As Malaysia grapples with flood-related losses, World Bank warns of ‘rising economic cost of inaction’ on climate change

Among the worst hit regions so far are Johor, Sarawak and Sabah, with hundreds of families still displaced in Sabah. The state has already recorded three major floods so far this year, while in Sarawak, the coastal town of Bintulu recorded up to 900 millimeters of rainfall within a single day during its ‘great flood’ in February, more than double its typical daily average of between 100mm and 450mm daily.

These floods, which occurred during the Northeast Monsoon season that typically stretches from November to March, have caused eight fatalities since November and cost individual traders more than RM20,000 (US$4,728) each in flood-related damage. Officials and government agencies have already announced aid for affected businesses and households, including RM11.2 million (US$2.7 million) promised in March by the government of Johor.

A 2024 joint report by the World Bank and Bank Negara Malaysia, the country’s central bank, last year estimated that floods could cost up to 4.1 per cent of economic output by 2030, with smaller firms being the most vulnerable.

“What the report shows is that if you don’t think about (climate) projections and start to plan to reduce those costs today, you might face huge costs (in the future),” said Marco Larizza, senior public sector specialist in governance at the World Bank.

In 2024, Malaysia saw an increase in annual flood-related losses climb to RM933.4 million (US$218.3 million) or 0.05 per cent of GDP, up from RM755.4 million (US$176.7 million) in 2023, according to the Department of Statistics Malaysia. In 2021, Peninsular Malaysia experienced one of its worst floods in decades, which killed more than 50 people and displaced over 70,000 at the height of the disaster.

In line with the projections of most climate models, the 2024 World Bank-BNM study projected that higher and more frequent rainfall would expose the country to greater flood risks.

But in order for such climate projections to be useful in building climate resilience, the economic costs of their risks must be quantified and integrated into the national budgetary process, Larizza told Eco-Business.

“What some countries do, and what Malaysia doesn’t do at the moment is (to) integrate climate projections and risks into their adaptation plans.”

For instance, France’s third national adaptation plan, announced in March, anticipates Earth’s temperature to rise by as much as 4°C by 2100; the plan aims to help vulnerable communities adapt to a future of more wildfires and coastal erosion. The country has budgeted 1.6 billion euros (US$1.82 billion) to execute the plan.

But across Southeast Asia, only Cambodia, Thailand and the Philippines have submitted their national adaptation plans (NAPs) to the United Nations. Malaysia is in the process of preparing its first NAP, with a 2026 target for completion.

A recent report by the Asia Investor Group on Climate Change (AIGCC) showed that without holistic NAPs plans, Asia will struggle to attract private capital for climate-related projects.

One reason why many countries including Malaysia have not integrated climate risks into their fiscal risk assessments is due to a lack of technical expertise and resources, as building climate-related economic models can be costly. This is why the World Bank recommends greater transparency when it comes to flood hazards and risks, so that academicians and researchers can produce that analysis.

Larizza also stressed that countries should not wait on foreign aid to prepare for future climate scenarios – instead, countries should ensure that they can develop resilience using their own resources.

“There are many things you can do to attract money from abroad (to build resilience) but I think we have to change the narrative,” said Larizza. “It’s not asking how much money you need (for new infrastructure), but how much money you will have to spend if you don’t fix your infrastructure today.”

Instead, countries like Malaysia must account for the “economic costs of inaction”, said Larizza.

“It’s not about climate change versus economic growth…if you invest in protecting your natural environment and adapting to climate change, you are reducing economic costs and generating benefits which are good for growth. It’s a mutually reinforcing agenda.”

Ensuring fiscal resilience

Malaysia should also focus on building resilience regardless of what other countries do or say, he said when asked about the potential impact of the United States pulling out of the Paris Agreement for the second time earlier this year.

Policymakers should think instead about how to better allocate their own fiscal budgets and institutions to adapt to climate risks, so that their climate plans are resilient in the face of external shocks.

If Malaysia wants to be successful at addressing climate adaptation and mitigation, it needs to look at how its entire state machinery must be upgraded, instead of merely establishing long-term targets or looking for financing options, Larizza said.

“You need a public financial management system that tracks climate expenditures,” said Larizza. Although Malaysia has begun looking at how its public spending contributes to the United Nations’ Sustainable Development Goals (SDGs), the government does not currently systematically track climate-related expenditures. Climate action is Goal 13 of the 17 SDGs.

“If you do [climate-tagging of public expenditure], you are more likely to assign more resources to areas that contribute to adaptation,” he said.

The World Bank is currently in the process of developing its first climate change institutional assessment for Malaysia, which will be published later this year. The assessment, which the organisation has already conducted in several other countries globally, is meant to offer a comprehensive view of the government’s institutional readiness to address climate impacts.

“Climate adaptation or mitigation policies are so complex that to be effective in adopting, implementing and managing them, you need strong institutions,” said Larizza.

Two policemen search for victims during the Johor floods in March 2025. Image: Johor Foodie/ Facebook

Enshrining public consultation in climate law

One of the assessment’s key areas of review is Malaysia’s upcoming climate change bill, which is currently still under development by the Ministry of Natural Resources and Environmental Sustainability (NRES). Minister Nik Nazmi Nik Ahmad has said that he aims to table the bill in Parliament by mid-year.

NRES published a consultation paper on the draft of the climate change bill in October 2024, which civil society has said needs more protections for local and Indigenous consent for climate projects that may affect them.

When comparing the country’s consultation paper to existing climate change laws in other countries, Larizza said that there are two areas in which Malaysia has done well: setting national targets and establishing a new regulatory entity which would develop a national climate change data repository. The repository is especially important to centralise data, information and coordination.

However, there are also two areas for improvement: institutionalising a long-term commitment to net zero and a platform for engagement with external actors, such as citizens and businesses.

“If you want to be credible and serious about climate action, the law (must) include a long-term commitment, because that gives you direction and an idea of what should be prioritised,” said Larizza. He added that the long-term commitment must be made more explicit and rules should be established to ensure that future governments do not reverse this target, said Larizza.

Public consultation on climate action should also be enshrined within the climate change bill, instead of only being conducted as part of the bill’s preparations, he said. For instance, the upcoming bill could require that before future regulations are tabled or approved, consultation and input from a certain number of stakeholders is required.

“It is important to establish mechanisms through which firms and citizens can be engaged on a regular basis as the law is implemented,” said Larizza. “Evidence shows that, for example, when businesses are informed about new regulations that the government is passing….they are more likely to comply.”

Other countries have also established long-term, institutional mechanisms through which firms or citizens can stay informed about the government’s climate actions and provide input or engage in dialogue on them.

For instance, World Bank data shows that countries such as Pakistan and Colombia have developed platforms which encourage youths, especially from rural areas, to participate in the design of the countries’ Nationally Determined Contributions on climate change. Mexico, Argentina and Costa Rica have created permanent platforms for citizen participation in climate policy.

“You would want to pass regulations that (businesses and people) actually comply with – you don’t want to have regulations that nobody enforces or complies with,” said Larizza.