Kuala lumpur: The outlook for the adoption of environmental, social and governance (ESG) standards by companies in Malaysia looks highly positive next year due largely to practical policy initiatives unveiled this year, such as the carbon tax, increased ESG reporting and scaling up sustainability initiatives.
According to BERNAMA News Agency, the carbon tax would encourage firms to reduce carbon emissions, a move that would advance Malaysia's ESG commitment further. Dr. Norsaidatul Akmar Mazelan, chief executive officer of ThinkPlus Group of Companies, stated that the outlook for ESG adoption among Malaysian companies across all sectors in 2026 is highly positive. She noted that these policies strongly incentivize companies to integrate ESG into their strategies for compliance, competitiveness, and access to financing, transforming the business climate in the country.
Dr. Mazelan elaborated on Malaysia's phased ESG adoption framework, which starts with the 'just transition' phase (2024-2026) and moves into the 'accelerate ESG practices' phase (2027-2030). This framework offers a clear roadmap encouraging companies to enhance ESG disclosures and fortify sustainable operations. The foundation is bolstered by regulatory clarity, technological advancements, and stakeholder demand for ESG performance accountability, marking 2026 as a pivotal year for scaling sustainability efforts.
There is no doubt that Malaysia is taking the ESG agenda seriously, both to strengthen national competitiveness and safeguard national sustainability. The carbon tax, an important legislation effective in 2026 after being unveiled in Budget 2025, will initially apply to high-emission sectors such as energy, steel, and heavy industries as part of the nation's transition towards a low-carbon economy.
Malaysia plans to soon introduce the National Environmental, Social and Governance Strategic Plan (NESP), guiding businesses toward adopting sustainable and ESG-compliant practices. Industry players are eager to leverage this plan to elevate their businesses.
The year has marked a turning point, with more small and medium enterprises (SMEs) shifting towards sustainable practices. Support from banks, corporations, and non-governmental organizations (NGOs) offering financing, advisory services, and practical assistance for ESG adoption has been instrumental. Alliance Bank's ESG Report 2025 highlights a significant rise in ESG awareness and adoption among Malaysian SMEs, with awareness climbing from 14 percent in 2023 to 80 percent in 2025, and adoption increasing from 28 percent to 60 percent over the same period.
A key initiative this year is the government's push, through the Securities Commission Malaysia and Bursa Malaysia, to require listed companies to comply with the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards (IFRS S1 and S2) in their ESG reporting. These standards provide a globally recognized framework for sustainability and climate-related disclosures, aligning with Malaysia's National Sustainability Reporting Framework (NSRF) to enhance transparency and consistency in local capital markets.
Under a phased rollout, large Main Market-listed issuers must comply from 2025, other Main Market issuers in 2026, and ACE Market issuers and large non-listed companies in 2027. Malaysia is the only ASEAN jurisdiction to adopt the ISSB standards with a limited transition, reinforcing the global standing of its NSRF.
Effective December 1, 2025, the government is set to implement a new renewable energy initiative leveraging building rooftops under the Solar Accelerated Transition Action Programme (Solar ATAP). As a continuation of the Net Energy Metering initiative, which ended on June 30, 2025, Solar ATAP is expected to boost distributed generation, offering consumers more rooftop options and supporting Malaysia's goal of 70 percent renewable energy in electricity supply by 2050.
As ASEAN chair in 2025, Malaysia has played a pivotal role in promoting ESG adoption across sectors and businesses in the region. Key efforts include the launch of the ASEAN Simplified ESG Disclosure Guide (ASEDG) for SMEs in supply chains, developed under the ASEAN Capital Markets Forum led by the Securities Commission Malaysia. This framework aids SMEs in implementing practical ESG reporting aligned with international and regional standards, meeting growing expectations from investors, buyers, and financial institutions.
Malaysia's collaboration with ASEAN peers to launch the ASEAN Centre of Excellence for micro, small, and medium enterprises in green transition (MEGA) in October, alongside the ASEAN STI Ecosystem Foresight 2035 report and ASEAN in 2025: Shaping an Inclusive and Sustainable Future, underscores its commitment to sustainability leadership in the region.