Introduction

In today’s business landscape, it is no longer possible to ignore the role Environmental, Social, and Governance (“ESG”) principles play in businesses. To stay relevant and ensure compliance with applicable laws, business leaders and decision-makers must understand the laws and regulations pertaining to ESG practices.

ESG is particularly pertinent for public listed companies as they are subject to scrutiny from regulators, shareholders and the public. Fragmented ESG regulations and the lack of centralised ESG regulations have made it challenging for businesses to effectively integrate ESG into their operations. This article explores the legal framework pertaining to ESG for public listed companies in Malaysia and for companies in Malaysia in general.

ESG Legal Framework for Public Listed Companies 

Listing Requirements

Bursa Malaysia Securities Berhad (“Bursa Malaysia”), which is the stock exchange of Malaysia, has made it mandatory for public companies listed on the Main Market and ACE Market to include a narrative statement of their management of material economic, environmental and social risks and opportunities (“Sustainability Statement”)[1].

Public companies listed on the Main Market and ACE Market must ensure that the Sustainability Statement contains information that is balanced, comparable and meaningful by referring to the Sustainability Reporting Guide issued by Bursa Malaysia. In identifying the material economic, environmental and social risks and opportunities, public companies listed on the Main Market and ACE Market should consider the themes set out in the Sustainability Reporting Guide.[2]

The Main Market Listing Requirements (“MMLR”) prescribe the contents of the Sustainability Statement for public companies listed on the Main Market, which include the following:

    1. the governance structure in place to manage the economic, environmental and social risks and opportunities (“sustainability matters”);
    2. material sustainability matters;
    3. (1) how material sustainability matters are identified; (2) why they are important to the listed companies; and (3) how they are managed including details on indicators relevant to these sustainability matters which demonstrate how the listed companies have performed in managing these sustainability matters, together with the data for the last 3 financial years, and performance target(s) in relation to the indicators (if such targets are set).[3]

Similar requirements on the contents of the Sustainability Statement as set out above will apply to public companies listed on the ACE Market for financial year ending on or after 31 December 2024.

Sustainability Reporting Guide

The Sustainability Reporting Guide is published by Bursa Malaysia to assist public listed companies to comply with Bursa Malaysia’s Listing Requirements when producing a Sustainability Statement in their annual reports. The Sustainability Reporting Guide also provides case studies from public companies listed on Bursa Malaysia.

The Sustainability Reporting Guide provides disclosure guidance to public listed companies in Malaysia in the following areas:

    1. putting in place sustainability governance structure;
    2. setting the scope of the Sustainability Statement and basis of the scope;
    3. undertaking a robust materiality assessment process for the systematic identification as well as prioritisation of sustainability matters that are most material to the companies and their stakeholders;
    4. how companies are managing each of the material sustainability matters that they have prioritised via their materiality assessment process;
    5. measurement methodologies for indicators that are linked to certain material sustainability matters;
    6. setting and communicating performance targets that gives stakeholders a view of the company’s ambition, strategic direction and progress with regards to the management of their material sustainability matters;
    7. provision of a performance data table that facilitates stakeholder assessment of how companies have performed in managing various material sustainability matters;
    8. subjecting Sustainability Statements to an assurance process; and
    9. disclosures aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) Recommendations.

Malaysian Code on Corporate Governance

 The Malaysian Code on Corporate Governance (“MCCG”) is a set of principles and recommendations issued by the Securities Commission Malaysia, aiming to promote good corporate governance practices in companies. The MCCG is based on the following three key principles of good corporate governance:

    1. board leadership and effectiveness;
    2. effective audit and risk management; and
    3. integrity in corporate reporting and meaningful relationship with stakeholders.

Such principles go beyond the minimum requirements prescribed by statutes, regulations or Bursa Malaysia.

A public listed company listed on Main Market or ACE Market of Bursa Malaysia must ensure its board of directors provides an overview of the application of the principles set out in the MCCG, in its annual reports.[4] It must provide meaningful explanation on how it has applied each practice set out in the MCCG (“Practice”). If the listed company has departed from a Practice, it must provide an explanation for the departure and disclose the alternative practice it has adopted and how such alternative practice achieves the intended outcome as set out in the MCCG.[5]

Legislations relevant to ESG for Companies in Malaysia

Depending on the business nature of the companies, the following are the legislations which are applicable when considering adoption and enhancement of ESG for companies in Malaysia:

Environmental

  1. Environmental Quality Act 1974 (“EQA”)

The EQA, together with its subsidiary legislations, regulate the discharge of pollutants into air, water and land, as well as the emission of noise. The EQA also provides a licensing framework and related offences and penalties to prevent, reduce and control pollution and enhance environmental protection. Companies engaging in activities with significant environmental impacts, classified as prescribed activities under the EQA, must appoint a qualified person to conduct an environmental impact assessment.[6]

Social

2. Employment Act 1995 (“EA”)

The EA sets the minimum standard of terms and conditions of employment for employees who fall under the ambit of the EA. The regulation of minimum standard of terms and conditions of employment under the EA varies depending on the specific categories of employees. For instance, employees earning wages of RM4,000 or less per month are entitled to overtime wages, allowance during shift work, payment at the rates prescribed under the EA for work done on any paid holiday, and benefits relating to termination, lay-offs and retirement.

