How Malaysia’s ESG agenda evolves after the US-Iran war

KUCHING (March 10): The military escalation between the US and Iran in the past two weeks has been a stress test for environmental, social and governance (ESG) frameworks, shifting the global ESG conversation from “climate-first” to “security-first”.

Since the beginning of the war, the impact on ESG can be seen through three primary views: energy sovereignty, supply chain ethics, and governance resilience.

The US-Iran conflict has placed Malaysia in a unique position, says analysts with MBSB Investment Bank Bhd (MBSB Research). As a net exporter of oil and gas but a price-taker in global markets, Malaysia may be experiencing a forced acceleration of its ESG agenda.

“In the current context of the US-Iran conflict, Malaysia is evidently in a pivot position,” it said in a special report yesterday.

“Since Malaysia is an energy exporter but also a highly globalised manufacturing hub, the war creates a sharp divide between economic windfall and ESG risk.

“Companies will be forced to disclose exactly how much of their supply chain passes through the Strait of Hormuz.”

During this short period, MBSB Research expect a flurry of materiality updates in ESG reports as firms quantify their exposure to Middle Eastern trade chokepoints.

“As part of the Governance pillar, we expect a massive spike in reported Digital Defense spending,” it explained. “Companies that fail to report on their cybersecurity readiness against state-sponsored actors may face immediate ESG downgrades.

“Paradoxically, some firms may temporarily stop talking about their Net Zero targets to avoid appearing out of touch with consumers struggling with high fuel prices.”

MBSB Research suggested that the Environmental pillar will be redefined as governments in Europe and Asia will likely grant ESG Credits for projects that provide domestic energy security, even if they aren’t 100 per cent carbon-free, such as transitional natural gas or nuclear.

By mid-2026, the exclusion of defense stocks from ESG funds will likely become a thing of the past. Major ratings agencies are expected to finalise new frameworks that treat military deterrence as a Social necessity for peace and stability.

Meanwhile, corporations are expected to begin reporting on the Geopolitical Alignment of their labor force. Moving factories from high-risk zones to friendly nations will be framed as a Social and Governance victory.

“The US-Iran conflict of 2026 has served as the final catalyst in transforming ESG from a compliance-driven moral framework into a security-driven survival framework,” it added.

“The overarching conclusion is that geopolitical risk is no longer an externality ó it is now the core lens through which ESG factors are measured.

“That said, we believe that the market has moved past the era where ESG goals are the first to be cut during a crisis. Now ESG is being used as a resilience shield.

“Companies with high ESG scores are outperforming precisely because their energy efficiency reduces fuel costs, their diverse supply chains bypasses war zones, and their sanctions transparency prevent legal collapse.

“For Malaysia specifically, the next few months will likely see Bursa Malaysia issuing new guidance on how companies should report their geopolitical resilience.

“We expect a surge in sustainability-linked sukuk issuances, as Malaysian firms look to lock in green financing before any further war-driven interest rate hikes could occur.

“The conflict offers a unique (though difficult) advantage. By positioning itself as a shariah-compliant, ESG-positive, and geopolitically neutral hub, Malaysia is capturing “flight-to-quality” capital.

“The resilience of the FTSE4Good Bursa Malaysia Shariah Index and the stability of green sukuk yields are proof that ethical, low-debt financial structures are the safest harbour during global unrest.”