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Deciphering the Drivers of Climate transparency in Malaysia: TCFD
Perspective
Nur Syafiqah Hussin
1*
, Yusniyati Yusri
2
, Syahida Md Zeni
3
1,3
Faculty of Accountancy, University Technology MARA Pahang, Pahang, Malaysia
2
School of Business and Economics, University Putra Malaysia, Serdang, Selangor, Malaysia
*Corresponding Author
DOI: https://dx.doi.org/10.47772/IJRISS.2025.914MG00224
Received: 04 November 2025; Accepted: 11 November 2025; Published: 25 November 2025
ABSTRACT
The pressure to address climate change by stakeholders pushes business players to pledge their climate
commitment via reporting and disclosure. This mechanism signals the firm's climate adaptation and mitigation
efforts, projecting their environmental performance. The study aims to investigate the drivers of climate
transparency among publicly listed firms in Malaysia, with a focus on the perspectives of financial strength
and corporate governance. Climate transparency is assessed based on the Task Force on Climate-related
Financial Disclosures (TCFD) framework, in parallel with Malaysia's regulatory requirements. By adopting a
panel data analysis, the study found that leverage, firm size, and the adoption of innovation are significant
drivers of climate transparency among firms in Malaysia. However, no significant relationship was found for
profitability, sales growth, board independence, and CEO duality. The study provides valuable insights to help
market players prepare for a compliance strategy as climate change reporting becomes mandatory in Malaysia
in 2025 under the National Sustainability Reporting Framework.
Keywords: Climate change reporting, Disclosure, ISSB, Malaysia and TCFD
INTRODUCTION
Environmental risks have dominated the long-term risks in terms of their likelihood of occurrence and severity,
as reported by the Global Risk Reports issued by the World Economic Forum (Cavaciuti-Wishart et al., 2024;
Elsner et al., 2025a, 2025b; Franco, 2020; Franco et al., 2021, 2022; Heading & Zahidi, 2023). The findings
capture the views of over 1,500 global experts, including governments, industry players, non-governmental
organisations (NGOs), and academics, which show that these multi-stakeholders have collectively
acknowledged that a sustainability roadmap is no longer optional but an obligation for all. The heightened
concerns over climate-related issues among multi-stakeholders may be due to the worldwide reported
catastrophes that have caused fatalities and property damage, in addition to disrupting national systems. The
restoration process would require a significant amount of effort and funding, especially for the marginalised
community, despite their relatively small contribution to climate change (Sultana, 2022). The attention and
pressure from stakeholders mean that business players cannot afford to ignore the calls for climate mitigation
and adaptation. Failure to respond to stakeholders' demands may cause firms to suffer strategic drift,
negatively impacting their business sustainability in the market.
Meanwhile, on July 28, 2022, the United Nations (UN) declared that access to a clean, healthy, and sustainable
environment is a universal human right (UNEP, 2022). The global move is also demonstrated by the global
financial standard setters' pursuit of climate-related information disclosures as part of the global financial
standards to be adopted by market players. Specifically, the International Financial Reporting Standard Board
(IFRS), being the global accounting standard setter, has developed climate-related disclosure standards, known
as IFRS S1 General Requirements for Disclosure of Sustainability-related Disclosures (IFRS S1) and IFRS S2
Climate-related Disclosures (IFRS S2) under the jurisdiction of the International Sustainability Standard Board
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(ISSB). The move aims to enable firms to report consistent climate-related information and uniform metrics,
facilitating informed decision-making by investors (IFRS, 2023). For Malaysia, the introduction of the ISSB
Standards has been mandated by regulatory authorities under the National Sustainability Reporting
Framework. Still, implementation is expected to begin in 2025, with full adoption anticipated in 2030 (SCM,
2024). Before the introduction of the ISSB Standards, the climate-related information disclosure in compliance
with the Task Force on Climate-Related Financial Disclosure (TCFD) framework was introduced to the listed
firms on Bursa Malaysia on September 26, 2022 (BM, 2022). Nonetheless, as the requirement is to be
implemented by the end of the 2025 financial year, the disclosure remains voluntary during the interim period.
