Malaysia’s planned carbon tax could dent corporate profits even at relatively modest levels, according to Malaysian investment bank and brokerage Kenanga’s new analysis, which highlights the growing financial impact of climate policy on the country’s industry.

The Malaysian government has signalled that carbon pricing may be introduced this year initially targeting carbon-intensive sectors, such as iron, steel and energy. The policy will be anchored by the forthcoming climate change bill, known as Ruupin ( Rang Undang-Undang Perubahan Iklim Negara ), which is expected to establish the legal and regulatory framework for the mechanism.

While the final tax rate and compliance thresholds have yet to be determined, the direction of policy is clear as Malaysia aligns with global decarbonization efforts and the European Union’s carbon border adjustment mechanism.

Carbon pricing effectively adds a new cost layer to emissions-intensive operations. Even a relatively low carbon price of 15 ringgit per tonne, according to Kenanga’s scenario analysis, could reduce profitability by at least 5% for many affected companies.

As the carbon price increases, the financial impact becomes significantly more pronounced, particularly for utilities and energy producers with high direct emissions.

Companies with larger emissions footprints, the bank’s analysis suggests, could face earnings pressure of more than 20% at higher carbon price levels, while firms with lower emissions intensity would likely experience only limited financial impact.

Beyond immediate profitability, analysts say, the policy represents a broader shift in how climate risk is incorporated into investment decisions. Carbon pricing is expected to create clearer valuation differences between companies depending on their emissions profile, decarbonization readiness and governance of climate-related risks.

Companies that develop stronger emissions management strategies may gain advantages, including improved access to sustainability-linked financing and potentially lower costs of capital.

Malaysia’s carbon tax framework is being introduced alongside wider sustainability reforms. Mandatory climate-related disclosures under the national sustainability reporting framework began for large listed companies in 2025 and will expand further in the coming years, aligning with international reporting standards.

Together, these policies signal a structural shift in Malaysia’s corporate landscape. For investors and companies alike, carbon pricing is emerging not merely as a regulatory requirement, but as a new financial variable that could increasingly influence valuations, capital allocation and long-term competitiveness.