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Volume 13 Issue 1 – 15 March 2024

Aligning to the IFRS

sustainability disclosure
standards: IFRS S1 and S2
Malaysia’s National Sustainability
Reporting Framework (NSRF)
Malaysia commits to sustainability reporting
Addressing climate change requires collaborative efforts on a global scale, including
standardizing the reporting of environmental impacts and initiatives. In alignment with the new
global sustainability reporting standards, the Securities Commission Malaysia (SC)’s Advisory
Committee on Sustainability Reporting (ACSR) has released a Consultation Paper and is seeking
public feedback to incorporate the sustainability and climate-related International Financial
Reporting Standards (IFRS) S1 and S2 standards by the International Sustainability Standards
Board (ISSB) into Malaysia’s National Sustainability Reporting Framework (NSRF).
The ACSR was formed in May 2023, with the endorsement of the Ministry of Finance to assess
the use and application of the standards issued by the ISSB, specifically IFRS S1: General
Requirements for Disclosure of Sustainability-related Financial Information and IFRS: S2
Climate-related Disclosures, collectively referred to as the ISSB Standards, and a sustainability
assurance framework in Malaysia.
The consultation paper proposes that the reporting requirements for IFRS S1 and S2 shall apply
to public listed companies (PLCs) and large non-listed companies (NLCos), with annual revenues
of RM2b and above. The ACSR also encourages participation from mid-tier companies, and small
and medium-sized enterprises (SMEs). The public consultation process is scheduled from 15
February to 21 March 2024.

Malaysia: Disclosure of sustainability and climate-related risks and opportunities

2023

► In June 2023, the ISSB ► ACSR was formed – ► The ACSR also established a
introduced its initial comprising SC, Audit Consultative Group
sustainability standards, IFRS Oversight Board (AOB), comprising representatives
S1 and S2, with the objective Bursa, Bank Negara Malaysia from key stakeholders
of standardizing the (BNM), Suruhanjaya Syarikat including preparers, investors
disclosure of sustainability Malaysia (SSM), Financial and assurance providers to
and climate-related risks and Reporting Foundation (FRF). gather feedback in
opportunities. preparation for the public
consultation paper.

February 2024 2025-2030

► ACSR published a consultation paper ► Proposed implementation of Malaysia’s

to propose the NSRF. National Sustainability Reporting
Framework.
► Potential amendment to Bursa
Malaysia’s listing requirements.
► Potential amendment to relevant
legislation(s).

Sources:
► Securities Commission Malaysia, Advisory Committee On Sustainability Reporting (ACSR) Public Consultation Paper No. 1/2024

► Proposed National Sustainability Reporting Framework, 15 February 2024

Page 1 Aligning to the IFRS sustainability disclosure standards: IFRS S1 and S2

 Global trend toward adopting sustainability reporting

In Malaysia, the current climate reporting IFRS S1 and S2 adoption status

requirements, specifically the
recommendations of the Taskforce on In Asia Pacific, jurisdictions which have
Climate-related Financial Disclosures (TCFD) commenced alignment to the IFRS S1 and S2
for listed companies and financial standards include:
institutions, affirm Malaysia’s ongoing ► Singapore
commitment to transparent and Listed companies are to adopt S2 for
comprehensive reporting on climate-related reporting, beginning on or after 1 January
disclosures. To remain competitive in the 2025
global supply chain and to continue to ► Australia
attract foreign direct investments, In-scope entities are to adopt S2 for annual
Malaysia’s alignment with international reporting periods beginning on or after 1 July
reporting standards is integral. 2024
ACSR’s proposed approach for Malaysia’s ► Philippines
adoption of the standards is on an “as-is” Public listed companies are to submit
basis to facilitate companies’ compliance Sustainability Report Forms that are aligned
with the IFRS Sustainability Disclosure to IFRS S1 and S2 covering the reporting
Standards, and ensure Malaysia’s global year starting 2024
competitiveness.
► Indonesia
In fact, at the recent Conference of Parties, Established the:
COP28 conference in Dubai, various ► Sustainability Standards Monitoring Board
regulatory bodies from ASEAN, the (Dewan Pemantau Standar Keberlanjutan)
European Union, Hong Kong, Japan, the ► Sustainability Standards Board (Dewan
Philippines, Singapore, and the United Standar Keberlanjutan)
Kingdom expressed support for the IFRS S1 Notes:
and S2 sustainability standards and are ► Adoption plans may be subject to further changes in view of ongoing
consultations.
exploring ways to integrate these standards ► Australia and Singapore are applying IFRS S1 only insofar where it
into their respective regulatory frameworks. applies to climate-related disclosures.

