A Primer on Environmental Management in Malaysia: What Investors Should Know

‍INTRODUCTION

Malaysia is a nation renowned for its rich biodiversity and economic dynamism. It now stands at the crossroads of progress and environmental stewardship. In recent decades, the country has recognised the critical importance of balancing economic growth with the preservation of its natural resources and ecological integrity. As industries expand and urbanisation accelerates, the role of environmental laws becomes paramount in shaping the trajectory of sustainable development.

To foster ecologically responsible and enduring development, the Malaysian government has instituted a legal and institutional structure dedicated to environmental safeguarding. Investors are urged to incorporate environmental considerations into the initial phases of project planning. Pollution control facets encompass potential adjustments in the production process to reduce waste, viewing pollution prevention as an integral element of production, and prioritising recycling alternatives, including fostering a culture of self-regulation.

This article embarks on an exploration of Malaysia's environmental legal landscape, delving into the legal framework designed to safeguard the nation's diverse ecosystems.

THE ENVIRONMENTAL QUALITY ACT 1974

The primary piece of legislation in respect of protection against environmental pollution in Malaysia is the Environmental Quality Act 1974 (EQA 1974). The EQA 1974 that seeks to prevent environmental pollution and enforce action against those who act contrary to the EQA 1974. As a federal law, the EQA 1974 applies to the whole of Malaysia. It also establishes powers to be exercised exclusively by the federal government and it does not depend on parallel enactments for its effectiveness within state boundaries.

The Department of Environment and the Director General of Environmental Quality

The EQA 1974 establishes key infrastructure for the administration of the EQA 1974, such as the Department of Environment (DOE), under the supervision and instruction of the Director General of Environmental Quality (Director General). The Director General is vested with several wide-ranging powers aimed at protecting Malaysia’s environment and administering the provisions of the EQA 1974 and the Environmental Quality Council (Council) (an advisory body for the Minister of natural resources, the environment and climate change – currently Nik Nazmi bin Nik Ahmad).

The Director General is vested with, among others, the following powers, duties and functions:

• Co-ordinating all activities relating to the discharge of wastes into the environment and for preventing or controlling pollution and protecting and enhancing the quality of the environment;

• Recommending to the Minister the environment protection policy and classifications for the protection of any portion of the environment or any segment of the environment with respect to the uses and values, whether tangible or intangible, to be protected, the quality to be maintained, the extent to which the discharge of wastes may be permitted without detriment to the quality of the environment, long range development uses and planning and any other factors relating to the protection and enhancement of the environment; and

• Controlling the issue of licences, the volume, types, constituents and effects of wastes, discharges, emissions, deposits or other sources of emission and substances which are of danger or a potential danger to the quality of the environment or any segment of the environment.

Licences and Approvals

In order to control the volume of potentially harmful waste and other such substances, the EQA 1974 provides for a system of licencing to regulate the same in respect of any premises which may be producing such emissions. The discretion to grant licences lies with the Director General, subject to conditions (if any) he thinks fit.[1]

Under the EQA 1974 and the Regulations thereunder, industrial activities are required to obtain the licences or approval from the Director General prior to project implementation, including:

1. Environmental Impact Assessment reports. Pursuant to section 34A of the EQA 1974, the Minister may, after consultation with the Council prescribe any activity which may have significant environmental impact as “prescribed activity”. These prescribed activities are separated into different categories. For example, agriculture, aerodrome, land reclamation, fisheries, forestry, housing, ports, mining, petroleum, power generation as well as waste treatment and disposal.[2] Not all projects under each category will be considered as a prescribed activity. The EQA 1974 specifies certain thresholds for projects to be considered as a prescribed activity depending on the category it falls under;
2. ‍Site suitability assessment. Before an industrial project is planned, care must be taken in ensuring the proposed site location is suitable for its purpose and any environmental concerns must be addressed either by design and/or planning. Avoidance of conflict(s) through proper siting, and more importantly, with consideration of environmental controls and pollution prevention is important for long-term sustainability of an industrial activity. This would help to reduce unnecessary investment costs that may be required especially on pollution control and to improve public perception of the project or activity; and
3. ‍Licences for prescribed premises. Further, certain prescribed premises must be licenced, and failure to do so is an offence attracting a maximum penalty of RM50,000 or two years’ prison or both (plus a fine of RM1,000 for each day that the offence continues after a notice of cessation is sent to the Director General).[3] The prescribed premises include all premises occupied or used for the processing of oil-palm fruit or oil-palm fresh-fruit bunches into crude palm-oil (whether as an intermediate or final product), and waste treatment and disposal.

CONTAMINATED LAND MANAGEMENT AND CONTROL GUIDELINES

As guidance on assessing and managing contaminated sites in Malaysia, the DOE issued the Contaminated Land Management and Control Guidelines (Guidelines).

The Guidelines are issued in three parts and cover the aspects of:

1. Malaysian Recommended Site Screening Levels for Contaminated Land;
2. Assessing and Reporting Contaminated Sites; and
3. Remediation of Contaminated Sites.

Compliance with the Guidelines is voluntary as the Guidelines currently do not have the force of law. Nevertheless, for risk management purposes, understanding the Guidelines is essential as it gives an insight into how the DOE interprets the law. Businesses must take appropriate steps to prevent, manage and control any contamination This could then be taken as a mitigating factor in respect of any non-compliance of the EQA 1974.

The general guiding principles under the Guidelines are as follows:

• The “Polluter Pay Principle”. The Guidelines recognise that the polluter can be the landowner, occupier, the underground storage facilities owner and/or chemical/waste owner; and

• The “Risk-Based Approach”. This refers to an approach that places emphasis on the potential current and future risks associated with the presence of contaminants in the soil and groundwater matrix. This approach applies to the various processes of contaminated land management, including contaminated land planning and management, site assessment, remediation and closure.

CONCLUSION

The Guidelines offer valuable direction to landowners and occupants in evaluating land contamination and determining appropriate remedial actions to minimize or alleviate it. Effective assessment and control of polluted sites contribute to sustainable development and align Malaysia with global standards. However, it must be borne in mind that compliance is not mandatory. As for the EQA 1974, there is a much-needed improvement to ensure that Malaysia lives up to its commitment to the United Nations’ Sustainable Development Goals.

As global investors increasingly recognise the significance of responsible and sustainable practices, ESG considerations have become integral to decision-making processes. This evolution reflects a broader acknowledgment that financial success need not come at the expense of ethical, social, or environmental responsibilities. Malaysia must ensure that its legal and regulatory framework relating to ESG can cater to this demand so that it can maintain its competitiveness in the eyes of global investors.

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This article is written by Raja Nadhil Aqran and only contains general information. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such.

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A previous version of this article was published on ESG in Malaysia.

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[1] Section 11, EQA 1974.

[2] Environmental Quality (Prescribed Activities) (Environmental Impact Assessment) Order 2015 [PU(A) 195/2015]

[3] Section 18, EQA 1974.

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