Takeaways
- Climate-related financial disclosures are becoming increasingly important under Malaysia’s National Sustainability Reporting Framework (NSRF) and IFRS S1 & S2 requirements.
- Businesses need stronger governance, climate data management, and risk assessment processes to meet growing investor and regulatory expectations.
- Climate risk scenario analysis helps organisations assess resilience against transition risks and physical climate risks.
- Delayed preparation may expose businesses to financial, operational, regulatory, and reputational risks.
- Early preparation can strengthen business resilience, improve stakeholder confidence, and support long-term strategic decision-making.
Climate-related financial disclosures are becoming an increasingly important part of corporate reporting and strategic decision-making worldwide. In Malaysia, the introduction of the National Sustainability Reporting Framework (NSRF) signals a major shift towards globally aligned sustainability disclosure practices through the adoption of IFRS S1 and IFRS S2.
Climate disclosures are no longer viewed solely as sustainability reporting exercises. Investors, regulators, financial institutions, and customers are increasingly expecting businesses to demonstrate how climate-related risks and opportunities may affect financial performance, business strategy, and long-term resilience.
As climate risks continue to evolve, businesses are expected to strengthen transparency, improve governance, and integrate climate considerations into risk management and strategic planning. Organisations that prepare early will be better positioned to strengthen stakeholder confidence, improve reporting readiness, and remain competitive in an increasingly sustainability-focused business environment.
Table of Contents
Understanding IFRS S1, IFRS S2, and NSRF Malaysia
What is NSRF Malaysia?
Malaysia’s National Sustainability Reporting Framework (NSRF) aims to strengthen the quality, consistency, and comparability of sustainability disclosures across Malaysian businesses.
The framework aligns Malaysia’s sustainability reporting direction with the International Sustainability Standards Board (ISSB) standards, namely:
- IFRS S1: General Requirements for Disclosure of Sustainability-related Financial Information
- IFRS S2: Climate-related Disclosures
The introduction of NSRF reflects growing expectations for organisations to integrate sustainability considerations into financial reporting, governance, and business strategy.
What is IFRS S1?
IFRS S1 establishes the general requirements for sustainability-related financial disclosures. It requires organisations to disclose material sustainability-related risks and opportunities that could reasonably affect enterprise value.
This includes information related to:
- Governance
- Strategy
- Risk management
- Metrics and targets
The objective is to provide investors and stakeholders with decision-useful sustainability-related financial information.
What is IFRS S2?
IFRS S2 specifically focuses on climate-related disclosures and builds upon the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
The standard requires organisations to disclose information relating to:
- Climate-related governance
- Climate strategy
- Climate-related risks and opportunities
- Transition plans
- Climate resilience
- Climate risk scenario analysis
- Scope 1, Scope 2, and Scope 3 emissions
- Climate-related metrics and targets
For businesses in Malaysia, IFRS S2 represents a significant advancement in climate-related reporting expectations.
Why Businesses Should Prioritise Climate-Related Financial Disclosures
1. Investor and Financing Expectations Are Increasing
Investors and financial institutions are increasingly assessing how organisations manage climate-related risks and opportunities before making investment and financing decisions.
Businesses with weak climate disclosures may face:
- Reduced investor confidence
- Increased financing costs
- Difficulties accessing sustainable financing
- Lower ESG ratings
- Greater stakeholder scrutiny
Transparent and credible climate disclosures can help organisations strengthen market confidence and demonstrate long-term resilience.
2. Climate Risks Are Becoming Financial Risks
Climate-related risks are increasingly affecting business performance, operations, supply chains, and asset values. Businesses are expected to evaluate how climate risks may impact their long-term strategy and financial performance.
These risks generally fall into two categories.
Transition Risks
Transition risks arise from the shift towards a low-carbon economy and may include:
- Carbon pricing and carbon taxes
- Regulatory changes
- Changes in consumer preferences
- Technological disruption
- Market shifts
- Supply chain expectations
Physical Risks
Physical risks refer to the direct impacts of climate change, including:
- Flooding
- Heatwaves
- Extreme weather events
- Water stress
- Operational disruptions
Businesses that fail to assess and manage these risks may face operational, financial, and reputational consequences.
Practical Steps to Prepare for Climate-Related Financial Disclosures
1. Strengthen Governance and Board Oversight
Strong governance is fundamental to effective climate-related disclosures.
Boards and senior management should clearly define:
- Oversight responsibilities for climate-related matters
- Sustainability governance structures
- Management accountability
- Internal reporting lines
- Decision-making processes
Climate considerations should be integrated into enterprise risk management and strategic planning processes rather than treated as standalone sustainability initiatives.
2. Conduct a Climate Risk and Opportunity Assessment
Organisations should identify and assess material climate-related risks and opportunities across operations, supply chains, investments, and business models.
This assessment should evaluate:
- Short-term, medium-term, and long-term impacts
- Financial implications
- Operational vulnerabilities
- Market opportunities
- Regulatory exposure
A structured climate materiality assessment helps businesses prioritise relevant disclosures and strategic responses.
