Malaysia

YEAR IN REVIEW

(1 July 2024 to 30 June 2025)

Adoption of the ISSB Standards through the issuance of the National Sustainability Reporting Framework as the baseline sustainability disclosure standards for listed companies and large non-listed companies.
Implementation will be phased from 1 January 2025 and adopt a climate-first approach. A mandatory sustainability assurance framework is under consultation.
Requiring financial institutions to use established standards and taxonomies, and leverage certifications and third-party assurances, to verify customers’ disclosures to mitigate against greenwashing of their portfolios.
Developing a proposed carbon tax in response to the EU’s CBAM and mandatory circular economy tools including extended producer responsibility schemes.

Scroll down or click below for further information on each key theme.

PODCAST OVERVIEW

Please click on the podcast above for a snapshot of the three key themes of ESG reporting, transition planning and greenwashing risks in respect of Malaysia.

KEY CONTACTS

	Kelvin Loh Partner, Rahmat Lim & Partners
	Dzuhairi Jaafar Thani Partner, Rahmat Lim & Partners

A. ESG Reporting

1. Are there legal or regulatory requirements for companies to make ESG disclosures in your jurisdiction?

Yes.

2. What are the key legislative and regulatory sources for ESG disclosure requirements and to whom do they apply?

ESG disclosure requirements are primarily aimed at listed companies and financial institutions:

The Task Force on Climate-Related Financial Disclosures (TCFD) Application Guide for Malaysian Financial Institutions (TCFD Application Guide) issued by the Joint Committee on Climate Change (JC3)^[1] sets out Basic and Stretch recommendations for financial institutions (e.g., banks, insurers / takaful operators, asset managers / owners) in respect of disclosures on Governance, Strategy, Risk Management, Metrics and Targets.
The Main Market Listing Requirements, ACE Market Listing Requirements and Sustainability Reporting Guide (collectively, Sustainability Reporting Framework) issued by Bursa Malaysia Securities Berhad (Bursa Malaysia) sets out the sustainability reporting requirements to be disclosed in the Sustainability Statement (as defined below) of listed companies. The sustainability statement is a narrative statement disclosing the management of material economic, environmental and social risks and opportunities (EES) (Sustainability Statement) of listed companies in their annual reports.
The National Sustainability Reporting Framework (NSRF) issued by the Ministry of Finance of Malaysia addresses the use of the ISSB Standards, specifically IFRS S1 and IFRS S2, as the baseline sustainability disclosure standard for listed companies and non-listed companies with a consolidated group revenue of RM2 billion and above for two consecutive financial years (Large NLCos).

[1] Joint Committee on Climate Change members consist of Bank Negara Malaysia, Securities Commission Malaysia, Bursa Malaysia and 21 financial industry members.

3. Are the requirements mandatory or do they apply on a comply-or-explain basis?

The Climate Risk Management and Scenario Analysis (CRMSA) requires financial institutions to produce TCFD-aligned climate disclosures in line with the TCFD Application Guide, and such disclosures shall be published together with annual financial reports for financial years beginning on or after 1 January 2024.

Disclosures on the implementation of principles in relation to the governance, strategy, risk appetite and risk management of financial institutions are currently mandatory, while disclosures on the implementation of principles in relation to scenario analysis and metrics and targets, together with Basic and Stretch recommendations have taken effect for financial years beginning on or after 1 January 2024. In particular, disclosures in line with Basic recommendations are to be implemented by June 2024, and Stretch recommendations are to be implemented based on each financial institution’s overall climate risk exposure and/or complexity of operations.
The Sustainability Reporting Framework contains mandatory sustainability disclosures in relation to the EES of listed companies.
Adopting a climate-first approach, the NSRF will apply on a phased basis as follows:

1. for Main Market listed issuers with market capitalisation of RM2 billion and above (MMLCos above RM2 billion) – mandatory climate-related disclosures in annual reports for annual reporting periods beginning on or after 1 January 2025 and mandatory disclosures in line with the full adoption of IFRS S1 and IFRS S2 in annual reports for annual reporting periods beginning on or after 1 January 2027;
2. for Main Market listed issuers with market capitalisation below RM2 billion (MMLCos below RM2 billion) - mandatory climate-related disclosures in annual reports for annual reporting periods beginning on or after 1 January 2026 and mandatory disclosures in line with the full adoption of IFRS S1 and IFRS S2 in annual reports for annual reporting periods beginning on or after 1 January 2028; and
3. for ACE Market listed issuers and Large NLCos - mandatory climate-related disclosures in annual reports for annual reporting periods beginning on or after 1 January 2027 and mandatory disclosures in line with the full adoption of IFRS S1 and IFRS S2 in annual reports for annual reporting periods beginning on or after 1 January 2030.

Consequential amendments to the relevant legislations, rules and guidelines are expected to be undertaken to adopt the NSRF, including, among others, the Companies Act 2016, Capital Markets and Services Act 2007 and the Listing Requirements.

In March 2025, Bursa Malaysia launched the Centralised Sustainability Intelligence Platform, which is intended to complement the Exchange’s existing ESG Reporting Platform by, among others, streamlining standardised climate reporting.^[1]

[1] Bursa Malaysia - Centralised Sustainability Intelligence Platform

4. Which aspects of ESG do the requirements focus upon?

The TCFD Application Guide focuses on climate-related matters.

The Sustainability Reporting Framework and NSRF focus on economic, environmental and social aspects.

5. Are the disclosure requirements based on international standards? If so, which one(s)?

The climate-related disclosures under the TCFD Application Guide are aligned with the TCFD Recommendations developed by the Financial Stability Board.

The Sustainability Reporting Framework is not based on any specific international standards, but listed companies are encouraged to report in alignment with or with adherence to the NSRF prior to the NSRF’s phase-in application.

As mentioned, the NSRF addresses the use of the ISSB Standards as the baseline sustainability disclosure standard and is closely aligned with both IFRS S1 and S2 subject to certain transitional relief as outlined in A.3(c) and A.7.

6. How do the disclosure requirements approach materiality (e.g. single or double materiality)?

The climate-related disclosures required under the TCFD Application Guide and Sustainability Reporting Framework adopts a “single materiality” approach which is consistent with the TCFD Recommendations.

7. Are there requirements for the disclosure of GHG emissions? If so, please specify the scope (e.g. Scope 1, Scope 2 and/or Scope 3), to whom they apply and whether there are requirements on the measurement methodology.

The TCFD Application Guide sets out mandatory disclosures, in the form of Basic and Stretch Recommendations, which are to be complied with by financial institutions within different time periods. Scope 1, Scope 2 and limited Scope 3 emissions (i.e., business travel and employee commuting) disclosures are required pursuant to the Basic Recommendations under the TCFD Application Guide, while Stretch Recommendations include disclosures for all Scope 3 emissions.

Under the NSRF, MMLCos above RM2 billion are required to make mandatory disclosures on Scope 1, Scope 2 and limited Scope 3 emissions in the annual reports for the annual reporting periods beginning on or after 1 January 2025, with a requirement to disclose all Scope 3 GHG emissions for the annual reporting period beginning on or after 1 January 2028. MMLCos below RM2 billion are required to make mandatory disclosures on Scope 1, Scope 2 and limited Scope 3 emissions for the annual reporting periods beginning on or after 1 January 2026 with a requirement to disclose all Scope 3 GHG emissions for the annual reporting period beginning on or after 1 January 2029.

ACE Market listed companies and Large NLCos are required to make disclosures on Scope 1, Scope 2 and limited Scope 3 emissions for annual reporting periods beginning on or after 1 January 2027, with a requirement to disclose all Scope 3 GHG emissions for annual reporting periods beginning on or after 1 January 2030.

