Malaysia Launches Consultation on Adoption of IFRS Sustainability Reporting Standards

Malaysia’s Securities Commission announced the launch by its Advisory Committee on Sustainability Reporting (ACSR) of a consultation on the proposed use of the IFRS Foundation’s International Sustainability Standards Board (ISSB) as the basis for mandatory reporting requirements for listed and large companies.

The consultation follows the launch by the Malaysia Securities Commission of the ACSR last year, aimed at facilitating the use of the ISSB standards in a new National Sustainability Reporting Framework for Malaysia (NSRF), in addition to identifying and supporting other elements of the NSRF, including a framework for assurance and capacity building.

The ISSB was launched in November 2021 at the COP26 climate conference, with the goal to develop IFRS Sustainability Disclosure Standards, driven by demand from investors, companies, governments and regulators to provide a global baseline of disclosure requirements enabling a consistent understanding of the effect of sustainability risks and opportunities on companies’ prospects.

The IFRS released the inaugural general sustainability (IFRS S1) and climate (IFRS S2) reporting standards in June 2023, and in July, IOSCO, the leading international policy forum and standards setter for securities regulators called on regulators to incorporate the standards into their sustainability reporting regulatory frameworks.

Since the launch of the ISSB, many jurisdictions have announced their intention to adopt the standards, including the UK, Canada, Brazil, Japan and South Korea, among others, and the EU and Australia have moved to establish their own standards with strong interoperability with the ISSB.

Noting these developments, the consultation paper said:

“In light of the growing support and demand for use of the ISSB Standards, alignment with these developments is exponentially crucial for Malaysia as an export-oriented country that is intricately integrated into global supply chains.”

The new consultation seeks feedback on key issues around the implementation of IFRS S1 and S2, including the scope and timing of implementation, transition reliefs, and assurance-related issues.

The paper outlines a potential approach for the adoption of the standards which would make them mandatory for issuers on the prime market of Bursa Malaysia (“Main Market listed issuers”), and potentially extending the reporting requirements to growth market issuers (ACE Market), as well as to large non-listed companies. Proposed timelines for Main Market companies would see reporting beginning for fiscal years ending on or after December 31, 2025 for IFRS S2 with reliefs in place, and IFRS S1 for disclosures on climate-related risks and opportunities, a year later for IFRS S1 with reliefs, and full adoption of both standards for years ending on or after December 31, 2027. For ACE Market and large non-listed companies, adoption of each step would begin two years later than the Main Market timeline.

In addition to reliefs included in the IFRS” ISSB standards, the consultation lists a series of additional reliefs, including allowing companies to not disclose impacts of climate-related risks and opportunities on strategy and decision-making, as well as some Scope 3 emissions for the first 2 years of S2, as well as to focus on sustainability-related financial disclosures specifically for principal business segments and to not disclose impacts of sustainability-related risks and opportunities on strategy and decision-making in the first year of S1.

The consultation also views a shift to mandatory sustainability reporting assurance, aimed at providing a similar level of trust to financial reporting, with an initial focus on limited assurance for greenhouse gas emissions, beginning two years after the adoption of IFRS S2.

The public consultation period for the paper is open until March 21, 2024. Click here to access the consultation paper.