Embracing environmental, social and governance (ESG) criteria is rising in importance as a driver of foreign direct investment (FDI), with investors increasingly taking such criteria into account as part of their site

selection decision. 

However, when it comes to responsible investing, there is more to it than simply ticking off the 'E', 'S' and 'G'. Taking into consideration the UN’s Sustainable Development Goals (SDGs) is becoming more

prominent, while all companies must be on their guard to avoid accusations of greenwashing. 

ESG is a set of standards used by packaging companies to measure how responsible their practices are, while the SDGs consist of 17 goals set out by the UN that it hopes to achieve globally by 2030. 

GlobalData’s Company Filings Analytics Trends & Signals Q1 2022 report, which was based on earnings call transcripts in the first three months of 2022, reveals a 23% rise in ESG mentions across multiple industries when compared with the final quarter of 2021. 

The study also states that mentions of “various SDGs set by the UN have been steadily increasing in companies ESG reports since 2016”. In addition, the data shows that companies tend to refer to different SDGs in their earnings calls depending on the sector in which they operate.

A poor performance when it comes to ESG or the SDGs can have a negative effect on how attractive a company or a location is to investors. Conversely, however, the outside expertise that FDI can bring can help those struggling to meet sustainability standards. 

If foreign investors back projects that promote ESG and the SDGs, then the host countries are going to benefit from industry-specific expertise, the transfer of technology and job creation in sectors that deliver environmental and social impact.  

There are specific areas where FDI flows can be particularly helpful when it comes to moving a company or country closer to meeting the SDG targets. They are: 

• renewables 

• affordable and eco-friendly housing 

• rehabilitation centres 

• affordable irrigation systems 

• affordable medical equipment and consumables 

• affordable micro credit and mortgages 

• affordable sanitation services 

• agricultural logistics services 

• construction of wastewater treatment plans 

• electronic waste recycling 

The chart below shows where FDI into the renewables and alternative power sector has been most prominent and has grown the most over the past three years. 

According to data from GlobalData’s FDI Projects Database, Spain stands out in terms of renewables FDI projects growth, going from 46 in 2019, then 27 in a Covid-19-hit 2020, to a spike of 78 in 2021. Perhaps unsurprisingly given its market size, the US has consistently attracted the most renewables FDI projects in this period, going from 61 in 2019 to 72 in 2020 to 81 in 2021. 

Some countries seemed to shrug off the FDI slump brought about by the pandemic when it comes to renewables FDI. Brazil experienced a large rise in this sector in 2020, going from 12 projects the year before to 55. The UK also enjoyed a strong 2020, going from 25 renewables projects in 2019 to 40, a figure that held firm in 2021 with 44 projects. 

Waterproofing supply chains from disruptive events is key for foreign investors with operations in several countries, and ESG can play a

key role in this. 

A survey by procurement and supply chain consultancy Proxima has found that companies without sustainable supply chains will attract less investment and see share prices drop over the next decade. 

The survey, which was conducted among investment managers based in the UK and the US, revealed that 84% of the responders believe that issues with supply chain sustainability and a lack of ESG standards are a financial threat to their investments.   

Thus, committing to climate action, reducing gender inequalities and ensuring workplace safety within supply chains is rising on investors’ agendas to build resilient supply chains, promote the achievement of the SDGs and generate sustainable economic growth.