Following that, the current study was initiated to investigate the drivers of climate transparency within a
voluntary disclosure context in the emerging market setting, with a particular focus on Malaysia. The
investigation focuses on firm-level characteristics, encompassing aspects of financial strength and corporate
governance (Darus et al., 2019; Desai, 2022; Wahyuningrum et al., 2024). The study contributes to the body of
knowledge by providing empirical evidence from an emerging market context, where the preparation of
climate change reporting remains voluntary. In addition, the findings provide valuable insights to business
players in preparing for the mandatory climate change reporting requirements in the country.
LITERATURE REVIEW
Previous studies have employed a similar keyword search to explore the study realm, including terms such as
climate change, carbon, global warming, account*, report*, and disclosure* (Borghei, 2021; Gulluscio et al.,
2020; He et al., 2022; Wang, 2023). Despite the different terms used in previous literature, they all lead to the
same purpose of counteracting climate change by disclosing climate-related information. Previous studies have
examined the internal and external forces that influence a firm's propensity for climate information disclosure
as part of its strategic climate response (Borghei, 2021). The firm's corporate governance and financial
attributes were extensively discussed as part of the internal motivation (Abdalla et al., 2024; Darus et al., 2019;
Giannarakis et al., 2018) and regulatory landscape, as well as stakeholder pressure, as part of the external
factor (Falkner, 2016; Polizzi & Scannella, 2023). In support of this stance, He et al. (2022) found that the
plethora of literature in influential accounting journals, as reported by the Australian Business Deans Council
(ABDC) between 2005 and 2018, also concentrated on the motivation for carbon disclosure. Based on previous
literature, He et al. (2022) proposed a framework for determining the determinants of carbon disclosure,
focusing on the firm's internal factors, including corporate governance, financial resource constraints, and
accounting information systems.
Firm size is one of the most discussed drivers for climate transparency. Besides possessing the capacity to
undertake climate initiatives, the visibility of large firms among stakeholders exposes them to stronger
scrutiny, which in turn motivates them to be more proactive in climate disclosure (Luo et al., 2013). Mixed
findings are reported for profitability. Profitable firms are generally motivated by a signalling mechanism to
show the firm's business sustainability in relation to its available resources (Ben-Amar & McIlkenny, 2015).
However, others find that profitability does not drive climate transparency (Dharma et al., 2024). The same
mixed findings are reported for leverage. Highly leveraged firms may disclose more information to reduce the
information asymmetry between capital funders and firms, or be subject to a capital covenant. However, in
contrast, some studies find that highly leveraged firms may face financial constraints in committing to climate
action (Bae Choi et al., 2013). Meanwhile, for firms experiencing stronger growth, they may tend to allocate
their funds and resources to revenue expansion plans rather than climate-related matters, contributing to their
adverse relationship (Mou & Ma, 2023). Lastly, as environmental quality involves capital investments (Caglar
et al., 2024), firms adopting innovation tend to disclose more climate-related information as part of their
strategic differentiation and pursuit of social legitimacy. Meanwhile, as part of the aspect of corporate
governance, board independence enhances monitoring effectiveness by taking proactive action on heightened
concerns over the importance of providing climate-related information (Ben‐Amar & McIlkenny, 2015).
In assessing the information disclosed, few guidelines are available in the markets. Nevertheless, the newly
developed Task Force on Climate-related Financial Disclosure (TCFD) framework has been progressively
adopted by G7 and G20 countries, including the European Union, Australia, Singapore, and New Zealand
(Dey, 2024). The inclination towards the TCFD framework was reported by Achenbach (2021) based on
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interviews conducted with TCFD supporters. The study reported that the respondent highlighted the ability of
stakeholders to grasp the information well, while also acknowledging that the disclosed information extends
beyond the retrospective application (Achenbach, 2021). Hence, the adoption of the TCFD framework extends
beyond compliance purposes, as it enables a firm to respond effectively to climate risks and opportunities. In
addition, the TCFD framework has served as the foundation for the development of ISSB Standards, thereby
strengthening their position among market players as a compliance mechanism.
