‘Sustainable Investing’ via the FDI Route for Sustainable Development

Abstract

This conceptual paper proposes to apply the principles of ‘Sustainable Investing’ (SI) on incoming Foreign Direct Investment (FDI) in order to achieve the goal of ‘ustainable Development’ (SD). FDI can serve as a catalyst to attain faster economic growth rates in emerging economies. However, FDI led growth has resulted in degradation of the environment in most cases. Additionally, rising food and water insecurity, climate change and the growing economic disparity have emerged as the major threats in this millennium. Addressing these concerns in a holistic way by integrating Environmental, Social, and Governance (ESG) issues at the FDI stage itself (by means of applying the principles of SI) can be a potential solution to chart a trajectory of ‘sustainable growth’, in emerging economies. The paper presents a framework to incorporate the principles of SI to achieve sustainable growth. It discusses the existing approaches to SI, its advantages and existing trends in the world. It then takes a look at the evolving scenario in India which has an Environmental Sustainability Index (ESI) for various states, a ‘sustainable development fund’ and an ‘ESG Index’ along with voluntary reporting of Corporate Social Responsibility (CSR) activities. It emerges that although steps are being taken to move in a direction of SD, the response is rather poor by investors, companies and government alike. It is therefore imperative that certain measures are taken to integrate the concept of SI while designing regulatory framework and policies for increasing FDI. The paper suggests a way ahead by promoting the concept of Sustainable Investment (SI) in the initial stages of screening of FDI in terms of ESG standards in order to attain long term, inclusive and sustainable growth patterns.