VIETNAM NATIONAL UNIVERSITY, HANOI UNIVERSITY OF ECONOMICS AND BUSINESS FACULTY OF FINANCE AND BANKING GRADUATION THESIS 2023 The influence of Environmental, Social, and Governance Factors Matter Instructor : MSc.Do Dinh Dinh Student : Nguyen Thao Van Student code : 19050776 Date ofbirth : 06/06/2001 Class : QH2019E TCNH CLC3 Ha Noi, 2023 VIETNAM NATIONAL UNIVERSITY, HANOI UNIVERSITY OF ECONOMICS AND BUSINESS FACULTY OF FINANCE AND BANKING GRADUATION THESIS 2023 The influence of Environmental, Social, and Governance Factors Matter Instructor : MSc.Do Dinh Dinh Student : Nguyen Thao Van Student code : 19050776 Date ofbirth : 06/06/2001 Class : QH2019E TCNH CLC3 Ha Noi, 2023 Table of content ACKNOWLEDGEMENTS. HH HH HH HH THẾ HH HH HH HH HH. i STATEMENT OF AUTHORSHIP ou. eseestesssesssessssssstesstecssessteesteesseesseesneesseeeateeatecaseeseesseesseesueesseesaeesneesateenteensees ii IBkx09)áv.
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Overview of research in the Word. Overview of research Vietnam. Theoretical basis on the impact of environmental, social, and governance (ESG) factors on Foreign Direct Investment (FDI). The concept of ESG (Environmental - Social - GovernanC©).
The development of ESG (Environmental - Social - Governance). The concept of foreign direct investment FDIL. Overview ofAsian FDI in the period 2002 - 2021. The gaps OfresearCh.
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Restriction of the researCh. 5c nh HH HH HH HH. Hà HH HH. vi ACKNOWLEDGEMENTS First of all, I would like to thank the Board of Directors as well as all the lecturers of the University of Economics - Vietnam National University, Hanoi for creating the best conditions for me to complete the research.
I would like to express my special thanks to my instructor - Master. Do Dinh Dinh. During the process of making the thesis, I have received his care, help, and guidance very devotedly and passionately. Master is the one who oriented my way of thinking, research skills, and scientific way of working.
Those are very valuable suggestions in the process of making my graduation thesis. Due to the limitation of research time, as well as limited personal knowledge, I have not been able to have in-depth comments and really astute assessments on the issues raised in the thesis avoid shortcomings. I look forward to receiving comments and corrections from teachers and friends to help make my thesis more complete, realistic and feasible. Thank you sincerely.
STATEMENT OF AUTHORSHIP I would like to confirm that the topic "The influence of Environmental, Social, and Governance Factors Matter for Foreign Direct Investment: "Evidence from Asian countries" is my research paper, without any copying by others. The topic, method, model and content of the report are the products of my efforts in the research process. The data and results presented in the report are completely honest, do not use the results of any similar research. I would like to take full responsibility before the school and the faculty for this commitment if there are any problems.
ii List Of Tables Table 3.1: Variable desCFÌDfÏOTN. cà BS 1S «HH HH HH KH KH TH Table 3.2: Hypotheses about the factors affecting the FDI. -+- ch ksrre Table 4.1: Descriptive statistics of the variables in the model .2: Matrix of COrrelationss n .3: Check for VIF 1.4: The model fixed effect regression .1: Summarizing the result .---se--5ccvs+exrrtrrrvertrtrrrrrtrrkrrrtrrrrrrrrirrrrrrrrrrrrrrrrrrrrerrrrrree 11 List Of Acronyms STT Acronym character Full writing ESG Environmental, Social, and Governance KNFOWY FDI Foreign Direct Investment SDGs Sustainable Development Goals GDP Gross Domestic Product EU European Union IIRC lobal Integrated Reporting Initiative IMF Monetary Fund GCFGDP Gross Capital Formation CSR Corporate Social Responsibility 10 HDI Human Development Index —— c02 CO2 Per Capita Emissions iv CHAPTER 1: INTRODUCTION 1. Significance of the Study The world economy has experienced significant growth over the past few decades, leading to an improvement in living standards in many parts of the world.
According to the World Bank, Gross Domestic Product (GDP) has grown from about $31.7 trillion in 1990 to $85. This growth has been driven by factors such as globalization, technological progress, and increased productivity. However, this rapid development has also had a significant impact on life and the environment, contributing to pollution and climate change (Anderson, DR, 2009). Many reports and studies have documented the negative environmental consequences of economic development.
For example, air pollution from economic activities is responsible for millions of premature deaths each year (Lelieveld et al. Similarly, overuse of natural resources, deforestation, and other environmental problems threaten the long-term sustainability of the planet (WWF, 2021). Therefore, it is essential to emphasize the importance of environmental awareness and protection in the pursuit of economic development. While economic growth is certainly necessary, it should not come at the expense of environmental degradation.
Governments, businesses, and individuals must work together to tackle these challenges, take steps to reduce their environmental impact, and adopt sustainable development measures to achieve economic development goals while protecting the health and well-being of the world. Sustainable development is an increasingly important topic in the modern world. It is a process of meeting the needs of the present without compromising the ability of future generations to meet their own needs (Brundtland, 1987). It involves finding ways to minimize environmental damage, improve social welfare, and generate economic growth.