At this juncture, there are no requirements under the TCFD Application Guide or the Sustainability Reporting Framework on the measurement methodology. However, disclosures of, among other things, methodologies used to calculate emissions are required. The NSRF provides transition relief for the first two reporting periods for MMLCOs above RM2 billion and MMLCOs below RM2 billion and transition reliefs for the first three reporting periods for ACE Market Listed companies and Large NLCos for the use of GHG Protocol to calculate its respective GHG emissions.

8.Are there requirements to obtain independent assurance of any ESG disclosures? If so, what is the scope of such requirements? If not, are there plans to introduce such requirements?

There are no requirements under the TCFD Application Guide for climate-related disclosures of financial institutions to be subjected to an assurance process.

There are currently no requirements for the Sustainability Statements of listed companies to be subjected to an assurance process, but such practice is encouraged pursuant to the Sustainability Reporting Guide and the NSRF.

Under the NSRF, reasonable assurance on Scope 1 and Scope 2 GHG emissions are expected to be mandatory for (i) MMLCos above RM2 billion from annual reporting periods beginning on or after 1 January 2027; (ii) MMLCos below RM2 billion from annual reporting periods beginning on or after 1 January 2028; and (iii) ACE Market Listed companies and Large NLCos from annual reporting periods beginning on or after 1 January 2029.

The Advisory Committee on Sustainability Reporting (ACSR) had on 25 June 2025 issued a public consultation paper on the proposed issuance of a Framework for Sustainability Assurance (Sustainability Assurance Framework Consultation Paper). The Sustainability Assurance Framework Consultation Paper aims to seek feedback on the use and application of the IFRS S1 and IFRS S2 and to develop a sustainability assurance framework for Malaysia.

The Sustainability Assurance Framework Consultation Paper is currently seeking feedback on the adoption of the International Standard on Sustainability Assurance 5000, General Requirements for Sustainability Assurance Engagements (ISSA 5000) as the recognised sustainability assurance standard in Malaysia and the adoption of the International Standard on Quality Management 1 (ISQM 1) as the only recognised quality management standard to be complied with by all firms providing sustainability assurance services in Malaysia.

Given the difference in readiness and maturity of listed and non-listed companies, the Sustainability Assurance Framework Consultation Paper proposes for external mandatory assurance for (i) Scope 1 and Scope 2 GHG emissions; and (ii) IFRS S1 core contents (Governance, Strategy, Risk Management and Metrics and Targets) and Scope 3 GHG emissions, to be adopted by (a) MMLCos above RM2 billion for the annual reporting periods beginning on or after 1 January 2027 (in respect of Scope 1 and Scope 2 GHG emissions) and 1 January 2030 (in respect of IFRS S1 core contents and Scope 3 GHG emissions) respectively; (b) MMLCos below RM2 billion for the annual reporting periods beginning on or after 1 January 2028 (in respect of Scope 1 and Scope 2 GHG emissions) and 1 January 2031 (in respect of IFRS S1 core contents and Scope 3 GHG emissions) respectively; and (c) ACE Market listed companies and Large NLCos for the annual reporting periods beginning on or after 1 January 2029 (in respect of Scope 1 and Scope 2 GHG emissions) and 1 January 2033 (in respect of IFRS S1 core contents and Scope 3 GHG emissions) respectively.

The ACSR, via the Sustainability Assurance Framework Consultation Paper, is also seeking feedback on the adoption of accountants to act as sustainability assurance engagement leaders and the expansion of the role of the SC’s Audit Oversight Board to regulate sustainability assurance providers of applicable entities as well as to carry out enforcement actions in the event of significant non-compliances.

9. For companies not subject to mandatory or comply-or-explain ESG reporting, are voluntary ESG disclosures customary?

Based on our limited checks, some listed companies do reference international standards and frameworks, such as the GRI Standards, in their Sustainability Statements even though such alignment or adherence is not mandatory.

