The Regulatory Shift in Malaysia
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As Malaysia strengthens its Environmental, Social, and Governance (ESG) policies, businesses must prepare for the next regulatory shift as companies transition from disclosure to proactive sustainability transformation. Over the next few years, companies will transition from simply disclosing ESG risks to actively addressing them through mandated sustainability transformation plans.
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Bursa Malaysia’s Enhanced Sustainability Reporting: The First Step
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Malaysia has already taken the first step in institutionalizing ESG compliance through Bursa Malaysia’s enhanced sustainability reporting requirements. Introduced in December 2024, these requirements align with global best practices and solidify the expectation that companies must embed sustainability into their corporate strategies. The reporting framework includes:
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• Mandatory climate-related disclosures based on the IFRS Sustainability Disclosure Standards.
• Expanded governance and risk management reporting on ESG-related issues.
• Stricter compliance timelines, with large-cap companies required to comply by 2025 and smaller listed firms by 2027.
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While Bursa Malaysia’s sustainability disclosure requirements set the foundation for transparency, they mandate companies to disclose sustainability-related risks and strategies. However, while companies must report on their approach to managing these risks, the current framework does not impose direct obligations to implement specific mitigation actions or demonstrate measurable sustainability outcomes. This underscores the need for Malaysia’s ESG regulatory framework to progress beyond disclosure into enforceable corporate transformation.
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The i-ESG Framework and Its Implications
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This transition builds on existing frameworks designed to prepare businesses for greater regulatory obligations. The i-ESG Framework, introduced in 2023, is an initiative aimed at guiding businesses, particularly SMEs, toward sustainability compliance. While currently voluntary, it is expected to evolve into a regulatory requirement, reinforcing the broader ESG agenda in Malaysia.
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The i-ESG Framework consists of two key phases:
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• Phase 1 (2024–2026): Capacity building, readiness assessments, and outreach programs to prepare companies for ESG adoption.
• Phase 2 (2027–2030): The acceleration of ESG practices, reinforcing compliance and integrating sustainability into corporate governance.
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Indicators of Mandatory Sustainability Transformation Plans
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Further evidence of Malaysia’s move toward mandatory sustainability transformation plans can be seen in the government’s introduction of Extended Producer Responsibility (EPR). In September 2024, the Ministry of Investment, Trade, and Industry (MITI) released the Circular Economy Policy Framework, which outlines plans to implement EPR legislation by 2029. EPR shifts the responsibility for product lifecycle management from consumers and governments to producers, requiring businesses to manage the environmental impact of their products.
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The introduction of EPR signals the increasing likelihood of mandatory sustainability transformation plans. This policy aligns with Malaysia’s broader sustainability strategy, reinforcing the shift from voluntary ESG initiatives to binding regulatory measures. Companies must begin integrating ESG considerations into their business models, as regulatory expectations are moving toward enforceable sustainability obligations.
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Global ESG Regulations: Moving Beyond Disclosure to Mandated Action
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Malaysia’s regulatory progression aligns with international ESG compliance trends, reinforcing the inevitability of sustainability mandates. Many jurisdictions have already implemented legally binding sustainability mandates, reinforcing Malaysia’s shift from disclosure-based compliance to enforceable ESG action. Key global precedents include:
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• EU Corporate Sustainability Due Diligence Directive 2024/1760 (CSDDD): Moves beyond disclosure by requiring companies to actively prevent and mitigate environmental and human rights violations in their supply chains. Non-compliance can lead to financial penalties of up to 5% of a company’s global turnover and legal liability.
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• Germany’s Supply Chain Act: Imposes binding obligations on businesses to conduct due diligence and implement measures to address ESG risks throughout their supply chains. Companies must show clear mitigation actions or face financial penalties and liability risks.
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• France – Duty of Vigilance Law (Loi de Vigilance, 2017): Requires large corporations to establish and execute Vigilance Plans to actively prevent environmental and human rights violations in their global supply chains. Non-compliance can result in civil liability and regulatory enforcement.
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The progression of these laws shows that ESG compliance is evolving into a regulatory necessity worldwide. Malaysia is now following this trajectory, making it increasingly evident that sustainability transformation plans will soon be mandated to align with international sustainability standards.
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The Next Step: Mandatory Sustainability Transformation Plans
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With Malaysia’s increasing emphasis on ESG accountability, companies must prepare for a future where sustainability transformation plans become a legal requirement. A mandatory sustainability transformation plan would likely include:
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1. Risk Identification & Mitigation: Companies must assess ESG risks, from carbon emissions to resource depletion, and develop strategies to mitigate these risks.
2. ESG Roadmap Implementation: Clear, measurable actions to reduce environmental impact, improve governance, and enhance social responsibility.
3. Compliance Monitoring & Reporting: Periodic assessments to ensure adherence to sustainability commitments.
4. Stakeholder Engagement: Collaboration with regulators, investors, and communities to align ESG goals with business operations.
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Failing to comply with anticipated ESG transformation mandates could result in:
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• Regulatory Penalties: Similar to corporate liability under Bursa’s disclosure framework, failure to act on sustainability risks may lead to sanctions or financial penalties.
• Loss of Market Access: ESG-conscious investors and global trade partners may avoid companies that lack clear sustainability strategies.
• Reputational Damage: Companies that do not prioritize ESG compliance risk long-term brand erosion and decreased consumer trust.
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Conclusion: Preparing for the Future of ESG Regulation
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The evolution from ESG reporting to mandated sustainability transformation plans is imminent. Companies should proactively integrate sustainability into their operations to stay ahead of regulatory changes.
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The key takeaway? ESG compliance is no longer just about disclosure — it is about action.
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This shift will require businesses to phase out high-emission practices, implement circular economy models, and develop long-term sustainability roadmaps. Corporate governance structures must evolve by embedding ESG-specific committees, accountability frameworks, and measurable compliance mechanisms to ensure sustainable business practices. The anticipated framework will go beyond reporting by enforcing concrete and measurable actions that drive progress toward net-zero emissions and sustainable resource management.
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Businesses should begin formulating their sustainability transformation strategies now, ensuring they are prepared for the next wave of ESG regulations in Malaysia. By doing so, they will not only achieve compliance but also position themselves as leaders in sustainable business practices.
About the authors
Chau Yen Shen
Principal Associate
ESG Practice Group
Halim Hong & Quek
ys.chau@hhq.com.my
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Ng Zhong De
Pupil-in-Chambers
ESG Practice Group
Halim Hong & Quek
zhongde.ng@hhq.com.my
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