Malaysia consults on sustainability reporting framework requirements

On 24 September 2024, Bursa Malaysia Securities Berhad, Malaysia’s Securities Commission, issued a public consultation paper seeking feedback on the proposed amendments to the Main Market listing requirements and ACE Market listing requirements relating to sustainability reporting requirements. 

Overview

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 (the ISSB Standards). The ISSB Standards are voluntary, but more than 20 jurisdictions have decided to use the ISSB Standards or are taking steps to introduce the standards in their own frameworks, including Japan, Singapore, Hong Kong, South Korea, Malaysia and China (for example, see here and here).

On 24 September 2024, Malaysia’s Advisory Committee on Sustainability Reporting (ACSR), through consultation with listed issuers, investors, assurance providers, ministries and agencies issued a National Sustainability Reporting Framework (the Framework). The Framework is intended to ensure “consistent, comparable and reliable sustainability information” in Malaysia. The Framework will be implemented through a phased and developmental approach, requiring listed issuers and large non-listed companies to use the ISSB Standards and requiring reasonable assurance on Scope 1 and Scope 2 greenhouse gas emissions.

The Framework adopts a climate-first approach through prioritising climate-related disclosures in support of Malaysia’s net-zero goals. This is achieved through companies being encouraged to provide clear and accurate data on their climate risks and opportunities to facilitate informed decision making.

The Framework will apply to Main Market listed issuers (i.e., established companies that have met the quality, size and operations requirements), Access, Certainty Efficiency (ACE) Market listed issuers (i.e., companies assessed by sponsors to have growth prospects) and large non-listed companies with annual revenues meeting or exceeding RM 2 billion (approx. USD 420 million) for two consecutive financial years preceding the current financial year.

Proposed key amendments

Bursa Malaysia Securities Berhad proposes the following key amendments:

1. Aligning the sustainability reporting framework under the listing rules with the ISSB Standards in accordance with the Framework. 
2. Encouraging shareholder participation in general meetings of listed issuers by mandating physical or hybrid meetings. 
3. Enhancing the accountability of advisers promoting listing applicants by publicly naming them in listed issuers’ documents for a specified duration. 

This blog focuses on the first key proposed amendment as it relates to the Framework’s sustainability reporting requirements. 

Bursa Malaysia Securities Berhad proposes to require listed issuers to prepare their sustainability statements according to the ISSB Standards and that the term “economic, environmental and social risks and opportunities” be replaced with “sustainability-related risks and opportunities” to align with the ISSB Standards. 

Bursa Malaysia Securities Berhad proposes to complement the proposed amendment above, by requiring the following:

• inclusion of prescribed common sustainability-related risks and opportunities under the listing requirements; 
• reporting data and performance targets for all indicators in the sustainability statement for the last three financial years on a rolling basis; 
• a statement indicating whether the sustainability statement has been internally reviewed by the listed issuer’s internal auditor or independent assurance performed; and 
• a summary of the data and performance targets in the sustainability statement presented in the prescribed format.

Bursa Malaysia Securities Berhad is also proposing that listed issuers disclose the percentage of employees and directors by ethnicity as an indicator for the common sustainability matter on diversity to broaden the quantitative measure of diversity within a listed issuer.

We set out in the table below the timing by which listed issuers must comply with the proposed amendments:

* Main Market listed issuers must also comply with the proposed diversity amendment in the sustainability statement in the annual report issued for FYE on or after 31 December 2025.

The above is in addition to the transition reliefs included in the Framework set out below. The ACSR will also provide programmes to support companies comply with the ISSB standards. 

Transition Relief

In efforts to ensure a smooth transition for companies to which the Framework applies, certain transition relief measures have been introduced. The transition relief measures focus on climate disclosures that would contribute most to their performance in the first instance, with other sustainability topics to be addressed further down the line. 

Below is a table which maps out the transition relief timetable:

** Group 1 refers to main market listed issuers with market capitalisation of RM2 billion and above. Group 2 means main market listed issuers (other than listed issuers in Group 1). 

*** Group 3 means ACE market listed issues and non-listed companies with an annual revenue of RM2 billion and above. 

Watch this space 

The Framework and amendments proposed by the Bursa Malaysia Securities Berhad are an important milestone given the Malaysian Securities Commission and the World Bank released a joint report in October 2024 on ESG reporting practices in Malaysia which found that whilst disclosure practices were generally good, most locally listed companies had gaps in their environmental indicators, particularly around climate change and biodiversity. Accordingly, such changes mentioned in this blog ensure that Malaysian companies effectively implement ESG disclosures into their reporting practices.

The ASCR’s public consultation (which closed for responses on 25 October 2024) signals a strong commitment by Malaysia to address climate risks, strengthen sustainability reporting and encourage increased transparency.

(Special thanks to Aisling O’Kane and Lucy Sheppard who contributed to this blog)