
A Business Guide to ESG Regulations in Malaysia – What Companies Need to Know
Since 2016, ESG reporting has been compulsory for listed companies in Malaysia, but what started as a regulatory mandate has quickly evolved into an investor priority. Investors are prioritising companies that actively reduce their environmental footprint, foster positive relationships with stakeholders, and adopt sustainable governance practices. In a market where sustainability is key, embracing ESG principles is no longer optional for businesses looking to attract investment and secure long-term success. Business leaders, decision makers and compliance officers must all, therefore, understand the importance of ESG regulation in Malaysia as well as the sustainability and compliance benefits that come with ESG adoption in order to ensure long-term success of their organisations.
1. Understanding ESG in Malaysia: Key Regulations and Frameworks
When it comes to sustainability reporting in Malaysia, there are several frameworks that are currently in use. These include:
Bursa Malaysia Sustainability Reporting
This framework provides key reporting requirements for listed companies, with a clearly outlined timeline and penalties for firms that fail to comply. Having been made compulsory in 2016 for all listed companies to utilise a reporting framework for ESG, Bursa Malaysia’s reporting requirements are especially stringent with the aim of encouraging more investment and increased listed companies’ resilience. This framework lays out mandatory factors that listed companies must report against to ensure a standardised approach and the adoption of best international practices when it comes to ESG-related disclosures.
Malaysia’s Green Taxonomy
This voluntary ESG reporting framework provides lays out principles for responsible investment and for global reporting initiatives as well as providing standard boards for sustainability accounting. With its taskforce specifically for climate-related disclosures, there is a new and upcoming framework that will be launched imminently in Malaysia with key environmental regulations that will implement standards for pollution control a well as policies for renewable energies and energy efficiency.
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Navigating Malaysia’s Green Taxonomy: A Pathway to Sustainable Development
2. Preparing for ESG Reporting and Compliance
Companies must be ready for the various requirements that come with sustainability reporting in Malaysia, including the standardisation of reports and the various ESG factors that must be reported on. Gathering, measuring and reporting data effectively is crucial but there are some significant challenges when it comes to ensuring ESG compliance. For a start, there are limited ESG frameworks, and with limited guidance that is industry specific as well as extensive inconsistencies across the frameworks’ criteria, it isn’t hard to see why there are so many hurdles for small and mid-sized enterprises when they need to collect data while also managing their costs.
3. Outlining ESG Regulation in Malaysia
ESG regulation in Malaysia comprises some key laws and rules.
Environment
Environmental laws such as the Environmental Quality Act 1974 (EQA 1974). This core law requires licences to be obtain by certain premises for emissions impacting the water, soil or air. Industries like waste treatment, rubber production and oil palm processing are covered by this act, with penalties including imprisonment or fines for non-compliance.
Social
There are also social regulations in place such as the Consumer Protection Act of 1999 which aims to protect the consumer from any unfair practice such as the sale of unsafe products or deceptive business conduct. Other legal acts such as the Employment Act 1955 and Occupational Safety and Health Act 1994 govern the rights of employees and ensure their safety in the workplace. Meanwhile, the 2022 Anti-Sexual Harassment Act provides a clear legal framework within which sexual harassment can be addressed.
Corporate
When it comes to corporate governance regulations, the Companies Act of 2016 enforces the duties of the director and guarantees rights for the shareholder with an emphasis on corporate accountability and transparency. Failure to comply could result in imprisonment or fines. There is also the 2009 Malaysian Anti-Corruption Commission Act which addresses corruption within corporations and the Whistleblower Protection Act of 2010 which offers protection to any individual reporting illegal or unethical practices within an organisation.
Foreign Laws
Outside of the country itself, there are laws in overseas nations that impact Malaysian companies significantly. Laws like the Withhold and Release Order system in the USA and the due diligence laws in force in Germany mean that Malaysian organisations have to comply with requirements and standards with regard to forced labour and environmental sustainability, particularly when exporting goods.
Foreign Investment
Any Malaysian subsidiary of a foreign company, and especially organisations from the European Union, must be adherent to the ESG standards of the parent company.
4. Practical Steps for Businesses to Achieve ESG Compliance
Any business seeking to achieve compliance to ESG regulation in Malaysia must take practical steps to ensure they are on track to achieve their targets. The first step is to set up an ESG taskforce that establishes relevant responsibilities and roles within the company and that sets up collaboration with auditors and consultants that specialise in ESG from outside the organisation.
The next step is to integrate ESG principles into the company’s long-term business strategy by aligning the brand’ sustainability goals with its ongoing business objectives. Companies must also work on training their staff and building capacity in ESG principles while also focusing on technology and data management, leveraging the latest software solutions to ensure the most accurate data collection across the firm. Companies must also remember to monitor their ESG performance over time by using fully integrated systems for speed, easy and convenience.
5. Financial Incentives and Support
While implementing ESG initiatives can prove costly for businesses, there are several financial incentives available that offer support to companies that are in most need of help. These include government grants and incentives that provide access to green financing, subsidies and tax benefits as well as partnerships that can be formed with financial institutions that facilitate ESG-based investments.
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The Path Forward: Ensuring ESG Compliance and Sustainability
Adhering to ESG Regulation in Malaysia is crucial for long-term business success. By embracing sustainability reporting in Malaysia, companies can enhance their resilience, attract investment, and ensure regulatory compliance. Proactive ESG management has a vital part to play in ensuring long-term competitiveness, sustainability and compliance for organisations across Malaysia.
Ensure long-term compliance, competitiveness, and sustainability through proactive ESG management. Consult with Elite Asia to understand better about ESG regulation and sustainability reporting in Malaysia, start your ESG initiatives, or optimise your ESG reporting. Our ESG experts are on hand to help with an effective ESG solution that is designed to support Malaysian companies in achieving their ESG goals.