Environmental, Social, and Governance (ESG) Performance and Foreign Direct Investment (FDI): Empirical evidence in Asia

Abstract

Sustainable development is increasingly vital in addressing global challenges, with ESG (environmental, social, and governance) standards emerging as key drivers of sustainable growth and responsible business practices. This study explores the relationship between ESG performance and Foreign Direct Investment (FDI) in Asia from 2009 to 2022—a period of rapid economic growth and rising sustainability focus. Despite ESG's growing role in global investment decisions, its impact on FDI in Asia remains under examination. By leveraging panel data and applying quantile regression models, this research provides valuable insights for promoting sustainable economic growth and guiding stakeholders toward inclusive, responsible development in the region. Findings reveal that population density consistently correlates positively with FDI across all quantiles, highlighting market and workforce potential as critical drivers. In contrast, food production index negatively impacts FDI in countries with lower inflows, reflecting sectoral misalignment in developing economies. Access to electricity shows a significant negative relationship with FDI in well-developed economies, indicating diminishing returns to infrastructure improvements in attracting investment. Governance factors emerge as significant contributors, reflecting investors' preference for stable and transparent regulatory environments. However, HDI does not show a statistically significant mediating effect, suggesting that its role may be more relevant for long-term decisions. The study underscores the importance of tailored policies that address the diverse needs of countries at different stages of economic development. By bridging existing research gaps, the findings provide actionable insights for policymakers and stakeholders in aligning ESG initiatives with sustainable economic growth and FDI attraction