Malaysian small and medium enterprises may face less direct exposure to the European Union’s corporate sustainability reporting rules following changes to the Corporate Sustainability Reporting Directive (CSRD), but commercial pressure to provide credible environmental, social and supply-chain data is unlikely to diminish, according to MBSB.
The banking group said the EU’s regulatory changes should not be interpreted as a retreat from sustainability requirements, particularly for Malaysian exporters supplying multinational companies and international markets.
Under Directive (EU) 2026/470, adopted as part of the EU’s Omnibus I package, the turnover threshold applying to certain non-EU parent companies under Article 40a of the Accounting Directive has been raised from €150 million to more than €450 million in net turnover generated in the EU.
The revision is intended to reduce the number of non-EU parent companies directly caught by the reporting requirements.
The directive was published in the Official Journal of the European Union on Feb 26, 2026 and entered into force on March 18.
MBSB said relevant EU companies covered by the revised thresholds are expected to report for financial years beginning in 2027, while non-EU parent companies falling under Article 40a are expected to make their first mandatory reports for financial year 2028, with reporting due in 2029.
Buyers Will Still Demand Sustainability Data
For Malaysian companies, however, MBSB said the more important question may not be whether they are directly covered by the CSRD, but whether their customers, financiers and trading partners require sustainability information from them.
“The reduction in the number of companies directly captured by the European reporting rules should not be mistaken for a reduction in the market’s expectations,” MBSB Research Chief Economist Abdul Mui’zz Morhalim said.
“For Malaysian businesses, the path forward remains clear: buyers and investors increasingly want reliable evidence on emissions, resource use, labour practices and supply chain risks. Companies that build this capability early will be better positioned to compete across markets, not simply comply with one regulation.”
Malaysian exporters in electronics, palm oil, rubber and chemical manufacturing are particularly exposed to this trend.
Large international customers may continue requesting primary information on carbon emissions, labour conditions, sourcing and product traceability to meet their own sustainability reporting, procurement and due-diligence obligations.
This means SMEs that are not themselves legally required to produce comprehensive sustainability reports could nevertheless face substantial data requests as suppliers to larger companies.
EUDR Brings More Immediate Deadline
For Malaysia’s palm oil and rubber industries, MBSB said the EU Deforestation Regulation (EUDR) represents an even more immediate consideration.
The regulation covers both commodities and requires relevant operators and traders to demonstrate that products entering the EU market are not associated with deforestation or forest degradation.
Its application begins from Dec 30, 2026 for large and medium operators, putting traceability and supply-chain information firmly on the near-term agenda for affected exporters.
The requirements could have implications further down the supply chain as exporters seek more detailed information from producers and suppliers to demonstrate the origin and sustainability credentials of their products.
Sustainability Demands Spreading Beyond Europe
MBSB stressed that the shift towards greater sustainability disclosure is no longer predominantly a European development.
Japan is introducing mandatory sustainability disclosures for progressively larger companies listed on the Tokyo Stock Exchange Prime Market, while South Korea is moving towards mandatory disclosure for large listed companies under its recently finalised roadmap.
As a result, Malaysian companies participating in regional and global supply chains could increasingly receive ESG-related information requests from multiple markets and major customers, rather than only European buyers.
For SMEs, MBSB said the strategic question is therefore shifting from simply asking whether they fall under a particular regulation to determining whether they can provide the information customers increasingly expect.
Companies should identify their major customers that are exposed to sustainability requirements, map the information likely to be requested and establish systems for gathering primary operational data.
This could include electricity and fuel consumption, payroll and labour information, supplier data and product traceability.
Moving away from broad industry estimates towards verifiable company-level data could also improve commercial competitiveness by enabling businesses to respond more effectively to customer questionnaires, demonstrate measurable progress and identify operational efficiencies that can lower both emissions and costs.
Malaysia’s Own Reporting Framework Raises Pressure
The transition is also being reinforced domestically.
MBSB noted that Malaysia’s National Sustainability Reporting Framework (NSRF) establishes the IFRS Sustainability Disclosure Standards as the country’s baseline for sustainability reporting, with implementation being phased according to company size.
Bursa Malaysia has similarly introduced phased sustainability reporting requirements for listed issuers, while large non-listed companies are also being incorporated into the reporting ecosystem.
As larger companies strengthen their disclosure capabilities, they will increasingly depend on suppliers for reliable information to calculate and substantiate their own sustainability metrics.
For SMEs, this creates indirect reporting pressure even where there is no direct legal obligation to publish a sustainability report.
ESG Readiness Becoming A Commercial Issue
MBSB said the transition should therefore be viewed not merely as a compliance exercise but as an investment in commercial readiness.
Many SMEs nevertheless face practical constraints, including limited expertise, financial resources and familiarity with green financing.
Companies may also need capital to replace inefficient equipment, improve energy and water management, install renewable-energy systems, digitise data collection or modernise production processes.
MBSB said financing and capability-building will need to work together, with suitable funding helping businesses invest in cleaner equipment and processes while advisory and technical support develops their ability to measure and demonstrate the resulting improvements.
The bank is also progressing work on a circular economy framework intended to help companies identify opportunities to reduce resource consumption, improve efficiency and develop more resilient business models.
Ultimately, MBSB said Europe’s narrowing of the CSRD’s direct scope may provide regulatory relief for some Malaysian companies, but it does not reverse the broader direction of travel.
As sustainability requirements expand across Europe and major Asian markets while Malaysia develops its own disclosure framework, businesses capable of measuring their environmental and social impact and producing credible data will be better positioned to retain customers, secure financing and compete in increasingly demanding global supply chains.