The Capital Markets Malaysia, in collaboration with the Department of Natural Resources, Environment and Climate Change, issued (in October 2023) the Simplified ESG Disclosure Guide for SMEs in Supply Chains which provides practical guidance and baseline exposures expected of SMEs in relation to ESG disclosure. The guide is currently voluntary.

10. Has your jurisdiction issued or adopted a taxonomy on sustainable activities? Is it mandatory and what is its scope of application?

The Climate Change and Principle-based Taxonomy (CCPT) issued on 30 April 2021 by the Central Bank of Malaysia (BNM) provides a taxonomy for the classification of economic activities against climate objectives and reporting of lending and investment activities in line with the CCPT by financial institutions. Although disclosures by financial institutions on the classification of their respective economic activities in line with the CCPT are not currently mandatory, financial institutions submitted the first report on their application of the CCPT in their classification of economic activities against climate objectives and reporting of lending and investment activities to BNM in August 2022.

The Principles-Based Sustainable and Responsible Investment Taxonomy (SRI Taxonomy) issued on 12 December 2022 by the Securities Commission Malaysia (SC) provides universal guiding principles for the classification of economic activities by all capital market users. The SRI Taxonomy is currently not mandatory.

The ASEAN Taxonomy for Sustainable Finance (ASEAN Taxonomy) Version 3 issued on 27 March 2024 by the ASEAN Taxonomy Board provides alignment on underlying principles and helps harmonise the classification of sustainable activities and assets across ASEAN. It does not have mandatory application. Whilst the first version laid out the broad framework of the ASEAN Taxonomy, the second version sets out, among other things, detailed methodologies for assessing economic activities and technical screening criteria for the first focus sector, the energy sector. Version 3 introduces technical screening criteria for two more focus sectors: transportation and storage, and construction and real estate. In December 2024, revisions were made to Version 3 which included, inter alia, clearly defining levels of recognition required to achieve Green tier for Technical Screening Criteria for construction and real estate.

11.Are there plans to adopt or incorporate any (other) international ESG reporting framework (e.g. the ISSB Standards and/or the TNFD)? If so, please give details.

Other than the NSRF (which addresses the use of the ISSB Standards), there are currently no other plans to adopt or incorporate any other international ESG reporting framework.

12. Other upcoming developments / direction of travel

The NSRF and the Sustainability Assurance Framework Consultation Paper contemplate shifting the existing voluntary approach on external assurance to a mandatory one.

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B. Transition Planning

1. Has your jurisdiction set decarbonisation targets and strategies?

Yes – Malaysia has reaffirmed its commitment to reduce carbon intensity by 45 percent by 2030 to achieve its goal of net zero carbon by 2050. To support this goal, the Malaysian government has launched the National Climate Change Policy (NCCP) 2.0 to consolidate key national initiatives such as the National Energy Transition Roadmap and the National Industrial Master Plan 2030. NCCP 2.0 aims to provide a comprehensive framework on climate governance and sets the foundation for the forthcoming Climate Change Act. A consultation paper on the proposed Climate Change Act has also been issued, with the relevant Bill expected to be tabled in Parliament in August 2025.

2. Are businesses subject to any mandatory carbon pricing or other “polluter pays” instruments (such as ETS, carbon taxes or EPR schemes)? If so, please give details. If not, are there plans to do so?

Environment (Reduction of Greenhouse Gases Emission) Ordinance, 2023

Under the Environment (Reduction of Greenhouse Gases Emission) Ordinance, 2023 (Ordinance), which came into effect on 1 March 2024, certain persons or business entities undertaking activities in the oil and gas sector, energy sector, and other economic sectors in Sarawak, as may be determined by the Sarawak State Executive Council (Majlis Mesyuarat Kerajaan Negeri Sarawak), are required to submit a carbon emission report to the Controller of Environmental Quality. Based on the carbon emission report, a carbon levy will be imposed on relevant entities exceeding the emission thresholds set by the Sarawak State Executive Council.