METHODOLOGY
Sample and Data Collection
The sample of the study consists of publicly listed companies (PLCs) on Bursa Malaysia from all industries,
except the financial sector, from 2020 to 2023. The exception for the financial sector was made due to its
unique and highly regulated nature (Jin et al., 2025), which may impact the generalizability of the final results.
The ten largest PLCs, based on their market capitalisation, from each sectoral industry were selected due to the
implementation of regulatory requirements in Malaysia that require the preparation of climate-related
information disclosure depending on their market capitalisation (SCM, 2024). Based on the disclosure
requirement, firms with a market capitalisation of RM2 billion and above will start disclosing climate
information as Group 1, followed by others in the following year (SCM, 2024). Hence, by focusing on the top-
capitalised firms, one can obtain richer information disclosure pertaining to climate-related information. In
addition, previous studies have highlighted the focus on large firms in sustainability studies due to their
significant impact on the ecological element (Yusoff et al., 2018). The distributions of firms based on the
sectoral index by Bursa Malaysia are presented in Table 1.
Table 1 Distribution of Industries Classification Based on Bursa Malaysia
No
Industry
Number of firms
1
Property
10
2
Construction
10
3
Energy
10
4
Plantation
10
5
Industrial products and services (IPS)
10
6
Utilities
10
7
Transportation and logistics
10
8
Consumer products and services (CPS)
10
9
Telecommunication and media
10
10
Utilities
10
11
Technology
10
Total of firms
110
Climate Transparency
In collecting the data for climate transparency, a content analysis was conducted on the annual reports of PLCs
in Malaysia, including the Sustainability Report and Integrated Report from 2020 to 2023, with a focus on the
Sustainability Section. This aligns with the disclosure requirements set by Bursa Malaysia, which specify the
preparation of sustainability information to be included in a designated section. The information should be
clearly and vividly disclosed, in addition to being separated from the chairman's statement (BM, 2015, 2022).
To assess climate transparency, an index developed by Hussin et al. (2025) was used to evaluate the quality of
climate-related information disclosure by PLCs in Malaysia. The index was developed in accordance with the
Task Force on Climate-Related Financial Disclosure (TCFD) framework. As Bursa Malaysia has adopted the
TCFD as part of its disclosure requirements for climate change reporting via its disclosure requirement in 2022
(BM, 2022), the index is suitable and appropriate to be used for a study conducted in Malaysia. Consistent with
the TCFD framework, the disclosure of climate-related information was assessed from four (4) pillars,
comprising governance, strategy, risk management and metrics and targets. The climate transparency is
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mathematically expressed in the following equation :
Where, CT
it
= Climate change reporting score for firm i at year t
X
ijt
= Total weightage scores for all pillars of climate change reporting for firm i at year t
N
j
= Maximum score for overall climate change reporting
Meanwhile, Table 2 specifies the measurement for independent and control variables used by the study:
Table 2 Measurement Of Independent and Control Variables
Variables
Measurement
Profitability (PROF)
Net income divided by total assets (Ali et al., 2022)
Sales Growth (GRW)
Current year's revenues divided by the revenues from the previous year
(Shaikh, 2022)
Leverage (LEV)
Total debts divided by total capital (Hassan & Romilly, 2018)
Size (SIZE)
Natural logarithm of total assets (Ali et al., 2022)
Innovation (INNOV)
A dichotomous scale of 0 or 1. A score of 0 with the non-adoption of SDG 9
and 1 for the adoption of SDG 9 (Mavuri et al., 2019)
Board Composition (BOARD)
Total independent directors divided by the total number of board of directors
(Jia & Bradbury, 2021)
CEO Duality (CEOD)
A dichotomous scale of 0 or 1. A score of 0 with a separate person and 1 for
the same person acting as chairman and CEO (Yu, 2023)
Data Analysis
Following the previous discussion, the current study proposes the following estimation equation:
CT
it
= α + β
1
PROF
it
+ β
2
GRW
it
+ β
3
LEV
it
+ β
4
SIZE
it
+ β
5
INNOV
it
+ β
6
BOARD
it
+ β
6
CEOD
it
+ε
it
Panel data analysis was conducted using Stata 17 to investigate the drivers of climate transparency among
PLCs in Malaysia, given its robustness in handling unobserved heterogeneity and reducing multicollinearity
among variables (Wooldridge, 2002). In addition to the pooled ordinary least squares (POLS) model, the fixed
effect (FE) and random effect (RE) models are presented. Two diagnostic tests were conducted in selecting the
most appropriate model, which are the Breusch Pagan LM and the Hausman test. Additionally,
heteroskedasticity and autocorrelation checks were also undertaken for a more robust final estimation. Upon
the selection, the standard error was clustered as part of the robust variance analysis to ensure reliable results
(Gutierrez & Drukker).