Page 2 Aligning to the IFRS sustainability disclosure standards: IFRS S1 and S2

 Malaysia: Current sustainability reporting requirements

Malaysian regulators are continuing efforts to bolster the sustainability reporting

ecosystem, guided by internationally recognized standards and frameworks for
sustainability reporting. The existing sustainability reporting requirements for
Bursa-listed issuers set the foundation for the adoption of the ISSB standards,
namely IFRS S1 and IFRS S2. These standards are developed on the
recommendations of the TCFD.
The Malaysia’s current sustainability reporting landscape is as follows:

FYE FYE FYE FYE

31 31 31 31
No. Existing sustainability reporting requirements Existing
Dec Dec Dec Dec
2023 2024 2025 2026

Prescribed general disclosures including

sustainability governance, scope and basis, and the
1
materiality and management of material
sustainability matters.

Eleven common material sustainability matters

1. Anti-corruption 7. Supply chain management
2. Community / society 8. Data privacy and security
2 3. Diversity 9. Water * *
4. Energy management 10. Waste management
5. Health and safety 11. Emissions
6. Labor practices and
standards

For every material sustainability matter, three

years’ data (on a rolling basis) for each reported
3
indicator and the performance target (if any) as
well as a summary in a prescribed format.

4 Statement of assurance

Climate-related disclosure aligned with the

5
recommendations of the TCFD

Basic transition plan towards a low carbon

6
economy

Financial institutions Bursa Main Market listed issuer Bursa ACE Market listed issuer

Notes:
► FYE 31 December 202X: Annual reports issued for the financial year ending on or after 31 December 202X.
► *10 waste management and *11 emissions.

Page 3 Aligning to the IFRS sustainability disclosure standards: IFRS S1 and S2

What’s next in sustainability reporting?
Proposed NSRF: Climate-first approach

The proposed reporting framework for Malaysia’s National Sustainability Reporting

Framework is as follows:

Adoption IFRS S1 and S2

scope

Applicable Non-listed companies with

entities Main Market listed issuers ACE Market listed issuers
revenue RM2b and above

Timelines ► FYE on or after 31 ► FYE on or after 31 ► FYE on or after 31

December 2025: IFRS December 2027: IFRS December 2027: IFRS
S2 with reliefs1 S2 with reliefs1 S2 with reliefs1
► FYE on or after 31 ► FYE on or after 31 ► FYE on or after 31
December 2026: IFRS December 2028: IFRS December 2028: IFRS
S1 with reliefs S1 with reliefs S1 with reliefs
► FYE on or after 31 ► FYE on or after 31 ► FYE on or after 31
December 2027: Full December 2029: Full December 2029: Full
adoption of IFRS S1 and adoption of IFRS S1 and adoption of IFRS S1 and
S2 S2 S2

Additional In addition to the proportionality and scalability mechanisms, and transition reliefs
reliefs granted by the ISSB in IFRS S1 and IFRS S2, additional transition reliefs under
consideration include:
► Two years’ relief: Sustainability-related financial disclosures specifically for principal
business segments (to address IFRS S1 Para 20 where disclosures shall be for the
same reporting entity as consolidated financial statements).
► Two years’ relief: The effects of sustainability-related and climate-related risks and
opportunities on strategy and decision-making.
► One year relief: Permissible for the company to use a boundary for other than outlined
in IFRS S2 Para 29(iv) for Scope 1 and Scope 2 greenhouse gas (GHG) emissions -
disaggregated emissions between the consolidated accounting group and other
investees (including associates, joint ventures and unconsolidated subsidiaries).
► Two years relief: Option to not disclose Scope 3 GHG emissions (other than business
travel (Category 6) and employee commuting (Category 7) that are currently required
under Bursa Malaysia’s Enhanced Sustainability Reporting Framework).
Proposed An external limited assurance GHG emissions metrics two years after the mandatory
mandatory reporting requirements of IFRS S2 take effect.
assurance

