A Business Guide to ESG Requirements in Malaysia – Malaysia mandates ESG reporting for listed companies, with the National Sustainability Reporting Framework (NSRF) taking effect from 2025 for firms with a market capitalisation of RM2 billion and above. The NSRF aligns with the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards, established by the International Sustainability Standards Board (ISSB), focusing on transparency in sustainability risks, climate-related disclosures, and greenhouse gas emissions. Bursa Malaysia ESG Reporting Platform supports compliance by requiring sustainability statements that detail key ESG metrics. These Malaysian ESG regulations aim to enhance corporate governance, attract investment, and support Malaysia’s sustainable development goals.
For those looking to explore the landscape of ESG and environmental sustainability within Malaysia; including recent progress, ongoing challenges, and national initiatives; you may find our detailed resource, A Deep Dive into ESG and Environmental Sustainability in Malaysia: Progress, Challenges, and Initiatives, especially insightful.
1. Understanding ESG Requirements in Malaysia: Key ESG Regulations and Frameworks
In Malaysia, several sustainability reporting frameworks are currently in use. These include:
Bursa Malaysia Sustainability Reporting
This framework provides key reporting requirements for listed companies, with a clearly outlined timeline and penalties for firms that fail to comply. In 2016, it became compulsory for all listed companies to utilise a reporting framework for ESG Malaysia. Bursa Malaysia’s reporting requirements are especially stringent, encouraging more investment and increasing the resilience of listed companies. This framework lays out mandatory factors that listed companies must report against to ensure a standardised approach and the adoption of best international practices regarding ESG-related disclosures.
Keeping up with regulatory updates is key for compliance. If you need the latest on mandatory ESG reporting standards and new disclosure frameworks, see our article, Bursa Malaysia’s Updates on Sustainability Reporting Framework for Listed Companies.
Malaysia’s Green Taxonomy
This voluntary ESG reporting framework provides principles for responsible investment and global reporting initiatives and standards for sustainability accounting and reporting. With its task force specifically focused on climate-related disclosures, a new and upcoming framework will be launched imminently in Malaysia. It will incorporate key environmental regulations that will implement standards for pollution control and policies for renewable energy and energy efficiency.
2. Preparing for ESG Reporting and Compliance
Companies must be prepared for the various requirements associated with sustainability reporting in Malaysia, including the standardisation of reports and the various ESG factors that must be reported. Gathering, measuring and reporting data effectively is crucial, but there are significant challenges when ensuring ESG compliance in Malaysia. To start, there are limited ESG frameworks, and with guidance that is both industry-specific and extensive, inconsistencies across the frameworks’ criteria are inevitable. Therefore, it is unsurprising that small and mid-sized enterprises face numerous hurdles when collecting data while managing costs.
Companies striving to improve ESG performance and seek higher rating scores can benefit from practical tips in How to Get a Good ESG Rating for Listed Companies in Malaysia, which covers reporting best practices and strategies for success.
3. Outlining ESG Requirements in Malaysia
ESG requirements in Malaysia are comprised of some key laws and rules.
Environment
Environmental laws such as the Environmental Quality Act 1974 (EQA 1974). This core law requires licences to be obtained for certain premises that emit substances impacting the water, soil, or air. Industries such as waste treatment, rubber production, and oil palm processing are covered by this act, with penalties including imprisonment or fines for non-compliance.
Social
Social regulations also exist, such as the Consumer Protection Act of 1999, which aims to protect consumers from unfair practices, including the sale of unsafe products or deceptive business conduct. Other legal acts, such as the Employment Act 1955 and the Occupational Safety and Health Act 1994, govern employees’ rights and ensure their workplace safety. Meanwhile, the 2022 Anti-Sexual Harassment Act provides a clear legal framework within which sexual harassment can be addressed.
Corporate
Regarding corporate governance regulations, the Companies Act of 2016 enforces the duties of directors and guarantees shareholder rights, emphasising corporate accountability and transparency. Failure to comply could result in imprisonment or fines. The 2009 Malaysian Anti-Corruption Commission Act addresses corruption within corporations, and the Whistleblower Protection Act of 2010 offers protection to any individual reporting illegal or unethical practices within an organisation.
Foreign Laws
Outside the country itself, laws in overseas nations significantly impact Malaysian companies. Laws such as the Withhold and Release Order system in the USA and the due diligence laws in force in Germany require Malaysian organisations to comply with requirements and standards regarding forced labour and environmental sustainability, particularly when exporting goods.
Foreign Investment
Any Malaysian subsidiary of a foreign company, especially those from the European Union, must adhere to the ESG standards of its parent company.
To better understand Malaysian and global market trends shaping ESG practices; particularly the growing impact of investors, read the analysis in Rising ESG Investing Trends and Opportunities in Malaysia.
4. Practical Steps for Businesses to Achieve ESG Compliance in Malaysia
Any business seeking to achieve compliance with ESG regulations in Malaysia must take practical steps to ensure it is on track to meet its targets. The first step is establishing an ESG task force that defines relevant responsibilities and roles within the company and collaborates with external auditors and consultants specialising in ESG.
For hands-on advice and leadership insights from industry experts, you’ll want to check out Navigating ESG Excellence: Insights from AsiaESG’s 2024 ESG Seminar, which distills key recommendations for setting up your ESG task force and integrating sustainability into your business model.
The next step is to integrate ESG principles into the company’s long-term business strategy by aligning the brand’s sustainability goals with its ongoing business objectives. Companies must also focus on training their staff and building capacity in ESG principles while prioritising technology and data management. This involves leveraging the latest software solutions to ensure the most accurate data collection across the firm. Companies must also remember to monitor their ESG performance over time by using fully integrated systems for speed, ease, and convenience.
If you’re making a case to management for training, or need support in securing investment to build ESG capabilities, see How to Convince Your Boss to Invest in ESG Training; and Get It Funded for clear, actionable advice.
5. Financial Incentives and Support
While implementing ESG initiatives can prove costly for businesses, several financial incentives are available to support companies that need assistance the most. These include government grants and incentives that provide access to green financing, subsidies and tax benefits, and partnerships that can be formed with financial institutions to facilitate ESG-based investments.
Understanding certification frameworks and available government support can significantly lower barriers to ESG adoption. Our article, Malaysia’s ESG Certification Landscape: Standards and Certification Processes, outlines certification steps, incentives, and funding options for Malaysian businesses of any size.
The Path Forward: Ensuring ESG Compliance and Sustainability
Adhering to ESG Regulations in Malaysia is crucial for long-term business success. By embracing sustainability reporting, companies can enhance their resilience, attract investment, and ensure compliance with relevant regulations. Proactive ESG management is vital in ensuring long-term competitiveness, sustainability, and compliance for organisations across Malaysia.
Ensure long-term compliance, competitiveness, and sustainability through proactive ESG management. Consult with AsiaESG to better understand regulations and sustainability reporting in Malaysia, initiate ESG initiatives, or optimise your ESG reporting. Our ESG experts are available to help with an effective ESG solution designed to help Malaysian companies achieve their ESG certification goals.
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