IFRS Sustainability Standards Malaysia marks a significant paradigm shift in corporate transparency, driven by global climate commitments and increasing investor demand for clarity on environmental, social, and governance (ESG) performance. In 2023, the International Sustainability Standards Board (ISSB) released its groundbreaking IFRS Sustainability Standards, establishing a global baseline for reporting.

As a regional leader in ESG adoption, Malaysia is moving swiftly to integrate these standards, fundamentally changing the sustainability reporting landscape for local businesses.

This guide provides a comprehensive overview of the IFRS Sustainability Standards Malaysia. It will explore the global context, detail Malaysia’s specific regulatory framework and timeline, explain the core requirements of IFRS S1 and S2, and outline the strategic implications for businesses of all sizes.

Understanding these changes is no longer optional for corporate leaders, finance managers, and board members—it is essential for strategic planning and maintaining a competitive edge.

The Global Context: Why the ISSB Released S1 & S2 Standards

The formation of the International Sustainability Standards Board (ISSB) under the IFRS Foundation marked a pivotal moment in corporate reporting. It responded to an urgent, global call from investors and regulators for a standardised approach to sustainability disclosures.

Previously, companies reported ESG information using a fragmented landscape of voluntary frameworks, making it difficult for investors to compare performance and assess risks accurately.

The primary drivers behind this push for standardisation were:

• Investor Demand: Investors increasingly recognise that sustainability-related risks, particularly climate risks, are financial risks. They require consistent, reliable, and comparable information to make informed capital allocation decisions.
• Regulatory Pressure: Governments and financial regulators worldwide are mandating more robust ESG disclosures to enhance market stability and drive sustainable economic activity.
• Climate Urgency: The escalating climate crisis has created a need for transparent reporting on how companies are managing climate-related risks and opportunities.

The release of IFRS S1 and IFRS S2 establishes a global baseline, designed to be interoperable with jurisdictional-specific requirements. These standards are not meant to replace financial statements but to complement them, providing a more complete picture of a company’s performance and long-term value creation prospects.

Malaysia’s Regulatory Landscape & Implementation Timeline

Malaysia has proactively embraced this global shift, with key regulatory bodies like Bursa Malaysia and the Securities Commission Malaysia leading the charge. The adoption of the IFRS Sustainability Standards in Malaysia will occur through a phased approach, ensuring businesses have adequate time to prepare.

Bursa Malaysia’s ESG Framework Evolution

Bursa Malaysia’s sustainability reporting requirements have evolved significantly. The introduction of IFRS S1 and S2 will replace the existing framework, mandating that listed companies include a sustainability statement prepared in accordance with these new standards in their annual reports.

The implementation is tiered to manage the transition effectively:

• Main Market (Large Cap): Listed issuers with a market capitalisation of RM2 billion or more as of 31 December 2024 will begin mandatory climate-first reporting for annual periods starting on or after 1 January 2025. Full IFRS S1 and S2 compliance is required from 1 January 2027.
• Main Market (Other Issuers): All other Main Market listed entities will follow, with climate-first reporting starting from 1 January 2026 and full compliance by 1 January 2028.
• ACE Market & Large Non-Listed Companies: ACE Market listed corporations and large private companies (annual revenue of RM2 billion and above) must begin climate-first reporting from 1 January 2027, moving to full compliance by 1 January 2030.

Securities Commission Malaysia’s Strategic Direction

The Securities Commission Malaysia’s ESG initiatives, outlined in the Capital Market Masterplan 3, are central to this transition. The SC chairs the Advisory Committee on Sustainability Reporting (ACSR), which developed the National Sustainability Reporting Framework (NSRF) to guide the adoption of IFRS standards. This framework ensures that Malaysian listed companies’ IFRS adoption is aligned with national strategic objectives, promoting a sustainable and responsible capital market.

Deep Dive: IFRS S1 & S2 Standards Explained

Understanding the core components of the new standards is the first step toward effective implementation.

IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information

IFRS S1 sets out the overall framework for how an entity should disclose its sustainability-related financial information. Its objective is to provide investors with a complete view of a company’s sustainability-related risks and opportunities.

