On 24 September 2024, the Ministry of Finance Malaysia and Securities Commission Malaysia launched the National Sustainability Reporting Framework (NSRF). This framework aims to ensure that Malaysian corporations deliver reliable sustainability information, enhancing the country's competitiveness and appeal to investors.
Introduction
The NSRF establishes the framework for sustainability disclosures in Malaysia, referencing the IFRS Sustainability Disclosure Standards issued by the International Sustainability Standards Board (ISSB), specifically the IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures (collectively known as the ISSB Standards).
The NSRF will be implemented through a phased and developmental approach, fostering widespread adoption and ongoing improvement in the quality of disclosures. It closely aligns with the ISSB Standards while also incorporating the flexibility provided by the ISSB. Recognising the diverse maturity levels in sustainability practices and reporting among companies, the NSRF offers a staggered adoption timeline to address potential challenges effectively.
Source: page 8 of the NSRF
Phased And Developmental Approach
The need for the NSRF to be implemented through a phased and developmental approach stems from the varying maturity of companies’ readiness to use the ISSB Standards, their sustainability reporting practices and internal capabilities. This approach entails:
(a) adopting a climate-first approach.
(b) providing additional transition reliefs to facilitate the use of the standards.
(c) providing capacity-building programmes and support to help companies, large and small, to comply with these standards.
The ISSB also recognises that some entities might experience challenges in applying the standards due to, among other factors, a lack of resources, the quality of external data or the difficulty in obtaining the necessary expertise. To address this, the ISSB has introduced proportionality mechanisms (as outlined in Section VI) and transition standard reliefs in the standards, which the Advisory Committee on Sustainability Reporting (ACSR) has incorporated into the NSRF.
Implementation Support
The ACSR will prioritise capacity-building programs and tools to assist companies in using the ISSB Standards. These measures will be implemented through an initiative known as PACE (Policy, Assumptions, Calculators and Education), serving as a comprehensive hub for implementing the NSRF. PACE will, among others:
(a) Run capacity building programmes for companies.
(b) Make available NSRF-related educational materials, guidance, toolkits and an emissions calculator.
(c) Provide granular help.
(d) Derive consensus on key assumptions and disclosures.
Subject to legislative amendments, the Malaysian Accounting Standards Board (MASB) will expand its role as the national accounting standard-setter to include the establishment of sustainability disclosure standards and associated support activities, as outlined in the Financial Reporting Act 1997. Similar to the accounting standards aligned with IFRS, the sustainability disclosure standards will adhere to ISSB Standards.
Applicability
The NSRF applies to the following market segments (applicable entities):
(a) Main Market listed issuers on Bursa Malaysia.
(b) ACE Market listed issuers on Bursa Malaysia.
(c) Non-listed Companies (NLCos), if they meet the prescribed threshold of consolidated group revenue of RM2 billion and above for two consecutive financial years preceding the current financial year (Large NLCos). In the event there is no requirement to prepare a consolidated account, the threshold of RM2 billion would be applicable at the company level. This is intended to align with the entity’s existing financial reporting practices.
The inclusion of NLCos as applicable entities is based on the premise that economically or environmentally significant companies extend beyond publicly listed entities, as NLCos play a crucial role in the broader supply chain. The established revenue threshold of RM 2 billion and above was determined through a benchmarking analysis against jurisdictions implementing the ISSB Standards, reflecting both the economic and environmental significance of these companies in relation to their operational scale and industry influence.
Other entities that do not fall under paragraph 4.1 may voluntarily adopt NSRF requirements to enhance their sustainability and climate-related disclosures. Companies in hard-to-abate sectors and those within the Carbon Border Adjustment Mechanism (CBAM) sectors—such as cement, metals (including iron, steel, and aluminium), chemicals, fertilizers, electricity, hydrogen, and petroleum—are strongly encouraged to comply with the NSRF. Additionally, relevant regulatory bodies may mandate other entities to adhere to these requirements as per their respective legislation.
For the avoidance of doubt, regulators may impose expectations on their respective regulated entities that go beyond the NSRF.
Related Legal Instruments And Policy Documents
Subject to legislative amendments, the MASB’s role as the national accounting standard-setter will be expanded to include setting the Malaysian sustainability disclosure standards. These standards will be based on the ISSB Standards, similar to how accounting standards are aligned with IFRS.
Additionally, amendments to the relevant legislation, rules, and guidelines will be made to implement this framework.
Conclusion
This initiative exemplifies Malaysia's proactive commitment to integrating ESG principles into corporate governance and financial reporting. By establishing a comprehensive framework, we expect it to strengthen investor confidence and promote sustainable growth and resilience across all sectors. It also makes Malaysia as a leader in responsible business practices, increasing its attractiveness to both domestic and international investors and contributing to a more sustainable economic environment.
7 October 2024
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