By Dalilawati Zainal
With Visit Malaysia 2026 underway, tourism has returned to the centre of Malaysia’s economic strategy. Visitor arrivals are rising, investor confidence has improved and tourism-linked businesses are positioned as contributors to growth and employment. For capital markets and corporate Malaysia, the sector’s recovery is a positive signal.
However, from an ESG and business sustainability perspective, the more pressing question is not whether tourism can grow, but whether it can do so without accumulating unmanaged environmental, social and governance risks. These risks are no longer abstract; they have direct implications for asset values, operating costs, regulatory exposure and long-term competitiveness.
Tourism growth is most visible in heritage cities such as George Town in Penang and Melaka, and in island destinations including Langkawi in Kedah, Tioman in Pahang and Redang in Terengganu. Rapid demand recovery in these areas is placing renewed pressure on infrastructure, public services and local governance capacity.
From an environmental perspective, many popular tourist destinations are growing without clear limits on how much they can safely handle. Although sustainability is often highlighted in marketing, firm rules on visitor numbers, waste capacity and acceptable environmental stress are usually absent. As a result, tourism expands automatically whenever demand rises, rather than being carefully planned.
This approach increases the risk that environmental damage is addressed only after it becomes visible or costly. For businesses and investors, this creates uncertainty, as sudden restrictions, expensive clean-up efforts or tighter regulations may later be imposed to correct problems that were not managed early.
Climate risk further intensifies these challenges. Tourism contributes to emissions through travel, energy use and heavy resource consumption, while many destinations are already exposed to floods, storms, coastal erosion and environmental damage. Although national development plans acknowledge these risks, tourism growth remains poorly aligned with climate adaptation and infrastructure planning, leaving destinations vulnerable to climate-related disruptions.
The social dimension of ESG is equally important. Data from the Department of Statistics Malaysia (DOSM) show that housing, utilities and food consistently make up the largest share of household expenditure. At the same time, DOSM’s Domestic Tourism Survey indicates that domestic tourism spending exceeded RM100 billion in 2024, with food and beverage among the largest components.
In tourism-intensive areas, strong demand for short-term accommodation and visitor-driven consumption places upward pressure on local prices, particularly for housing and everyday services. While tourism generates income for some, it raises living costs for others, especially service workers and lower-income residents essential to the sector. For businesses, this directly affects labour availability, wage pressures and staff retention. A sector dependent on a stable service workforce cannot remain competitive if workers are priced out of nearby housing. Social sustainability failures eventually manifest as operational risks.
Governance weaknesses sit at the centre of these challenges. Local councils bear responsibility for waste management, enforcement, infrastructure maintenance and environmental monitoring, yet many operate with limited fiscal capacity and fragmented data. The mismatch between national tourism ambition and local governance capacity represents a fundamental risk. When governance fails, businesses face unpredictable operating environments, reputational spillovers and inconsistent enforcement.
This governance gap also complicates ESG accountability at the firm level. Tourism operators increasingly make sustainability claims, reflecting investor and consumer expectations. However, disclosure remains largely voluntary and inconsistent, particularly among small and medium-sized enterprises. Without clearer reporting expectations or sector-specific benchmarks, sustainability performance is difficult to assess, compare or verify.
From a capital market perspective, this raises concerns about greenwashing and social washing. As ESG-linked financing, sustainability-linked loans and responsible investment frameworks expand, tourism businesses that lack credible data and governance structures may face higher financing costs or restricted access to capital. Conversely, firms that invest early in measurable ESG practices are likely to gain a competitive advantage.
Importantly, ESG-aligned tourism growth does not imply constraining the sector. It implies reallocating incentives toward quality, resilience controlled growth and accountability. Higher-value tourism, better visitor dispersal, longer stays and stronger local supply chains can generate returns without proportionately increasing environmental and social pressure. These shifts are referenced in policy documents but require stronger implementation signals to influence business behaviour.
One area that warrants closer scrutiny is the preparedness of local councils to function as effective destination managers. While national tourism strategies emphasise sustainability and quality growth, implementation occurs at the local level. Many councils lack integrated data on visitor flows, waste volumes, water usage and environmental stress indicators. Without such information, decision-making remains reactive rather than anticipatory, hence increasing long-term ESG exposure for public authorities and private operators.
From a business standpoint, stronger local governance reduces uncertainty. Clear zoning rules, transparent licensing for short-term accommodation and consistent enforcement standards allow firms to plan investment with confidence. Weak governance creates uneven playing fields, reputational risk and abrupt regulatory intervention once problems become politically visible.
There is also a growing case for aligning tourism sustainability with financial reporting and risk management practices. As climate-related and social disclosures become prominent in corporate reporting, tourism operators will be expected to identify, measure and manage destination-level ESG risks. This includes dependencies on local infrastructure, exposure to environmental degradation and sensitivity to community sentiment. Treating these issues as material risks represents a shift in how tourism businesses define value creation.
Visit Malaysia 2026 is therefore not a branding exercise. It is a live test of Malaysia’s ability to integrate tourism growth with ESG discipline. Success will not be measured solely by visitor volumes or headline revenue, but by whether destinations remain investable, communities remain supportive and environmental liabilities are kept in check.
Tourism growth is back. For Malaysia’s business community, the strategic challenge now is ensuring that this growth strengthens, rather than undermines, the country’s ESG credibility and long-term economic resilience strategically.
Dr Dalilawati Zainal is a senior lecturer at the Department of Accounting, Faculty of Business and Economics, Universiti Malaya
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