I, Vilaysan Phommexay, hereby declare that this doctoral dissertation entitled "Investigate Factors Affecting Green Investment Decisions of Enterprises in Laos: AStudy on the IndustrialInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sectorInvestigate factors affecting green investment decisions of enterprises in Laos: a study on the industrial sector
INTRODUCTION
Research Rationale
The transition to a low-carbon, climate-resilient, and resource-efficient economy, known as "greening growth," is expected to require significant investments by 2030, with a greater dependence on private funding than ever before As a result, companies worldwide are modifying their strategies in areas such as marketing, product development, and procurement This shift aligns with public policy efforts, including the United Nations' Kyoto Protocol and the European Commission's Eco-Innovation Plan, which encourage businesses to align their innovation strategies with stakeholder expectations.
Free trade agreements (FTAs) necessitate participating countries to lower taxes and tariffs, creating export opportunities for businesses However, local enterprises must enhance their competitiveness through technology investment and improved quality to effectively compete with foreign firms Additionally, recent FTAs impose "non-tax" requirements, such as environmental protection and biodiversity strategies Consequently, green investment, which focuses on reducing environmental harm, is emerging as a global trend Although the initial costs of green investment are significantly higher than traditional investments, leading to lower immediate revenue, it promises sustainable benefits in the long run.
In recent years, there has been a significant increase in investor interest in resource efficiency and environmental issues due to heightened awareness of climate change Since 1924, Corporate Social Responsibility (CSR) has been recognized as a multi-dimensional concept that includes environmental, social, and economic responsibilities, emphasizing that corporations must contribute to societal and economic advancement while adhering to ecological principles Consequently, socially responsible investments, influenced by ethical and religious values, have gained popularity, leading to the emergence of green investment (GI) as a key market trend (Martini, 2021).
1.1.1 Positive Aspects of Green Projects priorities, renewal projects, notably those about sustainable buildings, attract many people who appreciate the advantages of a greener environment, economic growth and public health.
Enhancing indoor air quality is a significant benefit of green building projects, as highlighted by Oguntona et al (2019) The careful selection of materials and the implementation of effective ventilation systems ensure a safe indoor environment free from contaminants This improvement not only promotes good air quality but also contributes to healthier living and working spaces, reducing the risk of respiratory diseases and allergies In today's world, where many individuals spend considerable time indoors, the health of the indoor environment is crucial for overall well-being.
'Green' projects prioritize nature and environmental conservation, emphasizing the preservation and recreation of ecosystems (Oguntona et al., 2019) This sustainable approach safeguards local flora and fauna while promoting global ecological stability By maintaining a natural balance, these initiatives ensure that all species coexist in harmony.
Green projects represent a sustainable energy solution that emphasizes efficiency By integrating cutting-edge designs, passive solar systems, and technological advancements like smart thermostats and energy-efficient appliances, homeowners can achieve significant energy savings.
Efficient energy use is crucial for reducing costs and addressing energy scarcity in certain regions Green buildings play a vital role in promoting energy conservation, fostering a culture of sustainability, and encouraging the adoption of renewable energy sources.
From an economic perspective, green projects offer significant benefits beyond direct financial gains While indirect savings are important, they also provide less obvious advantages related to energy independence For instance, incorporating indoor greenery in workplaces has been proven to enhance work efficiency, improve employee morale, and promote overall health and well-being (Ries et al., 2006) Thus, sustainability can coexist with economic growth and productivity.
Green projects significantly enhance public health by incorporating green infrastructure, such as natural vegetation, green roofs, and rain gardens These elements provide natural cooling, alleviate urban heat island effects, improve air quality, and manage stormwater runoff, thereby decreasing the risk of urban flooding Collectively, they deliver essential ecosystem services that foster healthier urban environments and lessen the burden on city infrastructures (Bowen and Lynch, 2017).
Green projects are essential in combating climate change due to their focus on minimizing carbon footprints during both construction and operation By enhancing energy efficiency and adopting sustainable practices, these initiatives significantly lower CO2 emissions This contributes to the global effort against climate change while also providing substantial long-term cost savings for the environment and stakeholders.
In conclusion, green projects, driven by thorough research and innovative approaches, offer effective solutions to today's challenges They represent the intersection of environmental responsibility, economic efficiency, and public health support, making them essential for a sustainable future.