The standard is built around four core content areas:

1. Governance: The governance processes, controls, and procedures an entity uses to monitor and manage sustainability-related risks and opportunities.
2. Strategy: The entity’s strategy for managing these risks and opportunities, including its business model and value chain implications.
3. Risk Management: The processes used to identify, assess, prioritise, and monitor sustainability-related risks.
4. Metrics and Targets: The metrics and targets used to assess, manage, and monitor performance, including progress towards set targets.

A key aspect of IFRS S1 general requirements is the concept of materiality. Companies must disclose information that could reasonably be expected to affect their cash flows, access to finance, or cost of capital over the short, medium, or long term.

IFRS S2: Climate-related Disclosures

While IFRS S1 provides the general framework, IFRS S2 specifies the climate disclosures. It requires companies to provide detailed information about their climate-related physical and transition risks.

Key requirements include:

• Risk Identification: Differentiating between physical risks (e.g., extreme weather events) and transition risks (e.g., policy changes, new technologies).
• Scenario Analysis: Assessing the resilience of the company’s strategy to different climate scenarios.
• Greenhouse Gas (GHG) Emissions: Reporting on Scope 1, Scope 2, and, crucially, Scope 3 emissions, which cover the entire value chain.
• Climate Resilience: Evaluating how the business model and strategy might adapt to climate-related changes.

Beyond Compliance: Why Non-Listed Entities Should Care

While the initial mandate targets listed and large companies, the ripple effects will be felt across the entire economy. Small and medium-sized enterprises (SMEs) in Malaysia that ignore sustainability will face growing challenges.

• Supply Chain ESG Requirements: Multinational corporations and large listed companies are now required to report on their Scope 3 emissions, which includes their supply chain. They will increasingly demand ESG data and compliance from their suppliers—the Malaysia SME sustainability credentials will become a key factor in procurement decisions.
• Access to Finance: Banks and financial institutions are integrating ESG criteria into their lending decisions. A strong sustainability profile can improve access to capital and potentially lead to more favourable financing terms.
• Competitive Advantage: Demonstrating strong ESG performance can be a significant differentiator in tender processes and when forming strategic partnerships, providing a clear sustainability competitive advantage.

Strategic Implications for CFOs and Board Directors

The implementation of IFRS Sustainability Standards Malaysia elevates ESG from a peripheral concern to a core strategic issue, with significant implications for leadership.

For the CFO, sustainability reporting is no longer just a communications exercise. It requires the same rigour as financial reporting, demanding robust data collection, internal controls, and integration into financial planning and analysis.

For the board, ESG governance in Malaysia is now a critical responsibility. Directors must ensure they have oversight of sustainability-related risks and opportunities, that the appropriate governance structures are in place, and that the company’s strategy is resilient in the face of these challenges.

Your Path to IFRS Sustainability Standards Malaysia Compliance

For businesses beginning their journey, the path forward should involve a structured approach:

1. Gap Analysis: Conduct a readiness assessment to understand the gap between current practices and the new requirements.
2. System Development: Establish robust processes and systems for collecting, managing, and verifying sustainability data.
3. Capability Building: Invest in training for staff to build internal expertise on sustainability reporting and management.

Chart Your Course for Sustainability Success

The mandatory adoption of IFRS Sustainability Standards Malaysia represents a fundamental change in corporate reporting. It is a move that will drive greater transparency, enhance risk management, and unlock new opportunities for long-term value creation. This transition requires proactive engagement from boards, CFOs, and business leaders across all sectors.

Partner with InCorp’s ESG advisory team to navigate Malaysia’s evolving sustainability reporting landscape. Our experts provide comprehensive IFRS S1 and S2 implementation support, from gap assessments to ongoing compliance management, ensuring your business is not just compliant, but positioned to lead.

About In.Corp Global Malaysia
In.Corp Global Malaysia, an Ascentium Company, is a trusted corporate service provider offering end-to-end business solutions, including company incorporation, compliance, accounting, taxation, Labuan IBFC and ESG advisory. With deep local expertise and a strong regional network, we help businesses navigate Malaysia’s evolving regulatory landscape. Contact us to learn more.