Note:
1Adopt IFRS with reliefs and consequently apply IFRS S1 only insofar as it relates to the disclosures of information on climate-

related risks and opportunities.

It is anticipated that legislative amendments Where necessary, relevant notice in terms of

may be required to enable adoption by both changes to the reporting requirements will be
listed-issuers and non-listed companies. communicated at least six months prior to the
effective date.

Page 4 Aligning to the IFRS sustainability disclosure standards: IFRS S1 and S2

 What’s next in sustainability reporting? (cont’d)

The core contents of the IFRS S1 and S2 disclosure standards are built on the four
TCFD pillars. Companies that are preparing for or have started providing the
TCFD-aligned climate disclosures have a reasonable foundation to begin adopting
the standards.

Governance Strategy Risk management Metrics and targets

Information on the Information on an entity’s Information on how Information used to manage

governance processes, strategy for managing sustainability-related risks and monitor the entity’s
controls and procedures sustainability-related risks and opportunities are performance in relation to
that a reporting entity uses and opportunities. identified, assessed, sustainability-related risks and
to monitor and manage managed and mitigated. opportunities over time.
sustainability-related risks
and opportunities.

Sustainability-related: ► Identification of Processes and policies used ► Metrics required by an

sustainability-related risks to identify, assess, applicable IFRS
► Board governance, and opportunities prioritize and monitor Sustainability Disclosure
including oversight of ► Current and anticipated sustainability-related risks Standard
targets effects on the entity’s and opportunities
► Metrics the entity uses to
Management’s role in business model and value
IFRS S1

►
measure and monitor the
governance chain
sustainability-related risks
► Strategy and decision
and opportunities, and its
making
performance
► Current and anticipated
effects on the entity’s
financial position, financial
performance and cash
flows
► Resilience of its strategy
and business model

Climate-related ► Identification of climate ► Processes and policies ► Climate-related metrics

related risks and used to identify, assess, ► Scope 1, 2 and 3 GHG
► Board governance, opportunities prioritise and monitor emissions
including oversight of ► Current and anticipated climate-related risks and ► Value or percentage of
targets effects on the entity’s opportunities assets or business
► Management’s role in business model and value ► Assessment of the activities vulnerable to
governance chain entity’s overall risk climate-related risks and
► Strategy and decision profile and risk opportunities
making, including management process ► Capital deployment
IFRS S2

Information on the ► Internal carbon prices

entity’s transition plans
► Remuneration
(if any)
► Industry-based metrics
► Current and anticipated
effects on the entity’s ► Climate-related targets set
financial position, with supporting information
financial performance on approach, scope,
and cash flows progress
► Climate resilience and
scenario analysis

Available ISSB proportionality and Proposed additional transition

scalability mechanism reliefs reliefs by the ACSR

Page 5 Aligning to the IFRS sustainability disclosure standards: IFRS S1 and S2

 What’s next in sustainability reporting? (cont’d)
Proposed mandatory independent assurance: Climate-first approach

With sustainable practices influencing capital allocation, companies are incentivized to

publish meaningful and impactful sustainability information. However, this trend brings
about the risk of greenwashing, leading to a growing skepticism about the reliability of
such information. In response to these challenges, external assurance plays a crucial role
to address the reporting trust deficit, thereby maintaining confidence in capital markets.

