As Malaysia prepares to adopt the latest sustainability reporting standards by the International Sustainability Standards Board (ISSB), companies appear to be most worried about lacking the capacity to meet these new global disclosure standards.
The country’s Advisory Committee on Sustainability Reporting (ACSR), led by Securities Commission Malaysia (SC) and comprising various financial regulators, began its public consultation on 15 February to secure feedback on its proposed timeline and relief for the adoption of ISSB standards by Malaysian companies.
At a recent webinar hosted by the ACSR, some 600 preparers and stakeholders attended to seek clarity on the consultation paper, Eco-Business learned in an interview with the committee’s chairman.
“One of the more common questions was about capacity building,” said Datuk Kamarudin Hashim, ACSR chairman and managing director at SC.
The kind of capacity companies lack, however, varies across sectors and company size, he said. Bigger publicly listed companies, especially those that are exposed to international markets and already subject to climate-related disclosure requirements, appear more focused on trying to align their current reporting practices with the ISSB standards. Smaller companies, however, may still need support to grasp the basics of sustainability reporting.
About 1,400 Malaysian firms – comprising some 1,000 listed companies and around 400 private companies with revenue ofRM2 billion (US$424 million) and above – are subject to the new disclosure requirements, said Kamarudin.
The ACSR in its consultation paper proposed that companies listed on the main market of Malaysia’s stock exchange, Bursa Malaysia, adopt the ISSB’s climate disclosure standards, the IFRS S2, by December 2025. Companies on the exchange’s smaller ACE market and large non-listed companies must comply by the end of 2027.
The adoption of the general sustainability reporting standards, IFRS S1, will be mandatory for those companies the following year, that is 2026 and 2028, respectively.
Malaysia is among several countries in Asia Pacific holding a public consultation on the adoption of the ISSB standards this year, following the standards body’s release of its global disclosure standards in June last year. The countries are free to decide on how and when to implement the standards. Earlier this month, Singapore’s regulator began its own consultation to adopt both ISSB standards by 2025. Australia’s treasury has also sought feedback for its draft legislation to adopt the standards.
Meanwhile, Hong Kong’s market regulator, which proposed in April last year to adopt the ISSB’s final climate standard beginning 1 January 2024, announced that it would extend its deadline for companies to report by a year to give issuers more time to familiarise themselves with the new standards.
Malaysia’s government can support companies in making climate-related disclosures by ensuring that they have access to relevant public data, said Manohar Johnson, assurance and sustainability partner at advisory firm PwC Malaysia. Image: PwC Malaysia
While business stakeholders have asked the ACSR for a longer consultation period to provide feedback (the consultation was meant to end on 21 March) it has not seen any challenges to the proposed timeline, said Kamarudin. “We have not [yet] had any response indicating that preparers need any more time beyond the schedule in the consultation paper,” he said.
Manohar Johnson, assurance and sustainability partner at advisory firm PwC Malaysia offers a potential explanation for this: unlike financial reporting, growing awareness of climate change is a key driver in adopting sustainability-related disclosures sooner rather than later.
“There is a sense of urgency in fighting the devastating effects of global warming,” he told Eco-Business, referencing conversations he has had about implementing sustainability disclosures with industry peers. The government’s commitment to net-zero emissions by 2050 as part of its Nationally Determined Contribution (NDC) under the Paris agreement, has also pressured companies into decarbonising their supply chains.
Malaysia’s largest companies have already begun making climate-related disclosures. In 2022, Bursa Malaysia mandated that all Main Market-listed companies must make disclosures aligned with the Task Force on Climate-related Disclosure (TCFD) by 2025. All listed companies have been required to produce annual sustainability reports from December 2023 onwards, but companies are free to choose which standards to base their disclosures on.
However, Manohar observed that many have found it challenging to collate the necessary data, given that this is the first time that companies have had to report against new mandatory metrics. “Some of these companies may have collated such data in the past but maybe not with as much rigour as is currently needed to meet current disclosure standards,” he said.
Similar challenges have been observed across the industry. “Based on our engagements with our clients, we do observe a talent gap and limited capacity within organisations [to meet upcoming sustainability reporting requirements],” said Megat Iskandar Shah, partner at financial services consultancy Ernst & Young PLT.
He told Eco-Business that this includes some companies requiring existing departments to take on the additional role of sustainability reporting, as well as limited human resources being allocated to reporting within sustainability teams. “This varies across sectors, companies, and regional factors like maturity in sustainability practices, awareness, training, and institutional support,” Megat added.
Technical support
Several initiatives that could help companies meet the new reporting requirements include comprehensive technical guidance, which could take the form of sustainability reporting guidelines, and training programmes for current or new employees, said Megat. “It is crucial to acknowledge that sustainability literacy should permeate all departments in companies, extending beyond the sustainability department alone,” he said. Collaboration between companies, assurance providers and academic institutions could also facilitate reporting processes, he added.
Guidelines, training programmes and collaborations can help Malaysian companies better prepare to adopt new sustainability resporting standards, said Megat Iskandar Shah, partner at financial services advisory firm Ernst & Young PLT. Image: Ernst & Young Consulting Sdn Bhd
Meanwhile, the government could support reporting companies by ensuring that they have access to the relevant data needed to make general sustainability and climate related disclosures, said Manohar. A property company, for example, might need to secure information from the relevant land office or water management agency to disclose whether their land banks overlap with 100-year flood zones.
“These are figures that a government agency or department might have, but for companies to commission their own assessments, it could be quite expensive. Some of this national data needs to be made available so that companies can report accordingly,” Manohar said.
Another potential source of support is government incentives or resources, said Megat. Singapore recently announced that it would provide funding support of up to 30 per cent for large companies that are preparing to comply with ISSB standards, and defray 70 per cent of costs for small and medium enterprises (SMEs).
Given the Malaysian government’s current focus on fiscal consolidation, there are currently no plans to offer such financial support to local reporting companies, said Kamaruddin. The ACSR is, however, working towards establishing capacity building programmes that address the varied needs Malaysian companies.
“Prior to [drafting] the consultation paper, we met with a consultative group comprising several public listed companies, assurance providers, investors and other stakeholders. From there, we could gauge the level of understanding [towards the ISSB standards], so that when we do the capacity building, we know what to focus on,” he said.
While discussions are still ongoing to determine the scope and structure of these programmes, there are plans to adapt it to the readiness of the various companies and sectors involved, Kamaruddin added. He said that the ACSR would draw on the technical expertise of the ISSB, which has already delivered a technical briefing for regulators and members of government.
“We’ve started off with a regulatory-led approach, but I don’t think that will be enough when it comes to formulating the implementation framework for ISSB. Regulatory agencies can form the core, but we still need a lot of input from stakeholders,” said Kamarudin.