To promote sustainable forest management practices, the State of Sarawak has also recently imposed the following taxes through the Forests (Forest Carbon Activity) (Amendment) Rules, 2025: a Forest Ecosystem Fee of around 5%-7% of the value of traded carbon, and an annual land use tax for carbon trading based on the size of the licensed area of such land.

Proposed Carbon Tax (2026)

The Malaysian government recently announced their intention to introduce a national carbon tax aimed at the iron, steel and energy industry by 2026 in response to the European Union’s (EU) implementation of the CBAM. In alignment with the EU’s objectives, the proposed carbon tax would impose a levy on carbon-intensive industries as a means of incentivising emissions reductions across the Malaysian economy. Among the sectors that could fall under the purview of the carbon tax are those currently within the scope of EU’s CBAM, including but not limited to the iron and steel, aluminium, cement, fertilizer, and energy industries.

Bursa Carbon Exchange

A voluntary carbon market, the Bursa Carbon Exchange (BCX) was established by Bursa Malaysia^[1] and is backed by the Malaysian government, under the purview of the Ministry of Finance and the Ministry of Natural Resources, Environment and Climate Change in December 2022. This platform is the world's first Shariah-compliant voluntary carbon market, facilitating the trading of carbon credits from accredited nature-based and technology-based projects. The inaugural auction for the BCX was held on 16 March 2023.

The BCX has since expanded its offerings by introducing Renewable Energy Certificates (RECs). On 9^th September 2024, the BCX has successfully launched continuous trading for RECs, enhancing its existing auction-based capabilities by enabling off-market REC transactions on the platform.

Circular economy

In October 2024, a Circular Economy (CE) Policy for the Manufacturing Sector ^[2] was introduced to reform fossil-fuel based industrial models and promote green growth practices across the manufacturing value chain. The policy outlines key initiatives aimed at ensuring local producers take responsibility for the entire life cycle of their products, including: (a) mandating specific products (e.g. packaging and consumer goods) to contain minimum recycled or circular materials; (b) introducing mandatory EPR for manufacturers over a three to five-year timeframe in sectors such as electronics and packaging; and (c) developing a taxonomy on circular economy activities.

[1] Bursa Malaysia is an exchange holding company and one of the largest bourses in ASEAN.

[2] Circular Economy Policy Framework for the Manufacturing Sector in Malaysia

3. Are there mandatory requirements for companies to have in place and/or disclose climate-related transition plans? If so, please give details. If not, are there plans for such requirements?

Under Malaysian law, there are no mandatory statutory requirements for companies in Malaysia to have in place and/or disclose climate-related transition plans. However, Bursa Malaysia has introduced enhancements to the Main Market Listing Requirements and ACE Market Listing Requirements in the form of the Sustainability Reporting Framework, which will further be complemented by the requirements of the NSRF in the upcoming years, as set out in section A.2 above.

Under the Sustainability Reporting Framework, Bursa Malaysia mandates that Main Market-listed issuers integrate TCFD Recommendations into their sustainability reporting on climate-disclosures, which covers disclosures on governance, strategy, risk management and metrics and targets. In addition, ACE Market-listed issuers are required to disclose a basic transition plan towards a low-carbon economy. ^[1]

Under these enhanced requirements, listed issuers are required to prepare a Sustainability Statement in line with the ISSB standards as part of their annual report, which must include metrics and targets demonstrating the issuer’s performance against its Sustainability-Related Objectives over the past three financial years, as well as a declaration on whether the Statement has undergone independent assurance in accordance with recognised assurance standards. The NSRF will require disclosure of any climate transition plans a reporting entity may have in line with IFRS S2.

[1] Mandatory TCFD Reporting Requirements for Bursa Malaysia Listed Issuers

4. Are there mandatory requirements to set, meet and/or disclose climate-related targets? If so, please give details. If not, are there plans for such requirements?

There are no mandatory requirements set by the Malaysian Government.

