KUALA LUMPUR (April 8): Malaysia is committed to continuing taking climate action, assisting businesses in environmental, social, and governance (ESG) disclosures, and adopting sustainability reporting, said speakers at the first day of the National Climate Governance Summit (NCGS) held in Sasana Kijang on Monday (April 7).

In fact, Malaysia joined the international forum for climate action, Climate Club, as recently as in March, to demonstrate its commitment to global decarbonisation efforts, said Minister of Natural Resources and Environmental Sustainability Nik Nazmi Nik Ahmad.

“We want to communicate very well that Malaysia does not want to be left behind when it comes to climate diplomacy,” said the minister during his fireside chat session.

The NCGS is organised by Climate Governance Malaysia, in collaboration with the Asia Investor Group on Climate Change and the Institutional Investors Council Malaysia.

Nik Nazmi highlighted the progress that Malaysia has made in the climate front in the past two years, including updating the National Climate Change Policy last year, and submitting the Biennial Transparency Report to the United Nations Framework Convention on Climate Change.

More is to be expected in the coming months, including the unveiling of the Nationally-Determined Contribution Roadmap and Long-term Low Emissions Development Strategy.

The two key documents outlining Malaysia’s path towards net zero emissions by 2050 was endorsed by the Cabinet in February, said the minister, and will be launched this month.

Another much awaited policy is the Climate Change Bill, which the minister plans to table this year, following engagements with state governments and other stakeholders.

“Next year, we hope to complete our National Adaptation Plan. This is very critical because while the Climate Change Bill will cover both mitigation and adaptation, a lot of it will be focused on mitigation,” said Nik Nazmi, adding the Malaysia must be ready to manage climate change impacts, such as floods and heat waves.

Meanwhile, the ministry is collaborating with the Ministry of Finance to ensure the domestic emissions trading system can function properly with the carbon tax, which is expected to be introduced by 2026.

On the other hand, private sector players are expected to improve their sustainability reporting and disclose their actions to mitigate climate change and manage related risks.

Much was discussed by the speakers about the National Sustainability Reporting Framework (NSRF) that was released last year, which compelled public-listed companies and large non-listed companies to prepare reports according to the International Sustainability Standards Board’s (ISSB) IFRS S1 and S2 standards.

Small and medium enterprises (SMEs) are exempt from this requirement, but may be asked by their customers, who are public-listed companies or large non-listed companies, to submit certain information as part of their Scope 3 emissions accounting.

Datuk Nor Azimah Abdul Aziz, chief executive officer of Companies Commission Malaysia (SSM), revealed that the agency is streamlining the NSRF with reporting expectations for SMEs, as a member of the Advisory Committee on Sustainability Reporting.

“The SSM is undertaking a study to assess gaps within the existing business review report and propose amendments to the Companies Act that will encourage all types of companies to report on non-financial aspects, including matters involving environmental considerations as part of the
director’s report, in addition to mandatory financial disclosures,” said Nor Azimah.

“Although the business review report is voluntary for all types of companies, SSM believes even small actions can lead to impactful changes, by encouraging all types of business entities to adopt ESG considerations in their day-to-day operations, and thereafter disclose their ESG practices, in the form of business review reports to be lodged with the registrar of companies.”

This is important, she added, as SMEs comprise 97% of the 697,000 active companies in the SSM registry.

To help businesses improve their reporting, the Securities Commission Malaysia (SC) has launched the PACE programme under the NSRF, and is engaging with businesses to understand their pain points, revealed Datuk Mohammad Faiz Azmi, executive chairman of the SC, during his presentation.

The regulator is funding a programme to train 100 auditors to prepare reports aligned with the ISSB standards, and has launched courses to help sustainability officers and accountants understand the reporting requirements.

“This quarter, we’re organising or requesting trade organisations to arrange a meeting with us to understand what problems are they encountering. One [that] I’ve heard is ‘can you ask Tenaga (Nasional Bhd)(KL:TENAGA) to put the bills online for three years?’ So, we’re talking to Tenaga about that, and we will extend that to other utilities, because how can you collect the data if it is not available?” said Mohammad Faiz.

He added that the SC is engaging with chief sustainability officers to set up their own body, and potentially consider a minimum standard for education or code of conduct for the practitioners.

Transition finance was another topic brought up by the speakers as an important area for Malaysian businesses to focus on. This is meant to assist companies, even those in hard-to-abate or high emission sectors like oil and gas, to invest in greener alternatives and lower their emissions.

Mohammad Faiz highlighted that Malaysia’s Joint Committee on Climate Change is now developing a transition finance framework, and the Asean Capital Markets Forum, currently chaired by the SC, released the second version of the Asean Transition Finance Guidance last October. The Asean
Taxonomy Board, meanwhile, is working on the fourth version of the Asean Taxonomy for Sustainable Finance.

Hazman Hilmi Sallahuddin, chief investment officer of Kumpulan Wang Persaraan (KWAP), said the pension fund has pledged to invest at least RM20 billion in transition assets.

“We do believe that abrupt change can be damaging, and transition is the way forward. We are at 50% of that target,” said Hazman. KWAP’s latest tagline is “purpose beyond returns,” he added, “to remind us as a long-term investor that although our fiduciary duty is to get the returns for our pensioners and our government, but at the end of the day, we also need to support nation-building initiatives, and that includes climate
change.”

Institutional investors play a crucial role in advancing the sustainability agenda, with RM2.6 trillion assets under management, which is two thirds of Malaysia’s debt and equity markets, said Rejina Rahim, advisor and council member of the Institutional Investors Council Malaysia (IICM).

Institutional investors often engage with their portfolio companies to encourage the adoption of sustainability practices, and make their voices heard via voting patterns, whether to push for more diversity on boards, or for companies to have a sustainability strategy.

To increase the transparency of these actions, Rejina said IICM will be rolling out a proxy voting system, which is a collective database of its members’ voting decisions.

“All that information will be in a one-stop portal to make it a lot easier for people to see where our institutional investors are investing. We are working with the Minority Shareholder Watch Group and Bursa Malaysia Bhd (KL:BURSA) on that,” said Rejina.

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