Sustainable Investors Hold Firm as Energy and Defence Stocks Surge

Fuelled by Middle Eastern tensions and policy changes, defence and energy shares surged in 2025. However, experts insist that long-term, responsible investment is still an option—and a desirable one.

Energy prices rose significantly mid-June 2025 after military attacks in the Middle East. Brent crude rose by about US $5 to US $74 per barrel after Israeli air raids on Iran on 13 June, which provoked global energy share rallies. Singapore-listed Rex International and RH PetroGas both rose over 6 per cent. Year to date, the S&P 500 energy sector posted an 8.56 per cent return, beating the overall index's 2.11 per cent climb. Defence stocks also outran, with the MSCI World Aerospace & Defence Index climbing 33.45 per cent to date in May.

Sustainably focused equities trailed, though, as the MSCI World SRI Index gained only 3.26 per cent compared to the MSCI World index's 5.18 per cent.

A recent survey from Robeco, published on 3 June, indicated that 56 per cent of investors worldwide thought US policies supporting fossil fuels and opposing clean energy could delay the net-zero transition.

Sustainability analysts recognize the uncertainty but emphasize structural momentum in the green transition. In its forecasts, the International Energy Agency says that over 2025 more than one in every four new passenger vehicles sold worldwide will be electric. Renewables just keep getting cheaper relative to fossil fuels, as surging electrification trends—from China to AI data centers—are set to keep demand going.

Investors additionally mention that defence and energy sectors provide routes for long-term exposure. In the energy sector, firms shifting away from coal towards gas—like Norway's Aker BP—are referred to as examples of cleaner investment in the energy mix. Part of the seasoned oil majors is investigating renewables, but with lopsided emphasis. Transition-focused ESG approaches are a fit for the transition from high-emitting assets to lower-emitting assets.

Defence expenditure can also be consistent with responsible frameworks, provided that companies do not include controversial weapons like cluster bombs or white phosphorus. Companies in the field of cybersecurity and defence technology are ESG-compatible, which is the new normal of war.

Experts point to ESG integration is as crucial to risk management as good governance has been found to be linked with improved resilience and long-term performance. There are indications that established decarbonisation plans in companies outperform comparables, proving returns and sustainability are not at odds.

Clean energy is increasingly taking a position in geopolitical security. Sustainable investment in infrastructure, while meeting the imperatives of climate, also avoids supply risk and resource‑conflict. Deficits in Asian, European, and American energy highlight the strategic value of renewables with rising AI and data centre demand.

Even with increased inflation, interest rates, and policy uncertainty, clean energy stock valuation has fallen to post-2008 global financial crisis and COVID‑19 crash lows—offering potential entry points for patient long-term investors.

Source: Natalie Koh, The Business Times
Photo Credit: AFP / ATTA KENAR