As Malaysia looks forward to maintaining its competitiveness, local businesses and regulators need to understand the changing dynamics of international investor sentiment. International investors are increasingly required not only to disclose ESG indicators to their stakeholders and financiers, but also to set minimum benchmarks for eligible investments based on ESG factors. In order to meet the demand of international investors in this regard, it is essential that Malaysia put in place an appropriate and effective legal and regulatory framework to ensure that compliance with environmental laws is effectively monitored and strictly enforced. Although the EQA 2019 has been reviewed by the DOE by a government-mandated group of government officials, academics, civil society and legal experts, and the Secretary of Natural Resources and Environment has made announcements in the past about changes to the EQA or even the possibility of enacting new legislation replacing the EQA in its entirety, these reviews and announcements have resulted in only sporadic changes to the EQA and little progress towards a complete revision of the EQA. First, an initial assessment should be carried out to determine whether there are potential effects on the environment below the surface based on a defined assessment protocol/procedure. The initial assessment typically includes a literature review, interview and site visit. In this update, we take a closer look at some of the common environmental compliance issues in Malaysia. With respect to metal concentrations, the Guidelines recognize that metal concentrations may be the result of a natural phenomenon and therefore the concentration of metals must be carefully assessed to determine whether the concentrations detected occur naturally or originate from anthropogenic sources. Even if the natural concentration of metals becomes higher than SSL, responsible parties are required to substantiate the basis of these claims and inform the DOE. Without DOE approval that metal concentrations are due to natural phenomena, the responsible party must manage the risk of underground contamination on land. However, in February 2021, in pursuit of a cleaner and healthier environment in Malaysia, Prime Minister Tan Sri Muhyiddin promised that a review was underway to ensure strict measures could be taken against violations of the EQA. Allocations have also been included in Budget 2021 under the Fourth Resource Stability Strategy to ensure Malaysia delivers on its commitment to the United Nations Sustainable Development Goals.
In addition to EQA revision plans, other “green” initiatives include: (i) the first sustainability bond for environmental and social initiatives, to be issued in 2021 as the basis for Malaysia`s transition to a low-carbon economy; ii) Extend income tax exemptions for green sukuk grants for sustainable and responsible investment (“SRI”) to encourage the issuance of SRI products and bonds; and (iii) the Green Technology 3.0 Financing Programme, with an allocation of RM 2 billion by 2022. In general, the EQA prohibits any person from emitting, discharging or causing the ingestion or release into the atmosphere of substances, pollutants or wastes hazardous to the environment unless they obtain a permit (specifying the conditions and authorized limits) from the DOE. With respect to pollution of land and inland waters/groundwater, section 24 (Restrictions on soil pollution) and section 25 (Restrictions on pollution of inland waters) of the EQA list the restrictions and measures that would result in a person being considered polluted. In particular, with respect to the management of planned wastes, Article 34B provides that no person shall deposit, deposit or dispose of planned wastes on land or in Malaysian waters (inter alia) without the prior written permission of the Director-General. These provisions are usually referred to when referring to frequently reported pollution activities occurring in Malaysia. Amid the long-term challenges of tackling pollution and implementing a stricter and more effective EQA, pandemic uncertainty and stricter movement control restrictions have made it more difficult to predict when a revised EQA will be introduced in Parliament. Most reported cases of pollution and violations of environmental legislation are often due to industrial activities. In 2020, a large proportion of reported pollution cases were caused by the illegal dumping and landfilling of industrial waste. Here are some examples of reported cases and their impact on the environment and the lives of communities in the region.
With unimproved pollution activities in Malaysia, coupled with industry players apathy towards the potential environmental impacts arising from their actions, there is a growing need to review our environmental laws to guide Malaysia`s national environmental policy to better address these concerns. Subsequently, a detailed assessment should be conducted if the results of the initial assessment indicate that the country may be affected by on-site or off-site activities. A detailed assessment includes a soil and groundwater study to determine if underground environmental environments are affected. This typically includes activities such as soil drilling, groundwater well installation, and soil and groundwater samples. A copy of the detailed evaluation report must be submitted to the DOE. If it is determined that the underground contamination poses an unacceptable risk to human health and/or an environmental risk, the landowner must propose and implement a remedial action plan. The legal and regulatory framework for environmental protection, conservation and conservation in Malaysia consists of various laws and is supplemented by decrees, rules and regulations issued by the relevant ministers vested with these powers by legislation. With respect to pollution protection, the main framework is based on the provisions of the Environmental Quality Act 1974 (“EQA”) and orders, rules and regulations issued by the Minister of Environment and Water. The EQA is managed by the Department of the Environment (“DOE”) under the supervision and direction of the Director General of Environmental Quality (“Director General”), who is empowered to conduct and delegate EQA enforcement activities. Almost every other day, we receive feeds and articles on various platforms on the importance of adopting environmental, social and governance (“ESG”) policies that contribute to ethical and responsible business operations, with the golden mantra “sustainable”. Recent reported events have also shown an increasing shift in investors` investment criteria and objectives, which place significant importance on ESG policy disclosure and compliance when assessing the fairness of investing in the market. We are seeing companies facing compliance issues financially impacted, resulting in a loss of goodwill due to negative media coverage as investor sentiment becomes increasingly wary of ESG risks.
In the most extreme cases, there is a risk of losing access to an entire market. Whether it`s regulatory action by US authorities on shipments of upper gloves due to alleged human rights concerns, unprecedented layoffs of Exxon Mobil executives by activist investor group Engine No. 1, or ongoing bilateral negotiations over Malaysian palm oil imports into the EU, these incidents show that investors and companies may have underestimated the ESG imperative at their peril. According to the guidelines, there are four steps to remediating contaminated sites. These are summarized below. The guidelines generally apply a “polluter pays” principle and a “risk-based approach” when developing principles and standards under the guidelines: If you would like to know how Lexology can drive your content marketing strategy, please send an email to [email protected]. According to the guidelines, it is the responsibility of the landowner to determine whether there is underground contamination on the ground and, if so, whether there is an unacceptable risk to human health and an ecological risk. If the risks are deemed unacceptable, it is the responsibility of the landowner to propose and implement a remedial action plan to address them. If the owner can determine that the underground contamination is not caused by their current or historical operation on the site, they should identify the polluter responsible for the remediation measures. If an offence is committed under the EQA or its subsidiary legislation, the Department of Energy may, in addition to fines and imprisonment, send a notice to the owner or occupier of the premises requesting that the owner or occupier take measures to reduce, mitigate, disperse, eliminate, eliminate or eliminate the pollution, whether or not the owner or occupant is the polluter. The DOE may also issue a restraining order against the owner or occupier requesting that the owner or occupier suspend operations until the conditions required to remedy a violation are met in accordance with the General Manager`s instructions. The above regulations specify, among other things: (i) permitted levels or acceptable conditions for the release of certain compounds to the environment; (ii) standards for the handling and control of waste discharges; and (iii) the obligation to inform the Director-General of any spill, accidental release or leakage of wastes into the environment.