Understanding IFRS S2: Climate-Related Disclosures for Malaysian Businesses

Malaysia’s National Sustainability Reporting Framework positions the country as the only ASEAN jurisdiction adopting ISSB Standards with a ‘limited transition’ approach, building on existing Bursa Malaysia TCFD-aligned requirements to create enhanced climate disclosure standards. This places immediate compliance pressure on Malaysian businesses, with Group 1 entities required to begin climate-first reporting for annual reporting periods from 1 January 2025.

IFRS S2 Climate-Related Disclosures demands more than traditional environmental reporting. This standard requires precise measurement of greenhouse gas emissions across your entire value chain, detailed climate scenario analysis, and board-level governance over climate risks that could affect your cash flows, financing access, or capital costs.

The immediate implications are substantial. As mentioned, Group 1 entities (Main Market-listed issuers with market capitalisation exceeding RM2 billion) have been required to begin climate-first reporting since 1 January 2025. Group 2 and Group 3 entities follow in 2026 and 2027, respectively, with large non-listed companies earning RM2 billion or more also captured under the new requirements.

Your business needs a clear roadmap for compliance. This article breaks down IFRS S2’s four core pillars, explains Malaysia’s phased implementation approach, outlines available transition reliefs, and identifies the specific metrics your organisation must track and disclose to meet these new standards.

What is IFRS S2 and Why Malaysia Adopted It

IFRS S2 Climate-Related Disclosures targets a specific objective: forcing companies to reveal information about climate-related risks and opportunities that could affect their cash flows, financing access, or capital costs. Physical climate risks and transition risks both fall under the standard’s scope. Your business model, strategy, and financial statements must reflect these climate impacts transparently.

Malaysia chose IFRS S2 through a calculated strategy. The Advisory Committee on Sustainability Reporting, established with the Ministry of Finance’s backing, developed the National Sustainability Reporting Framework to position Malaysia competitively. IFRS S1 and IFRS S2 now serve as baseline sustainability disclosure standards for Malaysian companies, creating a unified reporting language.

Of course, results matter. Malaysian businesses now operate under globally recognised disclosure standards. The IFRS Foundation’s recognition of Malaysia’s ‘limited transition’ approach reduces perceived investment risk while boosting international investor confidence in Malaysian markets.

The Four Pillars of IFRS S2 Compliance

As per the IFRS Sustainability Climate-related Disclosures, IFRS S2 operates through four interconnected pillars that transform climate considerations from peripheral concerns into core business responsibilities.

Board-Level Climate Oversight

Companies must identify and disclose the governance body or individual responsible for overseeing climate-related risks and opportunities. Management’s precise role in monitoring, managing, and overseeing climate processes and controls requires detailed disclosure. In this sense, climate oversight becomes a fiduciary duty, not an optional consideration.

Strategic Climate Planning

IFRS S2 mandates disclosure of climate-related transition plans. Your company must articulate specific strategies for managing climate risks and capitalising on opportunities. Climate scenario analysis becomes mandatory to assess and disclose resilience to climate change and uncertainties. Companies with greater climate exposure need more sophisticated technical modelling.

Integrated Risk Management

Your organisation must disclose processes for identifying, assessing, prioritising, and monitoring climate risks and opportunities. More critically, you must show how these climate risk processes integrate into your overall risk management framework. In essence, climate risk cannot exist in isolation from traditional financial and operational risks.

Measurable Performance Tracking

Companies must report both cross-industry metrics applicable universally and industry-specific metrics tailored to their economic activities. Performance targets for mitigating climate risks or capitalising on opportunities require disclosure, alongside metrics measuring progress towards these targets.

Critical Metrics and Measurement Requirements

IFRS S2 demands precise measurement across multiple emission categories and financial metrics that directly impact your bottom line.

Greenhouse Gas Emissions Reporting

Your company must report Scope 1, Scope 2, and Scope 3 greenhouse gas emissions measured according to the Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (2004). This protocol requirement ensures consistency and comparability across Malaysian markets.

Scope 3 reporting requires granular disclosure specifying which of the 15 categories defined in the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (2011) your measurement includes. Financial institutions face particular pressure here. Financed emissions represent the portion of gross GHG emissions of an investee attributed to loans and investments, classified as Scope 3 Category 15.

Additional Cross-Industry Metrics

Beyond emissions, companies must disclose capital deployment towards climate-related risks and opportunities, internal carbon prices used to assess emission costs, and executive management remuneration linked to climate considerations.

Industry-Specific Requirements

Companies must refer to the Industry-based Guidance on implementing Climate-related Disclosures to determine appropriate industry-based metrics. This guidance leverages content derived from the Sustainability Accounting Standards Board standards.

Malaysia’s Phased Implementation Timeline

Malaysian regulators designed a staggered rollout that hits different company categories at specific dates. The National Sustainability Reporting Framework splits applicable entities into three distinct groups, each facing defined compliance deadlines.

Climate disclosure comes first. Companies must tackle IFRS S2 requirements before full IFRS S1 adoption kicks in. Group 1 entities face immediate action requirements, while Groups 2 and 3 gain preparation time before their deadlines arrive.

Source: IFRS SUSTAINABILITY DISCLOSURE STANDARDS (ISSB STANDARDS)— APPLICATION AROUND THE WORLD JURISDICTIONAL PROFILE: Malaysia

This phased approach recognises the reality that individual Malaysian corporations operate at different sustainability reporting maturity levels. The timeline gives companies breathing room while ensuring major economic players eventually comply with enhanced disclosure standards.

Transition Reliefs and Practical Considerations

Malaysia provides specific reliefs to ease the demanding compliance burden during initial implementation phases.

Main Market-listed issuers receive Additional Transition relief for two full financial years from their respective implementation dates. Companies can focus exclusively on climate-related risks and opportunities under IFRS S2, deferring broader IFRS S1 requirements. Entities may also limit disclosures to their principal business segments during this transition period.

Scope 3 emissions get special treatment. Full Scope 3 disclosure requirements deferred until respective full IFRS S1 and S2 adoption dates. However, Main Market issuers must continue reporting business travel and employee commuting Scope 3 emissions, which have been mandatory since 2021.

Large non-listed companies may receive up to three years exemption if their holding company already reports using ISSB-aligned or equivalent standards like European Sustainability Reporting Standards.

Where to Next With InCorp Global Malaysia

Group 1 entities now operate under IFRS S2 requirements. Your data collection systems, climate scenario analysis, and board oversight frameworks must function seamlessly. Group 2 and 3 companies face their own deadlines approaching fast.

InCorp cuts through IFRS S2 complexity. Our specialists build governance frameworks that simply work. We design metrics calculation systems that capture accurate data. Our team implements scenario analysis that meets regulatory standards. We handle regulatory filings that avoid penalties.

Of course, time matters. Group 1 companies need systems operating flawlessly right now. Group 2 entities have less than twelve months before their compliance starts, while Group 3 companies can gain a competitive advantage by preparing early.

Contact InCorp today to evaluate your IFRS S2 position. Our specialists create compliance roadmaps that protect your business from regulatory penalties while strengthening your market position in Malaysia’s enhanced disclosure environment.

About In.Corp Global Malaysia (Soon to be Ascentium 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. We look forward to serving you as Ascentium Malaysia soon. Contact us to learn more.