SHAPING THE IMPLEMENTATION OF SUSTAINABILITY DISCLOSURE REQUIREMENTS IN MALAYSIA - By Dr Rory Sullivan and Robert Black

SHAPING THE IMPLEMENTATION OF SUSTAINABILITY DISCLOSURE REQUIREMENTS IN MALAYSIA

Dr Rory Sullivan and Robert Black

In September 2024, Malaysia’s Advisory Committee on Sustainability Reporting (ACSR) launched the National Sustainability Reporting Framework (NSRF). The NSRF explains how Malaysia will use the IFRS Sustainability Disclosure Standards issued by the International Sustainability Standards Board (ISSB), specifically the IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures as the baseline sustainability disclosure standards for companies in Malaysia.

To inform the implementation of the NSRF and to provide a baseline of reporting practice in Malaysia, the Securities Commission Malaysia (SC) and the World Bank – supported by Chronos Sustainability – conducted an assessment of ESG reporting practices in Malaysia. The assessment, conducted between July and December 2023, involved a review of the ESG disclosure practices of a representative sample of 90 companies listed on Bursa Malaysia, a review of the ESG disclosure practices and processes of Malaysia's largest four asset owners, and interviews with relevant stakeholders (companies, investors, regulators).

Overall, the research findings – presented in the report, ESG Disclosure Assessment of Malaysia’s Listed Companies and Recommendations for Policy Development – showed that:

·       Most of the companies reviewed provided reasonably good disclosures on their overall approach to managing sustainability issues. For example, about two-thirds reported on material sustainability issues, and most reported extensively on their ESG policies, including their sustainability, governance, and management actions to address ESG issues. However, reporting was weaker on specific climate and environmental-related indicators, in particular in relation to biodiversity.

·       Larger companies provide significantly better disclosures than smaller companies, with a noticeable drop in the scope and quality of reporting for those companies outside the top-50 companies on the Main Market of Bursa Malaysia.

·       The primary driver of corporate ESG reporting in Malaysia has been compliance with regulation, with FTSE4Good also identified as an important driver for reporting.

·       While the four asset owners provided relatively little information on their approach to sustainability-related issues, they were all working to strengthen their ESG practices and processes and expected to increase the amount of information they provide on sustainability-related issues over time.

Based on the research, the report offered a series of suggestions to the Securities Commission Malaysia on how it might enhance ESG reporting regulation and practices in Malaysia. These included suggestions that the Securities Commission:

·        Actively support the new National Sustainability Reporting Framework (NSRF).

·       Encourage companies to report on their sustainability performance.

·       Encourage Malaysia’s asset owners to be explicit and transparent in their ESG-related reporting demands of companies.

 

Our Reflections

This project shows the value of structured, baseline assessments as inputs to the policy process.

Such assessments allow policymakers to understand how well target companies are positioned to respond to new reporting obligations, and the strengths and weaknesses of current reporting practice. In turn, this allows policymakers to make informed decisions on the scope of reporting obligations, on how such reporting obligations might be introduced, whether there is a need for staggered or staged implementation, and what support is needed to ensure the effective implementation of the reporting requirements.

 

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The report, ESG Disclosure Assessment of Malaysia’s Listed Companies and Recommendations for Policy Development is available at: https://www.sc.com.my/resources/publications-and-research/esg-disclosure-assessment.

The Securities Commission Malaysia press release can be found at: https://www.sc.com.my/resources/media/media-release/esg-disclosure-assessment-report-sets-baseline-for-reporting-practices

ArticleLaura Cooper