1.1.2 Negative Aspects of Green Projects
Green projects demand specialized knowledge and experience, particularly in the realm of green residential buildings A key challenge arises when project owners lack a solid understanding of green design principles, as noted by Hwang et al (2017) This deficiency can result in unclear directives for designers, leading to communication breakdowns and designs that may not achieve optimal sustainability or align with the owner's vision Without experienced guidance, even well-intentioned green projects risk inefficiencies and counterproductive results.
Investing in green construction represents both an environmental and economic commitment Although the long-term benefits, such as energy savings and sustainability, are well-documented, the initial financial barriers can be significant Upfront costs for premium materials, specialized labor, and advanced technologies often exceed those of traditional construction methods As highlighted by Onubi, Yusof, and Hassan (2020), this initial investment can deter stakeholders, particularly those with limited budgets or doubts about the return on investment for green initiatives.
Green projects, while beneficial, present unique risks not commonly found in traditional projects For example, green building (GB) initiatives demand accurate and innovative cost estimations due to the rapidly changing landscape of green technologies Nguyen and Macchion (2022) highlight several challenges, including potential miscalculations in costs, difficulties in finding a skilled workforce knowledgeable in green construction, and the inconsistent availability of specialized materials These issues can lead to project delays, increased budgets, strained stakeholder relationships, and may ultimately jeopardize the sustainability goals of the project.
Pursuing sustainability can be a double-edged sword; although the goal is to create a more eco-friendly environment, it may lead to unintended negative consequences.
(2022) offer a cautionary perspective, noting that some green processes or materials, though seemingly benign, might have concealed environmental or societal drawbacks.
Aims and Objectives
This report aims to analyze the factors influencing green investment decisions in Laos' industrial sector As global focus on sustainability increases, understanding the motivations and barriers to green investment is crucial for policymakers and stakeholders The study will explore various elements, including economic incentives and regulatory frameworks, that affect the adoption of green investments in this context.
This article aims to synthesize current research on green investments and sustainable practices, focusing on both global trends and the specific context of Southeast Asia It seeks to establish a foundational knowledge base while identifying gaps in the industrial sector of Laos.
To categorize and delineate the different industrial enterprises in Laos, noting their current investment trends, scale of operations, and potential for green investment.
This article aims to explore the viewpoints of key stakeholders in the industrial sector, such as policymakers, business owners, employees, investors, and environmental activists By examining their motivations, concerns, and aspirations related to green investments, we can gain a deeper understanding of their perspectives and the implications for sustainable development.
To highlight the potential benefits and opportunities that green investment can bring to enterprises in terms of profitability, market reputation, long-term sustainability, and alignment with global environmental objectives.
Research Contributions
The study on the factors influencing green investment decisions in Laos' industrial sector presents significant theoretical and practical insights It identifies key determinants of sustainable investment choices, offering essential guidance for businesses and policymakers in Laos and other developing economies.
This research has significant practical implications for the business sector and policymakers in Laos, providing a roadmap for enterprises in the industrial sector to navigate challenges and seize opportunities for sustainable practices It evaluates the current state of incentives and regulatory measures, highlighting areas for improvement that can help the government foster a greener industrial environment Additionally, it emphasizes the importance of engaging various stakeholders, from local communities to international entities, to promote sustainability through effective collaborations As a pioneering effort in the context of Laos, this study establishes a benchmark for future research, encouraging deeper inquiries and comparative analyses with other regions or countries.
Research Scope
This project investigates the factors influencing green investment decisions in Laos's industrial sector, particularly within the energy industry It examines both macro and micro elements, such as economic growth, technological advancements, business policies, market structures, and environmental considerations By focusing on the energy sector, the research highlights specific challenges and opportunities related to green investments, offering valuable insights into the dynamics of sustainable practices in Laos's industrial landscape This information is crucial for stakeholders and policymakers seeking to promote a more sustainable industrial ecosystem.
Research Method
The research methodology for this study will primarily be a literature review A deep dive into existing literature, case studies, and data will be conducted to:
Understand the broader definition and conceptualization of GI.
Unearth motivations, measurement metrics, and recent trends in GI.
Dissect the myriad factors influencing GI decisions at both macro and micro levels.
For data collection, this study combines different research methods in dessinging and analyzing data.