FINDINGS AND DISCUSSION
Descriptive Analysis
Table 3 summarises the descriptive statistics of the variables used in the current study. The climate
transparency (CT) among PLCs in Malaysia between 2020 and 2023, as measured by the climate change
reporting score, indicates a mean value of 39.57. This score is higher than that reported in the previous study
conducted by Darus et al. (2019) and Abdalla et al. (2024), with average disclosure scores of 22.81 and 17.70,
respectively. The minimum value of CT at 0.00 shows that there are firms that do not disclose any climate-
related information in their annual report. The introduction of climate-related information disclosure in 2022,
through the amendment of listing requirements by Bursa Malaysia, may help explain the low adoption rate
among PLCs in Malaysia. In addition, the implementation of the listing requirements is a phased approach
based on the market capitalisation. Meanwhile, the mean profitability (PROF) of the sample firms is 6.92,
ranging between -44.36 and 84.04. The sales growth rate (GRW) among Malaysian firms ranges from 0.06 to
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97.65, with a mean value of 1.81. The leverage (LEV) of the sample firms indicates that some firms obtain all
their funding through capital contributions, with a minimum value of 0.00. However, the average of 32.95
suggests that, generally, firms in Malaysia are not highly leveraged. The average size (SIZE) of the sample
firms is 15.45, measured by the log of total assets, which ranges between 11.09 and 83.33. As part of the
corporate governance element, the mean value of 53.16 for board composition (BOARD) indicates that,
generally, Malaysian firms have more independent directors on their boards. The results also revealed that the
majority of the Malaysian firms have a separate person acting as the chairman and CEO of the company. The
variable of innovation (INNOV) indicates that 48 per cent of the firms are adopting SDG 9: Industry,
Innovation, and Infrastructure.
Table 3 Descriptive Statistics of the Study's Variables
Variable
N
Mean
Standard Deviation
Minimum
Maximum
CT
434
39.57
17.98
0.00
97.22
PROF
428
6.92
10.32
-44.36
84.04
GRW
425
1.81
5.10
0.06
97.65
LEV
434
32.95
23.10
0.00
137.48
SIZE
434
15.45
1.44
11.09
83.33
BOARD
434
53.16
11.51
23.08
83.33
Variable
Non-INNOV
INNOV
Frequency
%
Frequency
%
N
225
52
206
48
431
Variable
CEO duality
CEO separation
Frequency
%
Frequency
%
%
34
8
400
92
434
Correlation Analysis and Multicollinearity
Table 4 presents the correlation matrix analysis of all variables in this study. Based on the results, the highest
coefficient reported is 0.4818, which is below the cut-off of 0.7 (Hair et al., 2010). This is supported by the
results presented in Table 5, which show that the variance inflation factor (VIF) values for all independent
variables covered in the study are less than 5, indicating no multicollinearity problem arose in the dataset.
