Directors’ Duties in Managing AI and ESG Under Malaysian Law: A Doctrinal Analysis

The emergence of Artificial Intelligence (AI) technologies and Environmental, Social, and Governance (ESG) integration with corporate governance has redefined the company directors’ responsibility. This scenario has changed the important legal questions on the extent the which directors in Malaysia are obliged to oversee and govern emerging risks and opportunities related to AI and ESG. This article examines the directors’ duties under the Companies Act 2016 using the doctrinal legal research methodology to determine whether there are provisions in relation to AI and ESG governance. To answer the question, a systematic analysis of the statute, case law and other regulatory frameworks is explored to clarify the emergence of legal duties of directors. The positions from the United Kingdom, Australia and Canada are referred to highlight international trends and best practices as a basis of comparison. The article asserts that directors are increasingly required to be actively involved with ESG and AI-related governance risks, including ethical considerations, transparency and sustainability reporting. It emphasised the need for legal reform, board competency enhancement, and clear regulatory frameworks to ensure that the boards are well-positioned to address the growing challenges of AI and ESG. In essence, the article suggests that directors must adopt a strategic and principled approach to governance that aligns with both statutory obligations and stakeholder expectations in the digital and sustainability-driven business landscape.

Director’s duty; Artificial Intelligence; Environment Social and Governance

1. Ajmal, H., Othman, M., B., & Mansor, H. (2021). Reawaken the Risk Governance in the Malaysian Corporate, Malaysian Journal of Social Sciences and Humanities, 6(10), 496-504. [Google Scholar] [Crossref]

2. Andone, C., & Leone, C. (2022). Talking Law: Clarity, transparency and legitimacy in rule-making. The theory of Practice and Legislation, 10(1), 1-4. Routledge [Google Scholar] [Crossref]

3. Austin, R., P. & Ramsay. I.,M. (2010). Ford’s Principles of Corporations Law. NSW: Lexis Nexis Butterworth Bamford, C. (2019, April 16). “S172 Director’s Duty-it’s not just about the bottom line” https://www.michelmores.com/news-views/news/s172-directors-duty [Google Scholar] [Crossref]

4. Bar-Hava, K. (2024). Lessons learned from warning signs before the October 7, 2023, failure: Strengthening board and auditor oversight. Corporate Board: Role, Duties and Composition. 54-61 https://www.researchgate.net/publication/385200884_Lessons_learned_from_warning_signs_b efore_the_October_7_2023_failure_Strengthening_board_and_auditor_oversight [Google Scholar] [Crossref]

5. BCE Inc. v 1976 Debenture holders (2008) SCC 69 Bismuth, R. (2023). The Ambiguous Relations between Corporate Compliance and Sovereignty. In MarieAnne Frison-Roche (ed.), Compliance Monumental Goals, 433-445. [Google Scholar] [Crossref]

6. Brand, V. (2024). Directors’ duties and AI regulation. Griffith Law Review, 1-31. http://doi.org/10.1080/10383441.2024.2422221 [Google Scholar] [Crossref]

7. Bursa Malaysia. (2023). Sustainability Reporting Guide (3rd ed.). https://bursaacademy.bursamarketplace.com [Google Scholar] [Crossref]

8. Cardoni, A., Kiseleva, E., & De Luca, F. (2020). Continuous auditing and data mining for strategic risk control and anticorruption: Creating “fair” value in the digital age. Business Strategy and the Environment, 29(8), 3072–3085. https://doi.org/10.1002/bse.2558 [Google Scholar] [Crossref]

9. Chynoweth, P. (2008). Legal research. In A. Knight & L. Ruddock (Eds.), Advanced research methods in the built environment ( 28–38). Wiley-Blackwell. [Google Scholar] [Crossref]

10. Clarke, S (2020, Feb 24). “The expansion of a director duty to act in the inter ests of the company" https://gatehouselaw.co.uk/the-expansion-of-a-director-duty-to-act-in-the-interests-of-the-company-2/ [Google Scholar] [Crossref]

11. Corfield, A. (1998). The Stakeholder Theory and its Future in Australian Corporate Governance: A Preliminary Analysis. Bond L.R, 10. 213-240 [Google Scholar] [Crossref]

12. European Union Final Report. Study on director’s duty and sustainable corporate governance [2020] [Google Scholar] [Crossref]

13. Freeman, R., E. (2010). The Stakeholder Concept and Strategic Management. In Strategic Management: A Stakeholder Approach. Cambridge University Press 31-51. [Google Scholar] [Crossref]

14. Gaske, M. R. (2025). Corporate Officers’ Fiduciary Duty to Monitor Generative Artificial Intelligence. Tennessee Law Review, 92(1), 239–304. [Google Scholar] [Crossref]

15. Gillis, Talia B. and Spiess, Jann L. (2019). Big Data and Discrimination. University of Chicago Law Review, 86(2), 459-487. https://chicagounbound.uchicago.edu/uclrev/vol86/iss2/4 [Google Scholar] [Crossref]

16. Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286 Goode, R. M. (2011). Principles of Corporate Insolvency Law (4th ed.). London: Sweet & Maxwell. [Google Scholar] [Crossref]

17. Halpern, P., Trebilcock, M., & Turnbull, S. (1980). An Economic Analysis of Limited Liability in Corporation Law. Uni. Toronto L.J, 30, 117 -142. [Google Scholar] [Crossref]

18. Hansmann, H. & Kraakman, R. (1992-1993). Do the Capital Markets Compel Limited Liability? A Response to Professor Grundfest. 102 Yale LJ, 427-436 [Google Scholar] [Crossref]