A comprehensive desk study will be conducted to gather relevant documents, including decrees, government news, scientific journal articles, summative research reports, and conference proceedings This collection aims to identify and select research papers for a literature review focused on the factors influencing green investment both globally and specifically in the Lao People's Democratic Republic (Lao PRD).
Firm survey: design a questionnaire to collect data from industrial firms investment/intention to invest in green investment and factors explaining their decision.
Data analysis using statistic model: The structural equation modelling and/or econometrics regression will be used to analyze collected data.
Research Structure
The research is structured as follows:
CHAPTER 1: INTRODUCTION: Chapter 1 provides a comprehensive overview of the theoretical foundations of green investment in enterprises, detailing its definition, motivations, measurement methods, and recent trends, including renewable energy and hydropower capacity.
CHAPTER 2: LITERATURE REVIEW: Delves into the essence of Green
Investment, discussing its definition, motivations, measurement tools, and recent trends, focusing specifically on renewable energy and hydropower capacity.
CHAPTER 3: METHODOLOGY: Outlines the methodology for a cross- sectional survey study on green investment decisions in Laotian industrial enterprises, including data collection through questionnaires and analysis using statistical models to ensure reliability and validity.
CHAPTER 4: RESULTS AND DISCUSSION: Presents an analysis of various hypotheses and descriptive statistics, indicating overall positive perceptions of corporate social responsibility and green investment efforts among businesses in Laos, with some areas identified for potential improvement.
CHAPTER 5: CONCLUSION AND RECOMMENDATION: Concludes that
Corporate Social Responsibility (CSR) and innovation strategies play a crucial role in guiding green innovation (GI) decisions within Laos's industrial sector There is a pressing need for more in-depth research, especially focusing on employee engagement and qualitative insights, to enhance the understanding of these complex dynamics.
By the end of this study, readers should have a robust understanding of GI's significance, the factors influencing its adoption, and areas still ripe for exploration.
LITERATURE REVIEW
Definition of Green Investment
Inderst et al (2012) observed numerous interpretations of GI, and attempting to enumerate and analyze even a small portion of them is impractical Eyraud et al.
Green investment (GI) is essential for reducing carbon emissions and pollutants while maintaining the production of non-energy products This includes funding low-emission energy sources, energy-saving measures, and carbon capture technologies, although details on the latter are scarce In the realm of low-emission energy, GI involves transitioning from fossil fuels to more sustainable electricity generation and energy use Additionally, investments in energy efficiency focus on technologies that decrease the energy required for producing goods and services, such as implementing energy-saving devices and improving waste management in industrial environments.
Kahlenborn (1998) presents two definitions of Green Investment (GI): it can refer to financial investments that incorporate ecological goals alongside traditional investment objectives, or it can denote investments aimed at reducing environmental harm or promoting the production of environmentally beneficial goods and services.
Green Investment refers to a broad concept that can exist independently or as part of larger investment themes and strategies It gained significance during the green economy movement, particularly in response to the 2008 financial crisis, and was a central topic at the 2012 United Nations Conference on Sustainable Development This focus has led to an increase in research and reports on the green economy from various organizations and governments Green investments, also known as eco-friendly investments or ESG (Environmental, Social, and Governance) investing, prioritize corporate practices that protect the environment by reducing pollution, utilizing alternative energy sources, and conserving resources.
GI's objectives are closely aligned with eco-innovation, which focuses on developing new products, methods, and services that provide value to customers while significantly reducing environmental harm (Den Hond, 1998) Environmental innovation aims to minimize ecological damage through preventive and reparative measures (Rennings, 1998) This concept encompasses the creation and implementation of innovative products, services, processes, and organizational frameworks that enhance resource efficiency and benefit both companies and consumers (Kemp and Foxon, 2007) It also seeks to reduce waste, noise, and disturbances to ecosystems (Zubeltzu-Jaka et al., 2018) By fostering environmentally friendly profitability, eco-innovation creates value and reduces costs (Andersen, 2008; Arundel and Kemp, 2009) Furthermore, it focuses on innovations that significantly alleviate environmental stress and yield positive ecological outcomes, whether as primary objectives or unintended benefits (Horbach et al., 2012).