Table 4 Correlation Matrix
Variable
CT
PROF
GRW
LEV
SIZE
INNOV
BOARD
CEOD
CT
1
PROF
0.0380
1
GRW
0.0042
0.3610
1
LEV
0.1105
-0.3650
-0.0604
1
SIZE
0.3731
-0.3356
-0.1814
0.3844
1
INNOV
0.4818
-0.0595
-0.0100
0.1823
0.3800
1
BOARD
0.1562
-0.0771
-0.0504
0.0835
0.1003
0.0757
1
CEOD
0.0995
-0.0133
0.0093
0.0852
0.0335
-0.0097
-0.0603
1
Table 5 Variance Inflation Factor (Vif) Values
Variable
VIF
1/VIF
SIZE
1.42
0.7067
PROF
1.36
0.7329
LEV
1.26
0.7951
INNOV
1.19
0.8430
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GRW
1.18
0.8496
BOARD
1.02
0.9811
CEOD
1.02
0.9817
Mean VIF
1.21
Regression Results
Table 5 presents the regression results for the drivers of climate transparency among PLCs in Malaysia from
2020 to 2023. As the baseline of the model estimation, represented by the POLS, most of the variables under
study have a significant relationship with climate transparency, except for GRW and LEV, with an R² of 32.65
per cent. However, the Breusch-Pagan test for heteroskedasticity yielded a p-value of 0.0418. The p-value of
less than 0.05 indicates that the model estimation provides sufficient evidence to reject the null hypothesis that
the variance of the individual-specific effect is equal to zero. Hence, panel analysis was conducted for more
robust regression results. Upon conducting the static panel analysis, the FEM estimation prevailed, with a
Hausman's p-value of more than 0.05, specifically 0.0002. Hence, a robust estimation of FEM is relied on as
the analysis's final results, which has clustered the standard error of each variable. Upon the adoption of the
FEM, diagnostic tests for heteroscedasticity and autocorrelation were conducted, with both tests indicating a
reported p-value of more than 0.05. It indicates that robust standard error estimations should be carried out to
arrive at valid and final results by clustering the standard error (Hoechle, 2007).
Based on the results, leverage (LEV) has a significant negative relationship with the CT, with a coefficient of -
0.1641. The negative relationship shows that highly leveraged firms tend to disclose less information on
climate-related matters. The finding is consistent with Desai (2022) for studies conducted in India, using panel
data analysis. Highly leveraged firms tend to prioritise servicing their financial obligations, which negatively
influences the firm's initiative to undertake climate commitments. Environmental investment necessitates
substantial capital contributions, and a longer timeframe is required for a viable return on investment (Palmer
et al., 2001; Przychodzen & Przychodzen, 2015). Hence, highly leveraged firms must be able to wisely
managed their financial resources for environmental investment, when simultaneously having financial
obligation to Secondly, the firm's size also significantly influences the propensity of firms to disclose climate-
related information, with a coefficient of 11.2309. Large firms tend to disclose more climate-related
information, considering their significant environmental impact and the scrutiny they face from stakeholders
(Haniffa & Cooke, 2005). To legitimise their business operations, the provision of such information serves as a
mechanism to convince stakeholders of the efforts towards environmental sustainability. In addition,
considering the regulatory landscape of disclosure requirements in Malaysia based on their market
capitalisation (BM, 2015, 2022), a significant positive relationship is warranted. The regulatory push drives
large firms to adopt climate change reporting more quickly to avoid a negative reputation or fines and
penalties. Thirdly, the adoption of the innovation has a significant impact on the inclination of firms towards
climate commitments, with a coefficient of 0.2709. The result is consistent with Kong et al. (2023), who found
that technological innovation has a significant influence on ESG performance in Central and Southern Africa.
Technological innovation enhances the capacity of firms to adopt sustainable practices (Kong et al., 2023),
particularly in the context of environmental performance through improved resource productivity and
competitiveness (Porter & Linde, 1995). Therefore, through innovation, the firm's climate performance
improves, which indirectly enhances the quality of climate disclosure.