However, as mentioned above, Bursa Malaysia has imposed the requirement on Main Market listed issuers to include climate change-related disclosures that are aligned with the TCFD Recommendations in their Sustainability Statements, and for ACE Market-listed issuers to disclose a basic transition plan towards a low-carbon economy.^[1] This will be further enhanced by the requirements of the NSRF in upcoming years, which will require the disclosure of any climate-related targets that a reporting entity has set or is required to meet by other laws in line with IFRS S2.

[1] Such requirement is applicable to Main Market listed issuers for its Sustainability Statements in annual reports issued for financial year ended on or after 31 December 2025.

5. Other upcoming developments / direction of travel

In Malaysia’s Budget 2025,^[1] the Malaysian government highlighted its aim to prioritise sustainability in its financial planning, which includes, the following initiatives:

allocation of an additional RM300 million to further support the National Energy Transition Roadmap aspiration;
the continuance of the widely successful Green Technology Financing Scheme (GTFS)^[2] through 2026 with a total allocation of RM1 billion. The scheme continues to target six priority sectors: Energy, Manufacturing, Transport, Building, Waste, and Water, offering a government guarantee of 60% to 80% on the green component cost financed by Participating Financial Institutions (PFIs) and a 1.5% rebate on annual interest/profit rate; and
an increase in the Ecological Fiscal transfer fund from RM200 million to RM250 million to support the State Government's efforts in conserving forests and wildlife.

[1] “Belanjawan 2025 Malaysia Madini: Budget 2025 Speech“ issued by the Ministry of Finance Malaysia.

[2] The GTFS is a scheme started over a decade ago by the Malaysian government aimed at advancing a green economy by providing essential funding for companies investing in green technologies.

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C. Greenwashing Risks

1. Are there any recent examples of legal proceedings, regulatory actions or investigations against or into greenwashing in your jurisdiction?

No.

2. Are there any laws or regulations specifically dealing with greenwashing?

No, however there is some guidance relevant to mitigating greenwashing risks (e.g., the SRI Taxonomy and the Guidance Note on Managing ESG Risks for Fund Management Companies issued by SC and the CCPT issued by BNM) applicable to capital markets players and financial institutions.

The Lodge and Launch Framework issued by the SC sets out clear requirements pertaining to the issuance of Sustainable and Responsible Investment (SRI) sukuk, ASEAN Green/ Social/ Sustainability bonds and sukuk, SRI-linked sukuk and ASEAN Sustainability-linked bonds and sukuk. Risks of greenwashing are therefore mitigated as the issuances of such bonds and sukuk are regulated by the SC. The Guidelines on SRI Funds also provide guidance on the disclosure and reporting requirements for SRI funds.

The Policy Document on Climate Risk Management and Scenario Analysis issued by BNM in March 2025 requires financial institutions to use established standards and taxonomies, as well as leverage certifications and third-party assurances, to verify that the disclosures made by customers comply with relevant standards, metrics and methodologies in order to mitigate the risks associated with greenwashing their portfolios. Financial institutions must also establish a board-approved policy on climate-related disclosures that promote credible as well as high-quality disclosures to mitigate the risks of greenwashing.

3. What are the likely grounds on which such proceedings, actions or investigations can be instigated?

The likely grounds include:

liability for false or misleading disclosures pursuant to securities laws and regulations (e.g., sustainability reporting requirements applicable to listed issuers);
misrepresentation claims; and
breaches of consumer protection, trade description and advertising laws.

4. Other upcoming developments / direction of travel

As mentioned, the NSRF will be implemented in phases, with phases for the use of the ISSB Standards to begin on or after (a) 1 January 2025 for MMLCos above RM2 billion; (b) 1 January 2026 for MMLCos below RM2 billion; and (c) 1 January 2027 for ACE Market listed issuers and Large NLCos. The NSRF implements the use of the ISSB Standards as baseline sustainability disclosure standards, as well as mandating external assurance for sustainability statements made by companies to avoid greenwashing.

The expansion of the ASEAN Taxonomy as mentioned in A.10 above should also assist with mitigating against greenwashing.

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