Over time, the significance of Green Innovation (GI) in management has increased, as it combines economic efficiency through resource and energy conservation with a focus on innovation-driven competitiveness and environmental performance This evolution signifies a shift in learning, values, and beliefs, integrating standards and control systems such as ISO certifications while striving for new organizational capabilities (Foxon and Anderson, 2009).
Eco-innovation focuses on developing affordable products and services that improve human life and environmental quality, as noted by Reid and Miedzinski in 2008 Arundel and Kemp's 2009 research emphasizes that eco-innovation encompasses changes in societal systems, including values, beliefs, knowledge, and governance, which help mitigate environmental harm This concept signifies a significant technological and social transformation aimed at promoting environmental sustainability.
Research in this field, as evidenced by various studies, categorizes eco- innovation into three main groups: processes, products, and organizational structures.
Klewitz and Hansen's 2014 study highlights that the process aspect involves adopting innovative production and delivery methods to achieve cleaner technology and more efficient systems, ultimately reducing carbon emissions and resource consumption while complying with environmental regulations Additionally, the product aspect emphasizes the enhancement of products and services by incorporating environmental and technological factors to minimize their ecological impact.
Organizational eco-innovations aim to restructure routines and frameworks by adopting new managerial approaches that align with organizational systems, ultimately reducing environmental impacts (Klewitz and Hansen, 2014) These innovations can be classified into two categories: incremental eco-innovations, which involve gradual modifications, and radical eco-innovations, which lead to significant, transformative changes by replacing existing components and practices (Carrillo-Hermosilla et al., 2010).
This study highlights green investment (GI) as a strategic approach that reallocates capital to projects and activities characterized by efficiency, sustainability, and low pollution levels Rather than emphasizing energy-intensive and resource-heavy operations, GI prioritizes the adoption of energy-efficient technologies and the use of renewable materials that are less harmful to the environment (Đào and Nguyễn, 2023).
In short, this study broadly categorizes them into three primary components:
Investing in renewable energy is crucial for sustainable growth, focusing on energy sources that are less polluting than fossil fuels Key examples include wind, solar, nuclear, hydropower, and biofuels Transitioning from traditional energy to renewables plays a significant role in reducing the carbon footprint.
Energy efficiency is a key aspect of Green Innovation (GI), focusing on technologies and practices that minimize energy consumption while maintaining or increasing output levels This includes improving the efficiency of industrial equipment, developing energy-saving appliances, and optimizing waste management practices.
Carbon sequestration involves capturing and storing atmospheric carbon dioxide through methods such as forestry practices and advanced technologies that store carbon underground Addressing deforestation and specific agricultural practices, which are major sources of carbon emissions, is crucial for effective carbon management.
Green Innovation (GI) is closely linked to eco-innovation, which involves creating and implementing products, processes, or services that provide value while significantly reducing environmental impact through resource and energy conservation These innovations can take the form of new products, improved processes, or strategic organizational changes, all aimed at fostering a more sustainable future.
The shift towards low-emission energy supply is crucial for minimizing greenhouse gas emissions and combating climate change In 2023, it is projected that nearly 90% of investments in electricity generation will focus on low-emission energy, with solar power being a key contributor (IEA, 2023) The investment ratio in low-carbon energy compared to fossil fuels has risen significantly, from 4.1 in 2021 to 8.1 by 2050, averaging around 5.5 This trend highlights an increasing preference for renewable and low-emission energy sources over traditional fossil fuels (Lubis, Doherty and Young, 2022).
Investment in low-emission fuels, including biogases, hydrogen, and synthetic methane, is essential for transitioning to a low-carbon energy framework The increase in funding for green energy technologies, such as renewable energy expansion and technological advancements, is crucial for achieving sustainable energy goals Growing public investment in these areas reflects a global commitment to green energy In 2022, global investment in low-carbon energy technology reached a record $1.1 trillion, marking a 33% increase and highlighting the rising financial support for green energy solutions.
Motivations of Green Investment
Understanding the varied incentives for green investment across different companies is crucial Recognizing these diverse driving forces is key, as they influence each investor's perception and definition of GI.
Investors have diverse priorities and risk/reward preferences, which influence their motivations for investment These rankings are shaped by the legal environment, the specific characteristics of organizations, and the preferences of decision-makers While financial factors are paramount for most firms and financial institutions, entities such as funds, charities, and sovereign wealth funds often place greater emphasis on clear green policies and ethical objectives.
