The impact of Environmental, Social and Governance (ESG) Characteristics on Deriving Inward Foreign Direct Investment
Muhammad Ubaidillah Al Mustofa(a*), Imron Mawardi(b), Raditya Sukmana(b)

a) Department of Development Studies, Faculty of Creative Design and Digital Business, Institut Teknologi Sepuluh Nopember, Surabaya, Indonesia
b) Islamic Economics Department, Faculty of Economics and Business, Universitas Airlangga

Abstract

This study examines the impact of Environmental, Social, and Governance (ESG) characteristics and selected macroeconomic determinants on foreign direct investment (FDI) inflows. This study applies panel regressions to a sample of fifty Organization of Islamic Cooperation (OIC) member countries from 2002 to 2019. Findings suggest that ESG characteristics play no significant role in deriving the inflow of FDI. However, when broken down into numerous components, only the E factor has an effect, indicating that environmental factors are being considered in deriving inward FDI. Higher inflation attracts more foreign investments and is viewed as an important signal of a nation^s economic condition. The MENA region is of special concern to international investors due to its negative coefficient, due to the political unpredictability in a number of countries. Even though there is a growing emphasis on developing government policies that promote ESG, it is not a major concern for investors when making decisions regarding foreign investment. Investors place a greater emphasis on macroeconomic variables when determining FDI.

Keywords: Foreign Direct Investment, Environment Aspect, Social Aspect, Governance Aspect, OIC Countries

Topic: Business and Economic