercial businesses across Malaysia

Insights

3 minutes

29 May 2026

Malaysia’s palm oil industry under pressure

  • Palm oil is a major pillar of Malaysia’s economy
    - Supplies a quarter of global palm oil4
    - 3% of GDP, 38% of agricultural output value5
  • The industry is facing new challenges across three areas our clients.
1: Physical climate impacts
Water stress has a strong impact on palm oil yields: droughts have been known to cause declines in palm fruit weights of up to 30%1, while floods and heavy rain can equally reduce yields. Scientific studies highlight that projected temperature increases due to climate change, if left unchecked could lead to a 41% decrease in production volumes, while anticipated sea-level rises could cause as much as a further 8% production decrease. 

How we can help you to meet these risks:

  • Build awareness of your exposure: physical risk modelling can support you in identifying which assets are at risk, e.g. from floods and drought, and assessing risk levels
  • Identify resilience measures to counteract the most severe risks
  • Parametric insurance for specific risks, e.g., flood, drought
2: Legislation changes and disclosure requirements

The palm oil industry has faced sustainability and social responsibility challenges – pressures are mounting to remain compliant with legislation

  • Malaysian government’s Malaysian Sustainable Palm Oil certification scheme has become mandatory in 2020
  • Main trading partners, especially the EU, are continually increasing demands for transparency and disclosure, e.g. in EUDR2 (EU Deforestation Regulation) coming into effect in December 2025. This suggests growing reporting burdens will be placed on the palm oil value chain.

How we can help you to meet these risks:

  • Develop understanding of what is being asked of you, and by when
  • We can support you in identifying and understanding mandatory requirements and peer performance and developing an approach across your business
3: Reputational pressures
Beyond legislative challenges, the impacts of the palm oil industry on nature, especially due to its links to deforestation have also given the palm oil4 industry a bad reputation, in some cases even leading to in consumer boycotts3. However, statements about actions taken to reduce the negative impacts of palm oil production may be subject to legal scrutiny. 

How we can help you to meet these risks:

  • Support you in developing a strategy and plan to reduce negative impacts associated with palm oil production
  • Ensure you communicate your vision and approach clearly and effectively, without opening yourself up to legal repercussions


 1Reuters, Hot, dry weather cuts palm oil yields in Malaysia's top producing state
2Council of the EU, EU deforestation law: Council and Parliament reach a deal on targeted revision
3The Guardian, Meet the people and businesses boycotting palm oil
4USDA, Production - Palm Oil
5FPRI, Palm Oil: Malaysian Economic Interests and Foreign Relations

Palm

How the Howden team can assist you

  • Help you understand your risks – both large scale and at asset level
  • Develop narrative-based scenarios for volatility events
  • Assess financial impacts from main perils
  • Find solutions for de-risking (technology overviews, mitigation actions, and their prioritisation)
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