Climate change is no longer a distant challenge; it is reshaping the way businesses, investors, and regulators manage risks and opportunities. In Malaysia, the move towards greater climate transparency is accelerating with the introduction of the National Sustainability Reporting Framework (NSRF) and the adoption of the IFRS S2 Climate-related Disclosures standards.
One of the most critical yet least understood requirements under these frameworks is climate-related scenario analysis. While it may sound highly technical, it plays a pivotal role in helping organisations anticipate future risks, strengthen resilience, and remain competitive. This article explores what climate-related scenario analysis is, why it matters, where Malaysian companies stand today, and the road ahead.
Table of Contents
What is Climate-related Scenario Analysis?
Climate-related scenario analysis is a forward-looking assessment tool that explores how different climate-related futures could affect an organisation’s operations, supply chains, financial performance, and long-term resilience.
Unlike historical reporting, which focuses on emissions and past environmental performance, scenario analysis evaluates strategic adaptability. It asks a simple yet powerful question:
“How will our business perform under different climate realities?”
For example, an organisation may evaluate a 1.5 °C Paris-aligned pathway, a 2 °C transition pathway, and a high-emission “business-as-usual” scenario. By examining these possibilities, companies can understand potential risks — from supply chain disruptions and regulatory costs to reputational challenges — and identify opportunities to innovate and adapt.
Under the IFRS S2 framework, scenario analysis forms a core disclosure requirement. Companies are expected to explain how resilient their business strategies are under various climate-related scenarios and demonstrate that these considerations are integrated into decision-making at board and management levels.
Why It Matters for Malaysian Businesses
With Malaysia’s regulatory environment evolving rapidly, climate-related scenario analysis is no longer optional for many companies — it is becoming a key compliance and competitiveness driver.
1. Regulatory Readiness Under NSRF and IFRS S2
The Securities Commission Malaysia (SC) and Bursa Malaysia have introduced the NSRF, which phases in IFRS S2-aligned reporting. For financial years beginning 1 January 2025, Main Market large-cap issuers must adopt climate-first disclosures. Other listed companies will follow in subsequent phases, and eventually, significant non-listed companies (NLCOs) will also fall under the framework.
IFRS S2 explicitly requires companies to disclose:
- How climate-related risks and opportunities are integrated into their strategy.
- How different climate-related scenarios could affect financial performance and long-term viability.
- Key assumptions, pathways, and risk mitigation measures considered.
This signals a paradigm shift from voluntary sustainability efforts to mandatory, structured disclosures aligned with global reporting standards.
2. Rising Expectations from Bank Negara Malaysia (BNM)
Bank Negara Malaysia (BNM) is also driving change through its Climate Risk Management and Scenario Analysis (CRMSA) policy, most recently updated on 17 March 2025.
The CRMSA requires financial institutions — including banks, insurers, and takaful operators — to:
- Use scenario analysis to assess their exposure to both physical climate risks (e.g., floods, droughts, heatwaves) and transition risks (e.g., policy changes, carbon pricing, and technological disruptions).
- Integrate climate considerations into risk management, credit policies, and capital allocation frameworks.
- Develop strategic responses to ensure resilience under different climate pathways.
This creates a ripple effect across industries. Businesses seeking financing will face heightened scrutiny, as banks are expected to evaluate the robustness of their clients’ climate strategies and scenario modelling.
3. Competitive Positioning and Global Trade Pressures
Malaysia’s economy is heavily export-driven, particularly in sectors such as palm oil, electronics, and manufacturing. Global markets are increasingly demanding stronger environmental disclosures:
- The EU Carbon Border Adjustment Mechanism (CBAM) introduces additional costs for carbon-intensive exports.
- Buyers in Europe, the U.S., and other markets are imposing sustainability criteria in procurement policies.
- Investors and lenders are prioritising companies with credible climate resilience strategies.
Early adoption of scenario analysis demonstrates strategic foresight and positions Malaysian businesses to remain competitive in international supply chains.
Where Gaps Remain
Despite policy progress, execution capacity remains uneven across Malaysia and the broader APAC region. While regulators are pushing forward with IFRS S2 adoption, many organisations face significant implementation challenges.
