Another ESG headline to watch closely is Malaysia’s planned implementation of a carbon tax from 2026, beginning with selected high-emissions sectors such as iron, steel and energy.
“While pricing levels have not been finalised, the policy signal alone is material: Carbon is transitioning from an externality into a measurable cost of doing business,” Faroze Nadar, executive director of UN Global Compact Network Malaysia and Brunei, noted.
Although the initial scope appears limited to a small group of sectors, Andrew Chan, partner at PwC Malaysia and its sustainability and climate change leader, cautioned that the indirect impact can be far reaching.
“Companies in these sectors will need to either reduce their omissions (likely incurring capex costs to decarbonise) or pay the tax itself,” he said. “The carbon tax will be a cost to the company if they aren’t able to decarbonise, and as with any other cost, it is expected to be passed on to their customers.”
As a result, downstream sectors will not be insulated. Manufacturing and property companies, for example, are expected to face higher costs as prices of iron and raw steel will rise. For the energy sector, the indirect impact will be even more widespread, given that its customers span almost all sectors, companies and consumers.
Looking ahead, Chan said companies should also expect that the sectors directly exposed to carbon tax will increase over time. “As decarbonisation is not an overnight solution, they should start and progress their decarbonisation journey now to mitigate the future impact of the tax, or to factor this additional cost in all their future decision making.”
Immediate actions include upskilling and educating their customers, supply chain, employees and upper management, he said. Companies can also utilise targeted financial and technical assistance from the government to offset indirect impacts. Avenues like the Green Investment Tax Allowance (GITA) can serve as a carrot to encourage companies to use locally manufactured MyHIJAU-certified green technology products, he said.
At the board and senior management level, Liu Chai Hong, KPMG’s sustainability services director, observed that introduction of carbon tax will accelerate conversations on transition strategies and decarbonisation roadmaps; technology investments, such as energy efficiency, renewable energy, electrification or low-carbon fuels; as well as supply chain engagement and supplier performance standards.
The carbon tax will shift organisation’s perception of carbon emissions from a reputational or compliance matter to direct financial liability that affects profitability, pricing strategy and investment decisions, Liu said.
Beyond creating a new cost line, she expects the carbon tax to catalyse the broader carbon pricing ecosystem.
Companies will begin assigning an internal cost per tonne of emissions to guide capital allocation, evaluate project feasibility and prioritise low carbon alternatives. Some may use higher “shadow carbon prices” than the official tax rate to futureproof long-term investments, she explained.
There may also be a shift towards greater participation in voluntary and compliance carbon markets, as companies explore carbon offset schemes or prepare for future emissions trading systems (ETS) to manage exposure, she added.
Crucially, the effectiveness of the carbon tax—and the broader carbon pricing framework—depends on policy predictability and transparency. Clear and stable price trajectories enable companies to plan long‑term investments rather than react defensively to short‑term policy shifts.
“This also supports organisations in developing robust carbon adaptation and transition plans, aligning capital expenditure, operational changes, and technological investments with future carbon cost expectations,” Liu said.
For Bernard Business Consulting ESG and sustainability consultant Ng Jia Xin, one of her focuses in 2026 is on helping businesses improve their carbon accounting practices to ensure emission is accurate and complete for tax compliance.
“The next critical step is implementing practical solutions to reduce carbon emissions,” she said.
However, the idea that solutions are expensive has held companies back from exploring decarbonisation solutions. Other common challenges include lack of knowledge and clarity and the absence of mandatory compliance requirements, she noted.
“To us, solutions should be practical and affordable, and we have the capability to help businesses discover this through design thinking.”
