Environment, Social and Governance (ESG) factors are no longer just buzzwords. They are critical markers of a company’s values, risks, and long-term viability. While investors were the early adopters of ESG metrics, today, the impact extends much further.
Importance of ESG
- Investors: Making Informed, Future-Proof Decisions
- ESG data helps investors identify sustainable, well-managed companies.
- It reduces exposure to risks like climate regulations, social unrest or poor corporate ethics.
- ESG-focused funds are growing attracting billions globally.
- Businesses: Enhancing Reputation and Performance
Companies with strong ESG performance often enjoy:
- Better brand loyalty
- Easier access to financing
- A competitive edge in tender or procurement processes
- Employees: Choosing Purpose-Driven Workplaces
- Talented professionals, especially younger generations want to work for ethical companies
- ESG policies like fair wages, diversity and safety attract and retain top talent.
- A positive internal culture boosts productivity and morale.
- Regulators and Policymakers: Ensuring Accountability
- ESG reporting helps governments monitor compliance with climate and labor laws.
- It supports national goals like net-zero emissions or social equity.
- More countries are moving toward mandatory ESG disclosures.
- Customers and Communities: Supporting Responsible Brands
- Consumers increasingly prefer to support businesses aligned with their values.
- ESG transparency builds customer trust and brand loyalty.
- Communities benefit from companies that give back and operate sustainably.
Examples of ESG in Action
| Environmental (E) |
Social (S) |
Governance (G) |
| Reducing carbon emissions |
Providing fair pay |
Transparent board structure |
| Using renewable energy |
Ensuring workplace safety |
Anti-corruption policies |
| Managing waste responsibly |
Support local communities |
Regular, ethical audits |
| Green building certifications |
Diversity and inclusion training |
Data protection compliance |
Tax Deduction for ESG-Related Expenditures
Malaysia government introduced a deduction incentive to support businesses in embracing ESG practices and strengthening tax compliance. This initiative allows eligible businesses to claim tax deduction for specific ESG related and tax governance expenditures.
- Effective from Year of Assessment YA 2024 – YA 2027
- Tax deduction up to RM50,000 per YA is allowed on expenditure incurred
Who is eligible
Financial institution supervised by Bank Negara Malaysia or Company Listed on Bursa Malaysia
- Validation, verification and certification the use of ESG practices, calculation and tracking of the greenhouse gas emission and ESG exposure
- Subscription of technology or software systems for data collection, tracking the use of ESG metric, risk management, scenario analysis and calculation of greenhouse gas emissions
- Capacity building including training, education and skills development for employees
- Services of consultant expert or subject matter expert to perform activities as above
Company or Labuan Company expenditure for
- preparing the reporting as required under the guidelines for the Tax Corporate Governance Framework issued by the Director General and appointing an independent reviewer to perform review assessment of compliance with the guidelines for the Tax Corporate Governance Framework
- preparing the contemporaneous transfer pricing documentation
Micro, Small and Medium Enterprise (MSME) expenditure for
- consultation fee incurred for the development of customized software for the implementation of e-invoice in a business and obtaining services of external service provider
Not including
- expenditure incurred at the planning stage or preliminary procedures for the provision of the customized software
- consultation fee relating to the issuance of an electronic invoice through MyInvois Portal
Non-application
Businesses cannot claim this deduction if, for the same expenditure in a year of assessment, they have:
- Claim a deduction under Section 33 of the Income Tax Act
- Been granted a tax exemption under paragraph 127(3)(b) or subsection 127(3A) of the Act
- Claim for deduction under any rules made under section 154 of the Act
The Bottom Line
ESG matters to everyone connected to a business, from shareholders and employees to regulators and customers. It reflects how a company manages risks, treats people and prepares for the future.
