How IFRS S1 and S2 Affect Malaysian Companies

The introduction of IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures) by the International Sustainability Standards Board (ISSB) under the International Financial Reporting Standards Foundation (IFRS) has implications for Malaysian companies.

Here's how these standards affect Malaysian companies:

1. Global Disclosure Standards: IFRS S1 and S2 are globally recognised disclosure standards, harmonising sustainability reporting for capital markets worldwide. Malaysian companies must align their sustainability disclosures with these international standards to ensure global comparability.

2. Broad Support: These standards have received support from investors, policymakers, and regulators globally, including organisations like the International Organization of Securities Commissions (IOSCO), the Financial Stability Board, and the G20. This broad support enhances their credibility and adoption potential.

3. Focus on Capital Markets: IFRS S1 and S2 focus on disclosing material, proportionate, and decision-useful information to investors. They primarily cater to capital markets, emphasising financial measures and sustainability-related risks and opportunities over the short, medium, and long term.

4. Building on Existing Frameworks: Rather than starting from scratch, these standards build on existing sustainability frameworks and recommendations, including those from the World Economic Forum, the Task Force on Climate-Related Financial Disclosures (TFCD), and others. This reduces duplication and streamlines reporting.

5. Reduced Duplicative Reporting: IFRS S1 and S2's alignment with existing frameworks reduces the need for duplicative reporting. They also offer interoperability with Global Reporting Initiative (GRI) standards, reducing the burden for companies using both standards.

6. Integration with Financial Statements: IFRS S1 and S2 are not standalone standards but work alongside financial reporting standards. This integration allows companies to provide comprehensive sustainability-related information within the same reporting package as their financial statements.

Malaysia's Position:

• Malaysia is a signatory to the Paris Agreement but has not yet incorporated it into local laws. However, the Prime Minister has committed to reducing emissions and embracing a low-carbon economy.

• The Securities Commission Malaysia has established an Advisory Committee on Sustainability Reporting (ACSR) to support the implementation of ISSB Standards in Malaysia.

• Sustainability reporting has been mandatory for publicly listed companies in Malaysia since 2016, and recent amendments by Bursa Malaysia have enhanced sustainability reporting requirements.

Conclusion: Malaysian companies need to prepare for the implementation of IFRS S1 and S2 as sustainability reporting becomes increasingly essential, especially for foreign investors.

The efforts by Malaysian regulators, such as the ACSR and amendments by Bursa Malaysia, aim to align the country's reporting standards with international norms and enhance the sustainability reporting framework.

Malaysian companies that adopt these global standards will be better positioned for global investments and compliance with international reporting requirements.