- Low Preparedness and Limited Integration
According to PwC’s Asia-Pacific ESG Reporting Review 2024, climate-related scenario analysis is consistently among the weakest disclosure areas across the region. Many companies still struggle to integrate scenario findings into core business strategies, leaving disclosures largely qualitative rather than quantitative.
- Gaps in Data, Tools, and Skills
Many mid-market companies and significant non-listed companies (NLCOs) in Malaysia face critical challenges when implementing climate-related scenario analysis. Limited access to reliable emissions data, sector-specific models, and scenario-modelling capabilities makes it difficult for these organisations to conduct comprehensive assessments. As a result, many firms struggle to meet the transparency and disclosure expectations set under IFRS S2.
- Rising Complexity Under Tight Timelines
With NSRF deadlines approaching, mid-sized firms face mounting pressure to disclose forward-looking climate-related financial impacts. The Edge Malaysia reports that while large corporates are investing in systems and consultants, smaller players lack internal resources and often delay readiness until regulation becomes unavoidable.
These findings underscore an urgent need for capacity building, better data infrastructure, and improved collaboration between regulators, corporates, and technology providers to accelerate adoption.
Practical Applications and Examples
Several Malaysian institutions have already started using climate-related scenario analysis to support decision-making and improve resilience.
A leading Malaysian financial institution used geospatial climate modelling to evaluate credit exposure to flood-prone areas. Under a 2°C warming scenario, potential credit risks were estimated at RM1.2 billion, prompting the bank to design adaptation financing solutions and strengthen its lending policies.
In the palm oil industry, producers assessed potential impacts of delaying compliance with the Malaysian Sustainable Palm Oil (MSPO) certification. The results highlighted possible licence suspensions, loss of export markets, and increased financing costs, underscoring the importance of proactive planning.
Similarly, in the manufacturing sector, electronics exporters modelled carbon pricing pathways to estimate the impact of CBAM on production margins. Insights from the analysis guided investments in energy-efficient technologies and supply chain redesign to maintain competitiveness.
The Road Ahead for Malaysian Companies
For many businesses, transitioning to scenario-based reporting may seem daunting, but early action offers significant advantages:
Build Awareness and Capability
Equip teams with IFRS S2 and CRMSA knowledge; provide training to understand data, tools, and scenario frameworks.Start Simple, Then Scale
Begin with qualitative assessments before adopting quantitative financial models.Strengthen Governance and Leadership
Boards must integrate scenario findings into strategy and oversee progress.Collaborate with Financial Institutions
Align climate disclosures with banks’ CRMSA-driven expectations to improve access to financing.Leverage Technology and Partnerships
Use climate-modelling tools, sector benchmarks, and partnerships with sustainability solution providers.
Climate-related scenario analysis marks a significant step in Malaysia’s sustainability journey. As the NSRF, IFRS S2, and BNM’s CRMSA take effect, companies will be expected to adopt forward-looking reporting practices that demonstrate resilience in a changing climate.
While gaps remain, particularly for mid-market companies and NLCOs, early preparation can transform compliance into an opportunity to build stronger business strategies, secure investor confidence, and strengthen competitiveness.
References:
Climate Risk Management and Scenario Analysis (2025). Retrieved from https://www.bnm.gov.my/documents/20124/938039/PD_Climate+Risk+Management+Scenario+Analysis_17+March+2025.pdf
At Bernard Business Consulting, we guide organisations through the process of understanding regulatory expectations, building climate-related scenario analysis capabilities, and embedding insights into strategic planning to prepare for a low-carbon future. Whether you are just starting your sustainability journey or enhancing existing practices, our experts are ready to support you.
Contact us today to explore how we can help your organisation strengthen climate resilience, achieve NSRF compliance, and stay ahead in Malaysia’s evolving sustainability landscape.
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September 25, 2025 | November 20, 2025 @ 9:00 AM to 5:00 PM MYT
Navigating Sustainability Reporting Using IFRS Sustainability Disclosure Standards
This interactive IFRS workshop offers expert-led guidance and hands-on tools to help businesses identify ESG risks, uncover opportunities, and align with Malaysia’s NSRF.