3. Develop Climate Risk Scenario Analysis Capabilities
Climate risk scenario analysis is becoming an increasingly important requirement under IFRS S2.
Scenario analysis helps organisations evaluate how different climate-related pathways may affect business performance, strategy, and resilience under different future conditions.
Examples may include:
- Low-carbon transition scenarios
- Delayed transition scenarios
- High-emissions scenarios
- Extreme weather impact scenarios
Effective climate scenario analysis can support:
- Strategic decision-making
- Risk management
- Capital allocation
- Business continuity planning
- Long-term resilience assessment
Many organisations in Malaysia are still at an early stage of developing climate scenario analysis capabilities, making early preparation particularly important.
4. Strengthen Sustainability Data and Emissions Management
Reliable sustainability data is essential for credible disclosures.
Businesses should strengthen processes for collecting, managing, and verifying data relating to:
- Scope 1 emissions
- Scope 2 emissions
- Scope 3 emissions
- Energy consumption
- Carbon reduction initiatives
- Climate-related targets
- Operational sustainability metrics
Many organisations face challenges with fragmented systems, inconsistent methodologies, and limited internal data governance.
Integrated sustainability management systems and digital reporting solutions can help improve reporting accuracy, traceability, and efficiency.
5. Align Risk Management Processes with Climate Risks
Climate-related risks should be integrated into enterprise risk management frameworks.
This includes:
- Risk identification
- Risk assessment
- Risk mitigation planning
- Monitoring and reporting
- Escalation processes
Organisations should also evaluate how climate risks may interact with financial, operational, legal, and supply chain risks.
6. Prepare for Sustainability Assurance Requirements
As sustainability reporting expectations increase, assurance over sustainability disclosures is also becoming increasingly important.
Businesses should prepare by:
- Improving internal controls over sustainability data
- Establishing documentation processes
- Enhancing audit readiness
- Strengthening governance and accountability
High-quality disclosures supported by robust assurance processes can improve stakeholder trust and reporting credibility.
Common Challenges Businesses May Face
1. Limited Internal Expertise
Many organisations are still developing internal capabilities relating to IFRS S1, IFRS S2, climate risk assessment, and sustainability reporting.
Training and capacity building are essential to strengthen organisational readiness and ensure effective implementation.
2. Data Availability and Quality Issues
One of the most common challenges is obtaining accurate and consistent sustainability-related data, particularly for Scope 3 emissions.
Businesses may struggle with:
- Incomplete supplier data
- Decentralised reporting systems
- Inconsistent calculation methodologies
- Limited historical data
Without reliable data, organisations may face difficulties producing credible and decision-useful disclosures.
3. Difficulty Translating Climate Risks into Financial Impacts
Many organisations find it challenging to quantify how climate-related risks may affect financial performance, strategy, and enterprise value.
This often requires closer collaboration between sustainability, finance, operations, and risk management teams to strengthen climate-related decision-making.
4. Evolving Regulatory Expectations
Climate disclosure regulations and stakeholder expectations continue to evolve rapidly.
Businesses that delay preparation may face implementation pressure, resource constraints, and increased compliance challenges in the future.
The Business Risks of Delayed Preparation
Delaying climate-related disclosure readiness may expose organisations to several business risks, including:
- Regulatory non-compliance
- Reputational damage
- Reduced investor confidence
- Increased financing challenges
- Loss of competitive advantage
- Supply chain exclusion risks
- Poor sustainability ratings
- Operational disruptions
In contrast, organisations that proactively prepare can strengthen resilience, improve strategic positioning, and build stakeholder trust.
Climate-Related Disclosures Are Becoming a Strategic Business Imperative
Climate-related financial disclosures are no longer solely about compliance. They are increasingly shaping how investors, regulators, financial institutions, and stakeholders evaluate organisational resilience, governance quality, and long-term value creation.
For businesses preparing for NSRF, IFRS S1, and IFRS S2 adoption, the focus should not only be on reporting requirements but also on strengthening governance, improving sustainability data management, enhancing climate risk assessment capabilities, and integrating climate considerations into business strategy.
Early preparation enables organisations to move beyond reactive compliance and build long-term competitive advantage in an increasingly sustainability-focused business environment.
How Bernard Business Consulting Can Support Your Organisation
At Bernard Business Consulting, we help organisations prepare for climate-related financial disclosures with practical and business-focused sustainability solutions. Our services include IFRS S1 and IFRS S2 readiness assessments, NSRF advisory, climate risk scenario analysis, sustainability reporting, carbon accounting, emissions management, and sustainability assurance readiness support.
With our integrated advisory and technology-driven solutions, we help businesses improve disclosure quality, strengthen reporting readiness, and build long-term climate resilience.
Contact us now to learn how your organisation can prepare confidently for evolving sustainability reporting requirements in Malaysia.
Bernard Business Academy
Exploring IFRS S2 Climate Risk Scenario Analysis
NSRF Implementation Training Series Module 4
Gain practical insights into Climate Risk Scenario Analysis aligned with IFRS S2 and Malaysia’s NSRF to help your organisation assess climate-related risks, strengthen resilience, and enhance sustainability disclosures with confidence.