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. The carbon tax would encourage firms to reduce carbon emissions, a move that would advance Malaysia's ESG commitment further.
According to BERNAMA News Agency, the outlook for ESG adoption among Malaysian companies across all sectors in 2026 is highly positive, as stated by the chief executive officer of ThinkPlus Group of Companies, Dr. Norsaidatul Akmar Mazelan. "These policies strongly incentivise companies to integrate ESG into their strategies for compliance, competitiveness, and access to financing," she said when reviewing ESG initiatives that are transforming the business climate in the country today.
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), provides a clear roadmap that encourages companies to improve ESG disclosures and strengthen sustainable operations. This foundation is supported by increasing regulatory clarity, technological advancements, and stakeholder demand for accountability in ESG performance, positioning 2026 as a pivotal year for scaling sustainability efforts.
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 will also roll out the National Environmental, Social, and Governance Strategic Plan (NESP) soon, an initiative designed to guide businesses towards adopting sustainable and ESG-compliant practices.
Alliance Bank's ESG Report 2025 indicates a sharp rise in ESG awareness and adoption among Malaysian SMEs, with awareness climbing from 14 per cent in 2023 to 80 per cent in 2025, while adoption increased from 28 per cent to 60 per cent over the same period. These developments reflect SMEs' growing awareness of global sustainability demands in supply chains, with many viewing ESG adoption as a strategic move to expand market access amid current economic challenges.
Another 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. Introduced by the International Sustainability Standards Board (ISSB), the standards provide a globally recognized framework for sustainability and climate-related disclosures, aligned with Malaysia's National Sustainability Reporting Framework (NSRF) to enhance transparency and consistency in local capital markets.
Malaysia is the only ASEAN jurisdiction to adopt the ISSB standards with a limited transition, reinforcing the global standing of its NSRF. In another development, 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 ASEAN chair in 2025, Malaysia has acted as a bridge to promote 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. The framework helps SMEs implement practical ESG reporting aligned with international and regional standards, meeting growing expectations from investors, buyers, and financial institutions.
Malaysia also collaborated 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.