Malaysia consults on adopting mandatory ISSB sustainability disclosure standards

On 15 February 2024, Malaysia’s Advisory Committee on Sustainability Reporting (ACSR) published a public consultation paper seeking market feedback from investors, rating agencies, interested organisations and companies on the approach and timing for adoption of the mandatory sustainability disclosure standards issued by the International Sustainability Standards Board (ISSB).  

The consultation period commences on 15 February 2024 and will end on 21 March 2024. Set out below is a summary of the key issues currently open for consultation. 

In a nutshell – under the ACSR’s proposed approach, Main Market listed issuers (i.e., established companies that have met the quality, size and operations requirements) will be required to fully adopt the ISSB climate disclosure standards for financial year end (FYE) 31 December 2027. Access, Certainty Efficiency (ACE) Market listed issuers (i.e., companies assessed by sponsors to have growth prospects) and large non-listed companies with annual revenue of RM 2 billion (approx. USD417 million) and above will follow suit by adopting the ISSB standards for FYE 31 December 2029. This proposed approach aligns with the approach taken by several countries in the APAC region, who are proposing to adopt the ISSB standards and making climate and sustainability disclosure mandatory. 

Background 

In June 2023, the ISSB published the final versions of the first two global sustainability disclosure standards – IFRS S1 on General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 on Climate-related Disclosure (see our previous blog post). 

The ISSB global standards are voluntary, but several countries, including the UK, Canada, Brazil, Brunei, Myanmar, Nigeria, Kenya, Japan, South Korea and Vietnam have said they plan to adopt the ISSB standards into their national regimes. In the Asia region:

• in April 2023, the Hong Kong Stock Exchange published a consultation paper seeking market feedback on proposals to essentially upgrade the current “comply or explain” requirement to a mandatory climate-related disclosure requirement for listed issuers in Hong Kong SAR and align with the ISSB climate disclosure standards (see our previous blog post); and 
• in August 2023, the Singapore Sustainability Reporting Advisory Committee published a consultation paper seeking market feedback on a proposal to mandate listed issuers to report climate-related disclosures in line with the ISSB climate disclosure standards starting from financial year 2025 (see our previous blog post). 

In addition to Hong Kong and Singapore, the Philippines and Taiwan have also progressed to post-consultation stages. 

In November 2023, the IFRS Foundation published the ISSB Adoption Strategy to assist jurisdictions in adopting the ISSB standards. The IFRS Foundation recommends that jurisdictions should ideally implement IFRS S1 and IFRS S2 concurrently, but for jurisdictions focusing on climate action, they can adopt IFRS S2 first. 

Sustainability reporting requirements in Malaysia

The ACSR, chaired by the Malaysian Securities Commission, was formed in May 2023 with the endorsement of the Ministry of Finance to assess implementing the ISSB standards, specifically IFRS S1 and IFRS S2, and identify a sustainability assurance framework. The ACSR comprises representatives from the Central Bank of Malaysia, Bursa Malaysia Berhad (Malaysia’s stock exchange), Companies Commission of Malaysia, Audit Oversight Board and Financial Reporting Foundation. 

Malaysia’s sustainability reporting requirements currently apply to Main Market listed issuers, ACE Market listed issuers and financial institutions as follows: 

• Main Market listed issuers are currently required to provide Task Force on Climate-related Financial Disclosures (TCFD)-aligned climate-related disclosures commencing FYE 31 December 2025; 
• ACE Market listed issuers are currently required to disclose a basic transition plan to a low-carbon economy commencing FYE 31 December 2026; 
• financial institutions are currently required to produce TCFD-aligned climate-related disclosure for financial year beginning on or after 1 January 2024; and 
• sustainability reporting is voluntary for non-listed companies.  

IFRS S1 and IFRS S2 adoption approach

We set out in the table below the current proposed timing for the adoption of IFRS S1 and IFRS S2 in Malaysia.

** This includes companies with annual revenue of RM 2 billion (approx. USD417 million) and above.

It is expected that the Companies Act 2016 and the Main Market Listing Requirements and ACE Market Listing Requirements of Bursa Malaysia Berhad will be amended to reflect the reporting requirements.  

Transition relief

IFRS S1 and IFRS S2 include transition reliefs for certain requirements to provide more time for certain companies to implement the requirements. The ACSR is seeking input through its consultation questions on adopting the transition reliefs provided by the ISSB and providing potential additional reliefs to enable companies to comply with the IFRS S1 and IFRS S2 requirements. 

External assurance framework

The ACSR is also seeking feedback through its consultation questions on implementing a mandatory external assurance framework, such that companies will be required to obtain external limited assurance for greenhouse gas emissions metrics two years after the adoption of IFRS S2. Mandatory external assurance enhances trust and confidence for investors in the reliability of sustainability information disclosed by companies. 

ISAE 3000 (Revised) (Assurance Engagements other than Audits or Reviews of Historical Financial Information) and the International Organisation for Standardisation are the current recognised assurance standards by Bursa Malaysia. In August 2023, the International Auditing and Assurance Standards Board (IAASB) introduced a draft of ISSA 5000 (General Requirements for Sustainability Assurance Engagements), which expands on ISAE 3000, and this is set to become the industry benchmark sustainability assurance standard. The final version of ISSA 5000 is expected to be issued by the end of 2024. 

What’s next?

The consultation is open for responses until 21 March 2024 and responses can be submitted here. 

The ASCR’s public consultation signals a strong commitment by Malaysia to address climate risks and encourage increased transparency and sustainable business practices.  

(Special thanks to Aisling O’Kane for her contribution to this blog)