19. Hutchinson, T. (2010). Doctrinal research: Researching the jury. In E. McConville & C. H. Chui (Eds.), Research methods for law (pp. 7–33). Edinburgh University PressHutchinson, T., & Duncan, N. (2012). Defining and describing what we do: Doctrinal legal research. Deakin Law Review, 17(1), 83–119. https://doi.org/10.21153/dlr2012vol17no1art70 [Google Scholar] [Crossref]

20. Kawin Industrial Sdn Bhd (in liquidation) v Tay Tiong Soong [2009] 1 MLJ 723Keay, A. (2008). Ascertaining the Corporate Objective: an Entity Model and Sustainability Model MLR, 71. 663-698. [Google Scholar] [Crossref]

21. Kell, G. (2018, July 11). The remarkable rise of ESG. Forbes. Kelly, G,. & Parkinson, J. (2000). The Conceptual Foundations of the Company: A Pluralist Approach in Parkinson, Gamble &Kelly, Eds). HartPublishing.https://www.forbes.com/sites/georgkell/2018/07/11/theremarkable-rise-of-esg/?sh=73d6b3ea1695 [Google Scholar] [Crossref]

22. Luis A. Garcia-Segura. (2024). The Role of Artificial Intelligence in Preventing Corporate Crime. JournalofFinancialCrime.1-5 ttps://www.sciencedirect.com/science/article/pii/S2949791424000435 [Google Scholar] [Crossref]

23. Mansor, H (2011), Solvency, Company Directors’ Duties And The Problem Of Process And Enforcement- A Comparative Study [Doctoral thesis, The University of Waikato]. The University of Waikato Research Commons. http://researchcommons.waikato.ac.nz/ [Google Scholar] [Crossref]

24. Millon, D. 'Piercing the Corporate Veil, Financial Responsibility, and the Limits of Limited Liability' (2006) Legal Studies Research Paper Series at 15 October 2008 [Google Scholar] [Crossref]

25. Mirishi, S. (2024). The role of legal frameworks in shaping ethical Artificial Intelligence use in corporate governance. 68(1) International Law and Integration Problems, 52-65 [Google Scholar] [Crossref]

26. Ogunmokun, A. S., Balogun, E., & Ogunsola, K. O. (2025). A conceptual framework for AI-driven Financial Risk Management and Corporate Governance Optimization. [Google Scholar] [Crossref]

27. InternationalJournalforMultidisciplinaryResearch.772-780 https://www.researchgate.net/publication 390314464_A_Conceptual_Framework_for_AIDriven_Financial_Risk_Management_and_Corporate_Governance_Optimization. [Google Scholar] [Crossref]

28. Ortega, M. (2024). Finding a Core of Sustainability in Directors’ and Officers’ Fiduciary Duties. 34 Duk Environmental Law & Policy Forum, 49-89. https://scholarship.law.duke.edu/delpf/vol34/iss1/2 [Google Scholar] [Crossref]

29. Peoples Department Stores Inc. (Trustee of) v Wise (2004 SCC 68) Phillips, R. (2003). Stakeholder Theory and Organizational Ethics. San Francisco: Barret-Koehler. [Google Scholar] [Crossref]

30. Public Prosecutor v Datuk Harun bin Haji Idris [1976] 2 MLJ 116 Re Smith & Fawcett Ltd (1942) Ch 304 Sarkar, R & Smith, J.,J. (2025, 6 February). “Mitigating board and corporate fiduciary risks of AI” Risk Management Magazine. [Google Scholar] [Crossref]

31. Sasaki,K., Kozuka, S., & Izumi, T. (2025). Corporate Governance in the Age of AI. In Steffek, F., & Sumida, M (Eds.), Conversations about Technology, The Legal Profession and Societal Change (pp119-145). https://doi.org/10.1017/9781009427371.007 [Google Scholar] [Crossref]

32. Smith, S. (2021, April 20). “UK company law change could make section 172 fit for purpose” https://www.mitla.org.mt/uk-company-law-change-could-make-section-172-fit-for-purpose/ [Google Scholar] [Crossref]

33. Tian, J. & Zhang, Z. (2016). Stakeholder Wealth Maximization and the Goal of Financial Management in China. Proceedings of the 3rd International Conference of Applied Social Science Research (pp. 505-507). Atlantis Press. DOI:10.2991/icassr-15.2016.140 [Google Scholar] [Crossref]

34. Ustahaliloğlu, M. K. (2025). Artificial intelligence in corporate governance. Corporate Law & Governance Review, 7(1), 123–134. https://doi.org/10.22495/clgrv7i1p11 [Google Scholar] [Crossref]

35. Verhezen, P. (2020). What to expect from artificial intelligence in business: How wise board members can and should facilitate human-AI collaboration. In M. Kuznetsov & M. Nikishova (Eds.), Challenges and opportunities of corporate governance transformation in the digital era (pp. 61–90). IGI Global Scientific Publishing. https://doi.org/10.4018/978-1-7998-2011-6.ch004 Walker v Wimborne (1976) 3 ACLR 529 [Google Scholar] [Crossref]

36. Williams, D. (2014). Enlightened shareholder value in UK company law. University of New South Wales Law Journal, 37(2), 581–613. [Google Scholar] [Crossref]

37. Winkworth v Edward Baron Development Co Ltd [1986] 1 W.L.R. 1512 [Google Scholar] [Crossref]

• Conflict of Law in the Safeguarding of Malaysian Intangible Cultural Heritage: A Way Forward
• Alternative Dispute Resolution in India: A Brief Overview Justice Delayed is Justice Denied. - William E. Gladstone
• The Role of Museums in Safeguarding Cultural Heritage Rights: Balancing Access and Repatriation
• An Evaluation of the Universal Declaration of Human Rights' Significance and Application in Nigeria
• The Role of International Law in Shaping National Immigration Policies.