Large Malaysian companies have handed in their first reports under the National Sustainability Reporting Framework (NSRF), which began applying to Malaysia’s largest Main Market companies for reporting periods starting in 2025. Judging by the results, there is still quite a bit of homework to do.
A report by the Minority Shareholders Watch Group (MSWG) and Climate Governance Malaysia analysed the sustainability reports of 91 companies with combined market capitalisation of RM1.3 trillion (US$320 billion), and disclosed Scope 1-3 greenhouse gas emissions totalling 256 million tonnes of CO2.
Companies of this size and impact should set the standard. Credible, transparent reporting helps investors and the public judge whether they are “walking the talk”, and press for action where environmental regulation falls short. Yet, according to the report, the average disclosure score was just 54.6 per cent, with results ranging from 2 per cent to 83 per cent.
Translated to an academic grading scale, this means Malaysian companies got a C- at best, with many firms getting an F.
The report tested how a hypothetical carbon cost of RM100 (US$24) per tonne of reported emissions would affect the companies’ FY2025 profits. That price is well below the RM368-RM900 (US$90-US$220) benchmark for 2030 climate pathways. Even with incomplete Scope 3 reporting, costs would exceed 5 per cent of profit for 33 companies, 25 per cent for 15, and a full year’s earnings for 3.
The report also found that 96 per cent of companies identified climate risks and opportunities, but only 35.6 per cent disclosed their expected effects on financial performance and cash flows. Every company identified who was responsible for climate oversight. Only 33 per cent disclosed whether those responsible had considered the trade-offs involved.
The weakest scores were for metrics and targets. That raises a harder question: how would a business know its climate strategy is failing? If internal reports contain the same gaps, management could keep spending without knowing whether it is reducing the risks. Companies should explain how they track progress and respond when targets slip.
Useful reporting starts with answering those business questions. If management has not worked through how climate change could affect its factories, suppliers or customers, the reporting team will struggle to explain the implications to investors.
While it is easy to tell Malaysian companies to “just try harder”, reporting cannot simply be handed off to a consultant or handled through an interdepartmental email chain. It draws on the International Financial Reporting Standards (IFRS) S1 and S2, which ask companies to explain how sustainability risks and opportunities could affect their prospects. Answering those questions requires the people who run the business to take these five practical steps.
First, understand how climate change and the green transition will affect the business. Consider where the company has influence and what a credible transition plan would involve. There may be opportunities to reduce costs and dependence on volatile energy prices, alongside the risks.
Second, think beyond the next reporting year. Decisions made today can leave a business exposed for decades. A new facility in an area vulnerable to future flooding is an obvious example. Companies should test whether their plans still make sense under different climate conditions.
Third, bring finance into the discussion early. Investing in resilience or cleaner operations may be costly, but so is doing nothing. Quantify climate risks and show their financial impact on the future of the business. Shareholders need a reasonable explanation of the financial stakes, even where uncertainty prevents a precise estimate.
Fourth, make the difficult decisions. Some investments or divestments may hurt short-term earnings while putting the business on a more secure footing. Reporting should explain those choices and the compromises they involve.
Fifth, give an honest account of progress. Explain what has been achieved, where the business is falling behind and what remains uncertain. Progress needs to be measurable, verifiable and consistently reported, especially as assurance comes into effect.
Regulators have a part to play too. Malaysian reporting guidance already asks companies using additional reporting reliefs to explain their progress towards compliance. Perhaps it should be as explicit as Hong Kong’s exchange (HKEX) guidance about publishing work plans and timetables to close disclosure gaps or go a step further and make their publication mandatory. Investors could then check whether next year’s report will deliver the improvements promised today.
Our discussions with industry players suggest that some businesses have yet to begin the more fundamental conversation about how they will survive global warming. These conversations involve uncomfortable choices, but businesses must be willing to ask the awkward questions.
Initiating such a discussion requires knowledge of sustainability issues and the business, as well as effective leadership. Based on the NSRF results so far, Malaysian companies are falling short. For the sake of its shareholders and the Malaysian people, large companies should step up.
Srijith Kannan is Associate Professor I of Accounting and Pieter E. Stek is a Senior Lecturer of the Asia School of Business (ASB) based in Kuala Lumpur. The views expressed are solely those of the authors and do not represent the official position(s) of ASB or any affiliated institutions.