This means that governments, businesses, and citizens must work together to ensure that our current actions do not lead to long-term negative consequences for our planet (United Nations, 2015). Since sustainability goals are long-term, their impact is also long-lasting. As our lifestyles change towards sustainability goals, so should our ways of investing and earning (Wilkinson, 2005). Nowaday, the sustainability not only plays a pivotal role in our daily lives but also role in choosing which companies to invest.
Environmental, Social, and Governance (ESG) information demonstrates that companies are taking responsibility for their actions and ensuring their decisions have a positive impact on the environment and society. This will help them gain a competitive advantage as well as attract investors who value sustainability (Francesco & Levy, 2008). As society continues to develop, issues related to environmental pollution, the greenhouse effect, and disease risks, such as the Covid-19 pandemic, are on the rise. Even large multinational corporations are seeking a holistic approach to sustainability in order to operate in the long term and avoid uncertainties.
Therefore, sustainable investing is becoming increasingly important as more and more investors realize the significance of environmental, social, governance (ESG) factors in making investment decisions (Francesco & Levy, 2008). JP Morgan (2020) has highlighted the need for more action to protect businesses and society from long-term sustainability threats. JP Morgan (2020) has stated that the Covid-19 pandemic is the latest "wake-up call" for economic policymakers and investment decision-makers to prioritize a more sustainable investment approach. Research of Olmedo, Torres, and Izquierdo (2010) shows that ESG concerns are becoming more widespread and attracting the majority of investors, particularly younger investors.
ESG factors are rapidly becominga global challenge as countries are increasingly paying attention to environmental, social, and governance awareness (United Nations, 2015). Through policy- making programs, regulation, and public awareness, responsible governments are expected to protect the natural environment, improve the well-being of their citizens, and promote societal cohesion. According to Schultz (2020), by 2018, an investment asset worth approximately $12 trillion was selected using a socially responsible investment strategy. The US SIF Fund (2020) stated that investors are considering ESG factors at a rate 42% higher than in 2018, and ESG-based sustainable investment now accounts for a third of total assets invested privately in the United States.
ESG-focused investment is on the rise, specifically with the opening of an ESG-focused exchange-traded fund (ETF), and the financial services industry has responded to the demand for ESG investments. Indeed, ESG factors are increasingly influencing the business environment, and this may impact FDI inflows (Satyabrata et al. When companies adopt sustainable practices and prioritize ESG considerations, they not only reduce the risks associated with environmental and social 2 factors, but also improve their reputation and brand value (Bassen et al. Governments also recognize the importance of sustainability practices and ESG factors and are implementing policies and regulations to encourage companies to adopt them.
This can create a competitive advantage for countries that prioritize sustainability, creating a favorable business environment to attract FDI, as investors increasingly prioritize companies committed to these problems. Foreign direct investment (FDI) has become an important tool for many countries in their efforts to promote economic growth. FDI can have a positive impact on a country's economy by creating jobs and increasing incomes, as well as providing access to new markets, technologies, and capital (Buchanan et al. According to Dunning (1998), FDI can be market-seeking, natural-resource-seeking, or strategic-asset-seeking in nature.
It also helps promote competition and innovation, leading to increased productivity and efficiency. In addition, FDI can help bring in foreign exchange earnings that can be used to pay for imports or reduce the country's debt burden. For these reasons, it is important for governments around the world to create policies that encourage FDI into their countries. During the period from 2002 to 2021, the world witnessed a sharp decline in FDI inflows, especially due to the Covid-19 pandemic, which had a significantly negative impact on global FDI flows (from 5.4% in 2007 to 1% according to GDP in 2020).
However, Asian countries have shown resilience and are less likely to be disrupted by the pandemic. FDI inflows into this region increased by 4%. The impact of the pandemic on investment in the SDGs is also evident in 2019-2020. SDG-related green investment in developing regions is 33% lower than before.
A drop in FDI could harm their SDGs as FDI inflows play an important role in financing their efforts (OpenDevelopmentVietnam, 2022). The impact of foreign direct investment (FDI) on a country's development can extend to multiple areas, such as environmental, social, and governance (ESG) performance. When foreign investors bring capital, technology, and expertise to host countries, they can help drive economic growth and create job opportunities (United Nations Conference on Trade and Development, 2018). However, FDI can also have negative consequences, such as environmental degradation, social inequality, and governance challenges if not managed properly (Environmentgo, 2018).
Therefore, it is important to understand the potential influence of ESG factors on FDI decisions and how these factors can contribute to sustainable development goals. By considering ESG factors when making decisions about FDI, policymakers and investors can ensure that their investments align with values and contribute to the perpetuity of the host country and its community. The current deceleration of FDI inflows, as outlined above, could pose serious challenges to the sustainable development goals of many countries, especially developing economies dependent on this capital flow. Although there are many studies on the link between FDI and economic growth (lamsiaroj, 2016), the research literature mostly does not mention the importance of ESG factors for foreign direct investment (FDI) flows from a macro-country perspective.