ESG Factors and Foreign Direct Investment inflows: Evidence from ASEAN countries

Abstract

This research paper explores whether and how Sovereign ESG, ESG pillars, and ESG categories affect Foreign Direct Investment (FDI) inflows. Using a panel data analysis with three linear regression models at the overall, pillar, and category levels, the study investigates the relationship between sustainability factors and FDI inflows in six Southeast Asian countries - Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam - from 2011 to 2022. Data were collected from the World Development Indicators Database and the Sovereign ESG Data Portal of the World Bank. The results show that at the overall level in the first model, Sovereign ESG positively influences FDI inflows. At the pillar level in the second model, all three pillars significantly impact FDI inflows: the Social and Governance pillars positively affect FDI inflows, while the Environmental pillar has a negative effect. At the category level in the third model, all six categories significantly influence FDI inflows. Specifically, Emissions & Pollution, Natural Capital Endowment & Management, Employment, Government Effectiveness, and Human Rights categories positively impact FDI inflows, while the Education & Skills category exerts a negative effect. Furthermore, the analysis highlights that trade openness, inflation, and real interest rates positively contribute to FDI inflows