This article first appeared in The Edge Malaysia Weekly on July 21, 2025 - July 27, 2025

The National Sustainability Reporting Framework (NSRF), which was introduced last year, compelled large non-listed companies (NLCOs) with annual revenue above RM2 billion to prepare sustainability reports for the first time, aligned with the International Sustainability Standards Board’s (ISSB) IFRS S1 and S2, which are seen as the global standard.

However, for that to happen, there must be legislative amendments made to the Companies Act 2016, and to expand the remit of the Malaysian Accounting Standards Board (MASB) as the national standard setter for sustainability-related disclosures, according to a recent report by ISSB.

There must also be more clarity on where the sustainability reports will be published, and whether they have to be publicly available, as required of public-listed companies (PLCs) by Bursa Malaysia. Amendments to the related legislation will need to be completed before the NSRF reporting deadlines, so companies have sufficient time to prepare.

The NSRF allows NLCOs to disclose only IFRS S2 climate-related risks and opportunities, specifically on principal business segments by 2027, and are permitted to not disclose Scope 3 emissions — relating to suppliers — except for categories required by respective regulators, until 2030, when the full adoption of S1 and S2 is expected.

ESG’s queries to the Companies Commission of Malaysia (SSM) on when the amendments will be made remained unanswered as at press time.

Currently, businesses are only encouraged to prepare and submit business review reports, which have components on environment and social issues, to SSM.

As for MASB, which was established under the Financial Reporting Act 1997 (FRA), “the FRA will need to be amended to expand MASB’s remit to cover sustainability disclosure standards, in addition to its existing role as the national accounting standard-setter. The required legislative amendments are explained in paragraph 9.1 of the NSRF”, said MASB in response to ESG.

“To operationalise the NSRF, paragraph 9.2 of NSRF provides that consequential amendments to other relevant legislation, rules and guidelines are needed apart from amendments to the FRA and these include the Companies Act 2016, Securities Commission (SC) Malaysia Act 1993 and the Capital Markets and Services Act 2007.”

It added that the implementation of the NSRF, pending the legislative amendments, will be overseen by the Advisory Committee on Sustainability and supported by PACE (policy, assumptions, calculators, education), an initiative designed to help companies adopt the NSRF.

According to a previous interview with the SC, around 260 NLCOs will be affected by this new requirement. However, due to their size, many are already doing some form of sustainability reporting.

When asked, some of the NLCOs say they are prepared to meet the requirements already due to expectations from international bankers and to meet foreign market sustainability regulations.

Meanwhile, large NLCOs whose holding company already reports using ISSB-aligned or equivalent standards may leverage on those disclosures, while those that report using other international standards and frameworks may be exempted for three reporting periods.

“The companies within the scope … are typically larger entities and expected to have the resources to meet the sustainability reporting requirements. They are integral to the broader value chain, as these entities are most likely a Tier 1 supplier for the larger PLCs. However, readiness and maturity may vary across sectors,” says PwC Malaysia sustainability and climate change director Farhana Jabir.

Support from the regulators, including clear guidance, would demystify the reporting process and ease compliance burdens, she adds. 

The tax deduction of up to RM50,000 for each year of assessment for ESG-related expenditure, offered under the 2024 budget, should also be communicated to NLCOs.

Supun Nigamuni, managing director of Control Union Malaysia, adds that the main obstacles NLCOs face include limited expertise and capacity, lack of sector-specific guidance tailored to Malaysian industries, and insufficient qualified consultants, verifiers and ESG data systems. 

“Principles-based requirements (like the ISSB) demand significant professional judgment, sector baseline development and scenario analysis skills that are not yet widespread in Malaysia,” says Supun.

Another thing to watch out for is the requirement of assurance on sustainability reports prepared under the NSRF. A public consultation paper on this matter was released on June 25, 2025. The NSRF mentions that companies should aim for reasonable assurance for Scope 1 and Scope 2 greenhouse gas emissions starting from 2027.

A challenge here, other than the added cost of assurance, is the limited number of accredited independent assurance providers in Malaysia, says Supun. 

“While initial requirements may be for limited assurance, few firms are prepared for reasonable assurance in line with global trends under the European Union’s Corporate Sustainability Reporting Directive, which Malaysia might follow,” he says.

On this, Farhana suggests that businesses start formalising and standardising how data is collected and reported within the organisation, and set up accountability mechanisms, such as sustainability key performance indicators. Companies should also invest in technology, as ESG data management and reporting is metrics intensive.

Preparing sustainability reports requires resources and expertise, which some businesses might find difficult to access. They might not find it worthwhile to spend the resources, or are merely doing it as a compliance obligation.

Farhana’s view is that the process of preparing these reports can surface key insights about their operations and resilience towards external challenges.

“In certain industries, geopolitical risks can indirectly impact sustainability matters. These risks may manifest in various forms: supply chain disruptions, increased costs of raw materials, fluctuating market access and regulatory changes,” she says.

By requiring NLCOs to publish their sustainability reports online, stakeholders — including investors, customers and the public — can access vital information that fosters accountability and trust.

“This will also require the NLCOs to be more competitive as they are expected to be Tier 1 suppliers to the PLCs and, in some cases, they are exporting to various regions,” she says.

“Smaller NLCOs, such as the small and medium enterprises, could also start collecting relevant data, leveraging the Simplified ESG Disclosure Guide for SMEs in Supply Chains, issued by Capital Markets Malaysia and SC.”

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