Current assurance standards

ACSR’s proposed approach Bursa Main Market and ACE Market listed issuers
The ACSR proposes a climate-first approach for must disclose whether their Sustainability
entities in obtaining independent assurance. Statements have been subjected to an internal or
The potential approach discussed indicate that external assurance, in accordance with the
the assurance requirements will commence recognized assurance standards. The recognized
with limited assurance of Scope 1 and Scope 2 assurance standards are referred to as the
GHG emissions, two years after the mandatory International Standard on Assurance Engagements
adoption of IFRS S2. (ISAE) 3000 (revised) Assurance engagements other
than audits or reviews of historical financial
information and the International Organisation for
Standardisation (ISO).
Assurance standards for GHG
For assurance engagements to report on GHG In the horizon
statement, the relevant assurance standards
The International Auditing and Assurance Standards
include but are not limited to the: Board is also developing an enhanced assurance
► ISAE 3410 Assurance Engagements on standard for sustainability assurance engagements,
Greenhouse Gas Statements i.e., the International Standard on Sustainability
► ISO 14064-3 Greenhouse gases – Part 3: Assurance (ISSA) 5000 General Requirements for
Specification with guidance for the Sustainability Assurance Engagements. ISSA 5000 is
verification and validation of greenhouse gas expected to be finalized in 2024 and will provide a
statements comprehensive, stand-alone standard suitable for
limited and reasonable sustainability assurance
engagements.

What are the GHG disclosure requirements in IFRS S2?

For Scope 1 and Scope 2 GHG

Scope 1 emissions, a consolidated
accounting group (e.g., the
parent and its consolidated
subsidiaries) must disclose
emissions by other investees An entity must disclose its location-based Scope
(e.g., associates and joint 2 GHG emissions and provide information on any
Scope 2 ventures) separately from those contractual instruments relating to the source of
by the consolidated accounting those emissions.
group.

► An entity must disclose the categories included within its measurement of Scope 3
GHG emissions, so that users can understand which emissions have been included
Scope 3 in, or excluded from, the reported Scope 3 GHG emissions.
► Scope 3 GHG emissions categories can be disaggregated, if they are material.

Source: EY analysis

Page 6 Aligning to the IFRS sustainability disclosure standards: IFRS S1 and S2

 To prepare for the adoption of the new sustainability
Next steps standards and related reporting developments,
companies can consider the following actions:

Gap assessment and action plan

1
► Identify gaps against the upcoming
requirements in both internal processes and
external disclosures across governance,
strategy, risk management, and metrics and
targets.
► Develop an action plan to address the gaps,
considering the responsibilities and time
horizons for reporting.

Cross collaboration
2
Support cross collaboration within the
organization to integrate both climate and
financial information.

Roles and responsibilities

3
Assess and establish roles and responsibilities
for sustainability reporting within the
organization.

Capacity building
4
Build capabilities within the sustainability and
financial functions to assure the organization’s
readiness to deliver the new standards.

Reporting processes
5
Enhance the financial reporting process to
incorporate sustainability and climate risks and
opportunities.

Controls
6
Expand and include climate aspects in existing
control frameworks and processes, e.g., the
internal audit rotation plan and risk control
matrix.

Data governance
7
► Understand the availability of data and
information for sustainability and explore ways
to implement or improve IT systems.
► Enhance data governance by reducing manual
intervention and providing opportunities for
audit trails and automated controls.

Source: Mandatory climate-related financial disclosures update, EY, January 2024

Page 7 Aligning to the IFRS sustainability disclosure standards: IFRS S1 and S2

 EY thought leadership

International Sustainability Introduction to IFRS S1 Accounting for climate

Standards Board (ISSB) climate- and IFRS S2 change
related disclosure checklist February 2024 August 2023
February 2024

How will understanding As global headwinds slow How to build cooperative

climate risk move you momentum, how can we approaches to meet global
from ambition to action? accelerate climate action? climate goals
November 2023 November 2023 November 2023

Trending: Sustainable The green transition

Artificial intelligence ESG
responsible investment December 2023
stakes
October 2023 in Malaysia and the Region
February 2022
Page 8 FSB 2022 - 2026
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