Table 6 Estimation Results of Pols, Fem and Rem for Climate Transparency and its Drivers
Dependent variable: CT
POLS
REM
FEM
FEM (Robust)
PROF
0.0975
0.0651
0.0459
0.0459
(0.0296)***
(0.0300)**
(0.0346)
(0.0465)
GRW
- 0.0245
-0.0002
-0.0944
-0.0944
(0.0610)
(0.0667)
(0.0839)
(0.0819)
LEV
-0.0083
-0.0432
-0.1641
-0.1641
(0.0252)
(0.0343)
(0.0608)***
(0.0722)**
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SIZE
2.022
2.5798
11.2309
11.2309
(0.3435)***
(0.5097)***
(2.0127)***
(2.7620)***
INNOV
0.4199
0.3933
0.2709
0.2709
(0.0538)***
(0.0548)***
(0.0668)***
(0.6514)***
BOARD
0.0060
0.0792
-0.1819
-0.1819
(0.0022)***
(0.1241)
(0.1568)
(0.1221)
CEOD
0.2143
0.1588
0.1347
0.1347
(0.0977)**
(0.1160)
(0.1511)***
(0.2668)
Constant
-2.825
-4.1249
-26.2322
-26.2322
(0.9273)***
(1.4462)***
(5.503)***
(7.5206)***
Observations, N
373
373
373
373
No of groups
107
107
107
R-squared, R
2
0.3265
0.3243
0.2702
0.2156
F-test
25.24
13.70
9.32
(0.0000)***
(0.0000)***
(0.0000)***
Wald chi2-test
117.89
(0.0000)***
Poolability F-test
4.07
(0.0000)***
Breusch-Pagan LM test
56.83
(0.0000)***
Hausman test
27.94
(0.0002)***
Heteroskedasticity
2.11
0.00073
(0.0418)**
(0.0000)***
Serial Correlation
35.568
(0.0000)***
Figures in parentheses are standard errors except for the F-test, Wald chi2-test, Poolability F-test, Breusch
Pagan LM test, Hausman test, Heteroskedasticity and Serial Correlation tests, which are p-values.
***, ** and * indicate the respective 1%, 5% and 10% significance levels, respectively.
CONCLUSIONS
The provision of climate-related information to stakeholders, referred to as climate transparency in the current
study, may serve as part of an environmental strategy in responding to stakeholders' pressure due to the
catastrophic effects of climate change. The current study found a positive development in climate transparency
among PLCs in Malaysia prior to the mandatory requirement for climate change reporting in the country,
which will be implemented on a phased basis starting from 2025. The study found that the significant drivers
of climate transparency in the emerging country of Malaysia are leverage, firm size, and the adoption of
innovation. Highly leveraged firms are reluctant to allocate their resources to climate initiatives because
financial obligations typically take precedence, explaining their significant negative relationship. Secondly,
large firms tend to disclose more climate information to legitimise their business operations due to the
significant environmental impact caused by their business activities. Lastly, firms that undertake innovation are
climate-inclined, thereby enabling them to provide more climatic information to stakeholders. This empirical
evidence offers valuable insights for business players as a readiness strategy for climate transparency,
considering that substantial capital investment is needed for green endeavours. Meanwhile, the government has
a crucial role to play in preparing a proactive environment in the country for green investment. Especially, as
the government moves towards the mandatory requirement for climate change reporting, it must take proactive
action to encourage firms to undertake climate initiatives through tax incentives, green financing, or
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technology knowledge transfer.
For future research, the application of a dynamic panel model, such as the Generalised Method of Moments
(GMM) method. GMM is a more robust panel data analysis method that considers the dynamic element in the
model of the equation. The dynamic panel modelling will incorporate lagged dependent variables, as it
assumes that last year's dependent variable affects the current year's dependent variable. With the application
of GMM, the comparison between static panel and dynamic panel data analysis will provide more robust
findings, which future studies may use to fill the gap.
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