3. Laws relating to statutory contributions

In Malaysia, employers are required to make statutory contributions to various employee benefit schemes to ensure social security and workforce development. The Employees Provident Fund Act 1991 mandates contributions to the Employees’ Provident Fund (EPF) for retirement savings, while the Employees’ Social Security Act 1969 requires contributions to SOCSO for workplace injury, occupational disease, and invalidity coverage. The Employment Insurance System Act 2017 ensures financial assistance and job placement support through contributions to the Employment Insurance System (EIS). Additionally, the Pembangunan Sumber Manusia Berhad Act 2001 obligates employers in certain industries to contribute to the Human Resources Development Fund (HRDF), aimed at promoting training and skills development for employees. Non-compliance with these laws can result in penalties or legal actions.

4. Occupational Safety and Health Act 1994 (“OSHA”)

The OSHA provides for securing the safety, health and welfare of individuals at work while also protecting others against safety or health risks in connection with the activities at work.

The amendments to the OSHA which come into force on 1 June 2024 have introduced the following key changes:

    1. expansion of the scope and applicability of OSHA to all places of work throughout Malaysia, including the public service and statutory authorities but excluding domestic employment, armed forces and work on board ships;[7]
    2. expansion of the principal’s duty to ensure the safety and health of any contractor engaged by the principal, any subcontractor or indirect subcontractor when at work, and any employee employed by such contractor or subcontractor when at work;[8] and
    3. appointment of an employee as an occupational safety and health coordinator by an employer with five or more employees.[9]

5. National Wages Consultative Council Act 2011

The National Wages Consultative Council was established in Malaysia under this Act to recommend minimum wages orders to the government according to sectors, types of employment and regional areas.

The Minimum Wages Order 2022 (“Order 2022”), made under this Act, sets the minimum wage employers must pay their employees. The Order 2022 is implemented with the aim of providing basic standard of living for employees by means of a minimum earnings threshold.

The 2025 Malaysian Budget introduced a new Minimum Wages Order 2024 (“Order 2024”), which provides for a revised minimum wage rate of RM1,700, an increase from the existing rate of RM1,500. This revised minimum wages will come into effect on 1 February 2025 for employers who have five employees or more and employers categorised as conducting professional activities under the Malaysia Standard Classification of Occupation 2020 regardless of the number of employees. Employers with fewer than five employees have until 1 August 2025 to comply with the revised minimum wages of RM1,700 in Order 2024. The Order 2024 does not apply to domestic servants.

6.Anti-Trafficking in Persons and Anti-Smuggling of Migrants Act 2007

The Act aims to prevent and combat human trafficking and smuggling of migrants, specifying related offences and penalties.

7. Employees’ Minimum Standards of Housing, Accommodations and Amenities Act 1990

 Where an employer provides housing, accommodation and amenities to employees, this Act, together with its subsidiary legislations, prescribe the minimum standards which must be complied with. It requires an employer to obtain a certificate for accommodation from the Department of Labour which certifies that the accommodation meets the prescribed minimum standards.[10] An employer shall inform the Director General of Labour within 30 days from the date an accommodation is occupied by the employees of such occupation.[11]

Governance

8. Companies Act 2016 (“CA”)

The CA provides for the registration, administration and dissolution of companies. The CA codifies directors’ duties. Under section 213(1) of the CA, a director of a company shall at all times exercise his powers in accordance with the CA, for a proper purpose and in good faith in the best interest of the company.

Since ESG practices are gaining more attention globally, a director could be deemed as not acting in the best interest of the company if it fails to make decisions for ESG practices to be exercised in the company.

9. Malaysian Anti-Corruption Commission Act 2009 (“MACCA”)

The MACCA aims to prevent corruption in Malaysia and establishes related offences and penalties.

Companies should be aware of introduction of corporate liability under section 17A of the MACCA. If a person associated with companies corruptly gives, agrees to give, promises or offers any gratification to any person to obtain or retain business or business advantage, the company commits an offence.

Conclusion

For companies to remain compliant and competitive, there must be a clear understanding of ESG-related laws and regulations. The evolving and fragmented nature of ESG-related laws and regulations pose significant challenges to companies in integrating ESG into their operations. Companies should assess their operations and identify compliance gaps. The assessment would assist companies to come up with a compliance framework, checklists and procedures to ensure their day to day operations take into account ESG concepts.

Authors: Wong Mei Ying & Ariadne Ng

Footnotes

[1] Paragraph 29, Part A of Appendix 9C of Main Market Listing Requirements and Paragraph 30, Part A of Appendix 9C of ACE Market Listing Requirements

[2] Paragraph 6.1, Practice Note 9 of Main Market Listing Requirements and Paragraph 6.0, Guidance Note 11 of ACE Market Listing Requirements

[3] Paragraph 6.2, Practice Note 9 of Main Market Listing Requirements

[4] Paragraph 15.25 of the Main Market Listing Requirements and Rule 15.25 of the Ace Market Listing Requirements

[5] Paragraph 3.2A, Practice Note 9 of the Main Market Listing Requirements and Paragraph 3.2A, Guidance Note 11 of the ACE Market Listing Requirements

[6] Section 34A, Environmental Quality Act 1974

[7] Section 1 and First Schedule of the Occupational Safety and Health Act 1994

[8] Section 18A of the Occupational Safety and Health Act 1994

[9] Section 29A(1) of the Occupational Safety and Health Act 1994

[10] Section 24D of the Employees’ Minimum Standards of Housing, Accommodations and Amenities Act 1990

[11] Section 24E(1) of the Employees’ Minimum Standards of Housing, Accommodations and Amenities Act 1990

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