Malaysian companies must report Scope 3 emissions starting 2027

National accounting and corporate legislation will be amended to account for new sustainability reporting requirements, with large listed companies the first group that must make climate-related disclosures by 2025.

Malaysia city
Companies in Malaysia will be required to implement global sustainability reporitng standards under the recently launched National Sustainability Reporting Framework. Image: Pok Rie/ Pexels

Malaysian companies, starting with the largest publicly listed ones, will have to report the greenhouse gas emissions of their entire value chain starting from 2027, according to the country’s new National Sustainability Reporting Framework (NSRF).

The NSRF, published on Tuesday, set out rules for the phased adoption of climate and sustainability reporting standards in Malaysia using the International Sustainability Standards Board (ISSB) framework.

Listed companies on Bursa Malaysia with a market capitalisation of 2 billion ringgit (US$481 million) and above must begin using the standards in 2025. Other companies listed on the main market of the exchange must follow suit in 2026, while smaller listed companies and large non-listed companies must start using ISSB standards for sustainability reporting in 2027.

By 2027, the largest listed companies must also report their Scope 3 emissions, which are all indirect emissions from a company’s value chain that are not included in Scope 1 (direct emissions) and Scope 2 (emissions from electricity and other forms of energy). Other large listed companies must make these disclosures by 2028.

However, the smaller and non-listed companies have until 2030 to begin making Scope 3 disclosures.

Malaysia joins more than 20 jurisdictions, collectively representing 55 per cent of the global economy, which have taken steps towards using ISSB standards, said deputy minister of finance Amir Hamzah Azizan at the launch of the reporting framework.

Published in June 2023, the ISSB standards are meant to standardise climate and sustainability-related disclosures globally. Standards previously required by Bursa Malaysia such as the Task Foroce on Climate-related Financial Disclcosures have been absorbed into the ISSB. 

The launch comes just a day after Singapore’s stock market regulator announced a similar emissions reporting timeline for its listed companies. However, the regulator removed a proposed 2026 deadline for Scope 3 emissions reporting after finding that issuers are not ready to comply.

Malaysia’s own public consultation in February this year had also found an urgent need for capacity building among local reporting companies. To address this gap, the country’s Advisory Committee on Sustainability (ACSR) launched an initiative on Tuesday titled Policy, Assumptions, Calculators and Education (Pace), which will offer capacity building programmes, resources and toolkits to help reporting companies comply with the new requirements.

Malaysia ISSB adoption

Malaysia’s National Sustainability Reporting Framework (NSRF) lays out a phased timeline for companies to adopt globally recognised sustainability reporting standards. Image: National Sustainability Reporting Framework/ Ministry of Finance, Malaysia

“Setting the dates and requirements is the easy part, what we are now focusing on is how to help you comply with these new requirements,” said Mohammad Faiz Azmi, chairman of the Securities Commission of Malaysia. “Considerable efforts will be made by the Securities Commission and Bursa Malaysia, as well as other members of the ACSR to build up the capabilities in Malaysia.”

About 130 large listed companies are involved in the first stage of reporting, said Faiz. Although these companies make up only about 30 per cent of all listed companies, they represent more than 80 per cent of total market capitalisation.

“It’s wonderful to see the Pace initiatives in terms of the training and…best practice guidelines that are going to be available,” said Yasemin Techmen Stubbe, group head of sustainability of Malaysia-listed IHH Healthcare. “Sometimes it’s good to see others have done [the sustainability reporting]; it gives me more encouragement to do so,” she said at the NSRF launch.

Legal updates required

The NSRF currently does not include specific penalties for companies which do not comply with the reporting requirements, but such rules will be gradually introduced via amendments to national accounting and company-related legislation, said Julian Mahmud Hashim, chief regulatory officer of Bursa Malaysia.

This includes proposed amendments to Malaysia’s Financial Reporting Act 1997, Companies Act 2016 and Bursa Malaysia’s listing requirements, among other relevant laws and standards. In line with the NSRF launch, Bursa Malaysia published a consultation paper seeking public feedback on proposed changes to its listing requirements, which are in line with NSRF.

Meanwhile, the role of Malaysian Accounting Standards Board will be expanded to include the responsibility of setting national sustainability disclosure standards.

The process of updating existing legislation to cover the new sustainability reporting framework will take about two years, Julian told Eco-Business.

In the meantime, Malaysia will be adopting “proportionality mechanisms” and transition reliefs, introduced by ISSB, to support companies that are facing difficulties in implementation due to a lack of resources, the quality of external data or difficulty in securing the necessary expertise.

“This is meant to ease companies [into] using the standards based on the varying level of preparedness,” said Nadia Zainuddin, general manager and head of corporate governance at the Securities Commission of Malaysia.

The ACSR will also look into the interoperability of the new ISSB requirements with other established sustainability reporting standards such as the Global Reporting Initiative (GRI) Standards, which is one of the earliest and most commonly used reporting frameworks, she said. A bridging module is being developed to help accountants understand how to use the GRI standards alongside those by ISSB, said Nadia.

The needs of small and medium-sized enterprises (SMEs) will also be considered as part of the ACSR’s capacity building initiative. Such companies typically find sustainability reporting financially straining and time-consuming, acknowledged Rohaya Mohammad Yusof, chief investment officer of the Employees Provident Fund, Malaysia’s largest pension fund.

“But we must continue to advocate in terms of integrating sustainability into the operations and day-to-day growth plans [of SMEs] – it is important not just to meet the expectations of investors like us, but also to future proof their existence,” she said.

Rohaya expressed confidence that with the support of Malaysia’s regulators and investors, SMEs will be able to adopt sustainability reporting standards as key players in the local value chain. “Looking at the timeline [for sustainability reporting], the ACSR is giving a very good grace period for companies to comply,” said Rohaya.

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