Navigating the next phase of sustainability reporting
RECENT developments underscore the growing trend towards standardised and mandatory disclosure of environmental, social and governance (ESG) information by companies.
For instance, Bursa Malaysia has made it compulsory for Main Market-listed issuers to make Task Force on Climate-related Financial Disclosures (TCFD) a requirement in sustainability reporting commencing Dec 31, 2025 while ACE Market-listed issuers are required to disclose a basic transition plan to a low-carbon economy commencing Dec 31, 2026.
This move was made after Bursa Malaysia released its enhanced Sustainability Reporting Framework that took effect on Dec 31, 2023.
The new framework includes disclosures on common sustainability matters, three years of financial data and a statement of assurance.
This regulatory shift marks a new phase of sustainability reporting characterised by heightened expectations, increased requirements, enhanced transparency and deeper integration of sustainability into core business strategies.
Beyond compliance
Over the years, most Malaysian companies have focused on meeting the minimum reporting requirements outlined by Bursa Malaysia’s Sustainability Reporting Framework.
However, it is crucial to recognise that sustainability reporting should transcend beyond mere compliance.
Companies should leverage on the framework strategically to identify risks, seize opportunities and drive long-term value creation.
Moreover, ESG not only impacts mandated reporting entities but also the whole value chain, especially those supplying to listed companies and exporting products to the United States and the European Union (EU).
These entities may not be familiar with sustainability practices but they will regularly be asked to provide information on green initiatives and greenhouse gas (GHG) emissions by their customers.
Pressure mounts when they are required to fulfill certain sustainability criteria to continue doing business with their clients.
Although Bursa Malaysia currently does not mandate assurance on sustainability statements, the global trend suggests that this may change.
The EU and Hong Kong require independent assurance to enhance credibility and prevent greenwashing practices and Malaysia may eventually align with this trend.
Therefore, organisations should ensure that their sustainability statements and metrics have auditable records and documented assumptions to prepare for potential auditing requirements.
Accounting for GHG emissions
Emission management is one of the key aspects of sustainability reporting that involves accounting and disclosing Scope 1 (direct), Scope 2 (energy consumption) and Scope 3 (GHG emissions) in the sustainability statements.
Scope 3 emissions encompass all other indirect emissions, mainly from the supply chain. Accounting for GHG emissions can pose challenges due to the complexity of the underlying principles involved.
Accounting for Scope 3 emissions presents significant challenges for companies. Obtaining comprehensive and reliable data is difficult due to limited access to information from suppliers, customers and stakeholders in the value chain.
Additionally, estimating GHG emissions often relies on emission factors or industry benchmarks to convert activity data into GHG emissions but these may not accurately reflect the operating environment, introducing uncertainty into emission estimations.
Despite these challenges and uncertainties, Scope 3 emissions typically constitute over 50% of total GHG emissions, underscoring their significance in environmental impact assessments.
Stakeholders increasingly seek transparency in this regard, emphasising the importance of integrating Scope 3 emissions into emission reduction strategies.
Task force on TCFD
TCFD offers guidance across four pillars; governance, strategy, risk management and metrics and targets. These pillars are designed to provide investors and stakeholders with decision-useful climate-related information, helping them make informed decisions regarding climate risks and opportunities.
However, TCFD implementation poses challenges for organisations. These include difficulties in accurately assessing climate-related risks and opportunities due to incomplete or low-quality data, especially from the supply chain.
Additionally, scenario analysis requires sophisticated modelling techniques to evaluate various climate scenarios and their implications.
Integrating TCFD reporting with financial reporting may require significant organisational changes such as enhancing internal capabilities and updating policies and procedures.
In navigating the above, companies can consider the following:
> Tone from the top
The involvement of the board of directors in corporate sustainability is crucial, as strategic engagement in sustainability reporting not only benefits the company but also stakeholders.
The board’s strategic direction and oversight are essential for integrating sustainability into overall business strategies.
With a structured strategic direction, companies can conduct a comprehensive reassessment of material sustainability matters to identify significant impacts on their operations. This involves using materiality assessments to uncover sustainability opportunities for long-term competitiveness.
Setting appropriate sustainability targets is essential for effectively
managing and measuring the organisation’s sustainability agenda.
Furthermore, linking the board’s remuneration package with specific sustainability key performance indicators will then incentivise the board to drive sustainability initiatives and uncover new sustainability opportunities, creating a positive cycle.
> Reporting under sustainability management framework
Companies should establish formal sustainability management and reporting processes to facilitate an audit trail for subsequent assurance and validation.
The framework should cover processes to identify sustainability risks and opportunities, data gathering and analysis, reporting and monitoring.
Initially, companies may establish a distinct framework to address climate change impacts.
However, it is crucial for companies to shift towards TCFD and International Financial Reporting Standards (IFRS) S2 into their core business strategies to align with the organisation’s overarching goals. This ensures that sustainability considerations are embedded throughout the organisation and contribute to its long-term success.
> Building capabilities
The board and task force members should undergo sufficient training and acquire relevant sustainability knowledge to effectively navigate the sustainability reporting process. As companies transition to TCFD or S2 climate change reporting, specialised expertise becomes increasingly essential.
As sustainable practices have been around for quite some time now, there are ample sustainability-related resources and guides available to assist companies in their sustainability reporting efforts.
These include the “Sustainability Reporting Guide 3rd Edition” provided by Bursa Sustain, the sustainability arm of Bursa Malaysia.
Companies can also benefit from the comprehensive guidance of “Implementing The
Recommendations of TCFD” and “Guidance on Metrics, Targets, and Transition Plans” published by TCFD.
In addition, companies can seek professional support from qualified ESG consultants who possess significant knowledge and experience in sustainability matters.
These consultants can help companies to avoid pitfalls and provide good practices in their sustainability journey.
> IT – an enabler
As companies progress in sustainability reporting, leveraging on IT can streamline reporting processes, improve data accuracy and enable real-time metrics tracking.
Investing in IT systems tailored to ESG needs can yield significant benefits. However, when selecting IT systems, companies should consider factors such as the alignment to the reporting framework, compatibility with existing systems, ability to do real-time reporting and aftersales support.
When considering IT solutions, another dimension to look at is the customisability of the company’s existing enterprise resource planning systems for sustainability reporting.
> Supply chain management To capture the benefits of sustainability initiatives, non-mandated reporting entities should adopt a phased approach to reporting on their ESG matters requested in the short term and progressively transition into a sustainability risk-based approach in the medium to long term.
For small and medium enterprises operating in supply chains, the Simplified ESG Disclosure Guide developed by Capital Markets Malaysia provides a good starting point to account for their sustainability reporting.
In contrast, mandated reporting entities must revamp their supply chain management to integrate sustainability practices.
This includes the identification and mitigation of ESG risks within the supply chain arising from climate-related risks, the adoption of an ESG supplier code of conduct, the auditing and monitoring of ESG performance, and the inclusion of ESG factors in supplier assessments.
In summary, elevating sustainability reporting in Malaysia requires proactive board engagement, a formalised framework for consistency, and investment in sustainability capabilities to mitigate risks.
Additionally, leveraging IT solutions can enhance efficiency in reporting processes, ensuring accurate and timely reporting. It’s imperative to also prioritise supply chain management in sustainability efforts to address environmental and social impacts across the entire value chain.
Elevating sustainability reporting in Malaysia requires proactive board engagement, a formalised framework for consistency, and investment in sustainability capabilities to mitigate risks.