Introduction to Malaysia Scope 3 Compliance

Malaysia’s National Sustainability Reporting Framework (NSRF), introduced in 2024, adopts IFRS S1 and IFRS S2 through a phased implementation approach. Scope 3 GHG emissions form part of IFRS S2, although additional transition time is available under the NSRF for applicable entities, subject to existing regulatory requirements.

This regulation poses both challenges and opportunities for businesses across the supply chain, particularly SMEs. This initiative aims to enhance transparency and accountability in sustainability practices, requiring companies to measure and disclose emissions throughout their entire value chain.

Mandatory Scope 3 Reporting

The National Sustainability Reporting Framework (NSRF) in Malaysia introduces Scope 3 emissions compliance reporting for large companies, aligning with the International Sustainability Standards Board (ISSB) standards.

This requirement will be phased in, starting with the largest publicly listed companies on Bursa Malaysia’s Main Market. The first implementation group, comprising Main Market listed issuers with market capitalisation of RM2 billion and above, began applying the NSRF for annual reporting periods beginning on or after 1 January 2025. Additional transition relief applies to certain disclosures, including Scope 3 GHG emissions.

The initiative aims to enhance transparency and accountability in how businesses manage sustainability risks and opportunities, ultimately improving business resilience. By adopting these comprehensive reporting standards, Malaysia is positioning itself at the forefront of sustainable business practices in the region.

Phased Implementation Timeline for Malaysia Scope 3 Compliance

The NSRF outlines a strategic timeline for implementing new reporting requirements, ensuring a gradual transition for Malaysian companies. Starting in 2025, approximately 130 large companies listed on Bursa’s Main Market will focus on climate-related disclosures under IFRS S1 and S2.

The timing of Scope 3 disclosure depends on the entity’s implementation group, reporting period, applicable transition reliefs and any existing Bursa Malaysia requirements. This phased approach extends to 2030, allowing smaller and non-listed companies more time to adapt and comply with the comprehensive reporting standards.

SME Challenges and Opportunities

Addressing Barriers to Compliance

Malaysian SMEs and suppliers may face increasing requests for emissions and activity data from listed companies, larger customers, parent companies and supply-chain partners. This does not necessarily mean that the SME is directly subject to the same NSRF reporting requirements.

Turning Challenges into Opportunities

However, this shift also presents opportunities for SMEs to enhance their competitiveness. Those that successfully implement sustainability reporting may become more attractive to large corporations prioritizing sustainable practices in their procurement decisions. To support this transition, initiatives such as Bank Negara and Bursa Malaysia’s programs are being developed to assist SMEs in adopting ESG reporting and measuring emissions, particularly those supplying to publicly listed companies.

Key Scope 3 Categories

The implementation of Scope 3 emissions reporting in Malaysia requires companies to assess and disclose greenhouse gas emissions across their entire value chain. This comprehensive approach encompasses 15 distinct categories, as defined by the Greenhouse Gas Protocol, which can be broadly grouped into upstream and downstream activities.

Key upstream categories include:

• Purchased goods and services: Emissions from the production of products and services acquired by the reporting company.
• Capital goods: Emissions associated with the production of capital goods purchased or acquired.
• Fuel and energy-related activities: Emissions related to the production of fuels and energy purchased and consumed by the reporting company.
• Transportation and distribution: Emissions from the transportation and distribution of products purchased by the reporting company in vehicles not owned or operated by the company.
• Waste generated in operations: Emissions from the disposal and treatment of waste generated in the company’s operations.

Significant downstream categories encompass:

• Use of sold products: Emissions from the use of goods and services sold by the reporting company.
• End-of-life treatment of sold products: Emissions from the waste disposal and treatment of products sold by the reporting company.
• Investments: Emissions associated with the reporting company’s investments.

For Malaysian companies, particularly those in sectors with complex supply chains or high-impact products, focusing on these categories can yield substantial insights and opportunities for emissions reduction. For instance, manufacturing companies might prioritize emissions from purchased goods and transportation, while service-oriented businesses may concentrate on employee commuting and business travel.

As companies prepare for mandatory reporting, they will need to develop strategies for data collection and analysis across these categories. This may involve engaging suppliers, conducting life cycle assessments, and implementing robust data management systems.

The process, while challenging, can help companies identify where value-chain emissions are concentrated, improve the structure of supplier engagement and support more consistent responses to reporting or customer-data requests.

Conclusion

Malaysia Scope 3 Compliance represents a transformative step toward enhancing sustainability practices and accountability. While the transition may be challenging, especially for SMEs, the phased implementation and available support programs provide opportunities for businesses to align with global standards. Companies that proactively address Scope 3 emissions reporting may be better prepared to respond to regulatory, group-level and customer expectations as Scope 3 reporting develops.

How SuSciCo Can Help

At SuSciCo, we help organizations turn sustainability challenges into opportunities. Our expertise includes:

• GHG Accounting: GHG inventory development, including Scope 1, Scope 2 and relevant Scope 3 categories.
• Product Carbon Footprint (PCF) Assessments: Measuring and reducing environmental impacts across product lifecycles.
• ESG Disclosure for PLCs & ESG Reporting for SMEs: Supporting ESG and sustainability reporting in reference to relevant Malaysian requirements and recognised reporting frameworks.
• Green Supply Chain Consulting: Supporting businesses in integrating sustainable practices into procurement and operations.

Ready to take your sustainability initiatives to the next level? Reach out to us today to discuss how we can support your goals. Together, we can make a lasting impact.

Editorial note: This article was originally published on 17 November 2024 and reflects the regulatory position and market context available at that time. Selected statements have since been clarified to reflect the final NSRF implementation approach. Readers should refer to current Securities Commission Malaysia, Bursa Malaysia and IFRS Foundation materials for the latest requirements.