The government has announced the launch of ESG standards to help companies transition to renewable energy.

On 11 April 2023, the Malaysian government announced that it will introduce a framework on environmental, social, and corporate governance (ESG) standards by the end of 2023. The framework will aim to assist small and medium sized enterprises (SMEs) in relation to funding and capacity building, and to support the transition to renewable energy.

The Malaysian government recognised that a number of export markets require ESG compliance from exporters, and that SMEs in particular need further assistance in this regard. The framework will involve consultations to consider the current position of the Malaysian export industry.

Current ESG Commitments and Measures in Malaysia

Investors increasingly expect companies to demonstrate a coherent ESG background to qualify as an attractive investment. In Malaysia, many businesses have started formalising ESG practices and reporting, including numerous companies listed under the Bursa Malaysia Stock Exchange. A December 2021 report by PwC found that 94% of the top 50 Malaysian PLCs have ESG plans in place,[1] reflecting that businesses are responding to the need for sustainability integration.

Malaysia has also committed to several climate pledges, including a renewable energy target, a Nationally Determined Contribution (NDC), and a 2050 net zero commitment, which are all supported by policy. The revised NDC (submitted in 2021) expands the adaptation component, focusing in particular on protecting biodiversity and mainstreaming climate resilience into urban planning. Biodiversity is an area of particular significance, especially following the commitments made at COP15, and Malaysia is an area of high biodiversity in Southeast Asia. A recent poll found that 96% of people surveyed in Malaysia support COP15’s proposed global target of protecting 30% of the world’s biodiversity by 2030.

Commitment to ESG and sustainability is also exemplified by the Malaysian stock exchange’s actions in the last decade. The Bursa Malaysia, in collaboration with FTSE, launched the FTSE4Good Index in 2014, which evaluates the ESG practices and disclosures of publicly traded companies. Additionally, in 2021 Bursa Malaysia released a three-year sustainability roadmap including aims to become the Association of Southeast Asia Nations’ (ASEAN’s) leading sustainable and globally connected marketplace, as well as ESG objectives for environmental protection, an empowered workforce, and advancing communities. The stock exchange will also launch a sustainability reporting platform in 2023, in conjunction with the London Stock Exchange. The platform will enable companies to calculate their carbon emission impact and disclose common ESG datasets in compliance with established global standards, including the Task Force on Climate-Related Financial Disclosures (TCFD).

Malaysia has also taken steps to develop corporate governance practices within its economy. The Securities Commission Malaysia updated the Malaysian Code on Corporate Governance in 2021, emphasising the role of the board and senior management in addressing sustainability risks and opportunities. Overall, these actions indicate both governmental and public support for developing ESG commitments in Malaysia.

ASEAN ESG Developments

The 10 ASEAN economies[2] are home to approximately 650 million people and a US$3 trillion economy, which has been growing significantly during the last 20 years. However, sustainable development presents a challenge in the context of rapid economic growth, with potential compromise required across issues such as the eradication of poverty and the need for education alongside threats to biodiversity and climate change.

In recent years, several developments have transpired across ASEAN in relation to ESG reporting and disclosures, including the following:

• In 2023, the Stock Exchange of Hong Kong published a consultation paper seeking feedback on proposals to enhance climate-related disclosures under the ESG framework. The proposal includes plans to (i) mandate all issuers to include climate-related disclosures in their ESG reports and (ii) introduce new climate-related disclosures aligned with the International Sustainability Standards Board (ISSB) Climate Standard.
• In 2023, Singapore’s Green Finance Industry Taskforce launched its final consultation on a Green and Transition Taxonomy, using a similar approach to other international taxonomies, including the EU and ASEAN taxonomies. For further information, see this Latham blog post.
• In October 2022, the ASEAN Capital Markets Forum published the ASEAN Sustainability-Linked Bond (SLB) Standard to facilitate the role SLBs can play in funding companies that contribute to sustainability.

While international frameworks such as the Global Reporting Initiative (GRI) and TCFD continue to shape ESG reporting in the region, these frameworks must become relevant and practical for sustainable development across regions. Further, international developments, including the ISSB standard, could result in further variation of reporting requirements and standards.

Latham & Watkins will continue to monitor developments in this area.

Endnotes

[1] https://www.pwc.com/my/en/assets/publications/2022/pwc-cmm-positioning-corporate-malaysia-for-a-sustainable-future.pdf.

[2] The ASEAN member states are Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.