Implementing the GI framework in global economic areas can lead to conflicts between existing laws and the fiduciary duties owed to local businesses This clash is a significant factor hindering businesses from meeting their financial obligations, which are essential for optimizing efficiency, maximizing profits, and ensuring stable pensions and life insurance for employees and local economies Therefore, it is crucial for GI investments to be financially competitive with traditional, non-green investments.
In their 2005 report for the UNEP Finance Initiative, Freshfields Bruckhaus Deringer emphasized the varying interpretations of pension funds' fiduciary duties across different regions, asserting that integrating ESG factors into these responsibilities is permissible The discussion in Table 2.2 highlights the diverse incentives for green investment, which extend beyond financial returns to include ethical, ecological, and reputational aspects, along with adherence to regulatory and fiduciary obligations.
Reputation of the investor and the
Domestic law and regulation (e.g., in investee companies the form of SRI policy, ESG disclosure)
Expected returns of Ecological Pressure by International green companies or politicians, media, conventions (e.g., assets NGOs, etc UN Global
Scientific "Intangible asset", Voluntary e.g., "community industry codes investing" and principles
Disclosure Project (CDP), Global Reporting
Volatility, downside risk, value-at-risk
Good governance codes for institutional
(VaR), default risk, etc. investors and companies; corporate social responsibility (CSR)
(Possibly lower) correlation of green assets with other assets
Political, social Reputation Compliance and
Reputation of the investor and the investee companies
Domestic law and regulation (e.g., in the form of SRI policy, ESG disclosure)
Non-standard risk criteria (e.g., integration of tail-risk or black swan events, reduction of catastrophic risks by reducing long-term carbon emission)
Pressure by politicians, media, NGOs, etc.
Voluntary industry codes and principles (e.g., UN PRI, Carbon
Disclosure Project (CDP), Global Reporting
'Double bottom- line' or 'triple bottom-line'
Good governance codes for institutional investors and companies; corporate social responsibility (CSR)
Via collective action of investor groups
Financial motivations are central to investment decisions, as investors weigh expected returns against potential risks and market behavior There is a rising awareness of long-term risk profiles, with investors considering the financial implications of environmental risks and the societal impacts of their investments This trend highlights the increasing recognition of the financial significance of non-traditional risks, such as climate change and social unrest.
Investors increasingly prioritize extra-financial considerations, emphasizing the importance of ecological conservation, scientific advancement, and alignment with personal or collective ethical and religious values Although these factors are not directly financial, they significantly impact investment decisions, showcasing a commitment to future generations and the planet Additionally, political and social motivations drive investors to align their portfolios with broader societal objectives, such as reducing inequality and fostering community development.
In today's digital age, a company's reputation is crucial, as public perception and social media can swiftly change its image Both investors and businesses recognize that green investments not only improve their reputation but also demonstrate a commitment to sustainability and societal well-being This approach can effectively serve as a marketing strategy, fostering customer loyalty.
Lastly, compliance and fiduciary duty underline the legal and ethical obligations investors face The regulatory landscape is evolving to incorporate in many jurisdictions.
Investors operate within a framework that promotes transparency and accountability Additionally, the concept of fiduciary duty is evolving to encompass not only the financial interests of beneficiaries but also their wider aspirations for a sustainable future.
The analysis reveals a shift in investment paradigms from a focus on short-term financial gains to a comprehensive approach that prioritizes long-term environmental and societal impacts This strategy aligns with sustainable development principles, aiming to meet present needs while safeguarding resources for future generations Consequently, the motivations for green investment are multifaceted, combining traditional financial analysis with a forward-thinking perspective that recognizes the interdependence of economic, social, and environmental elements.
Measuring Green Investment
Effective measurement of green projects requires a comprehensive approach that transcends basic environmental impact assessments It involves evaluating multiple criteria and dimensions to provide a thorough and accurate evaluation.
Chou et al (2017) proposed a comprehensive framework to assess the impact of green projects, identifying six dimensions and twenty-four criteria essential for effective green project management This framework, grounded in extensive research on environmental sustainability, provides a robust structure for evaluating the genuine environmental and sustainable qualities of green initiatives By utilizing these metrics, organizations can ensure their projects deliver significant and meaningful positive environmental outcomes beyond superficial green practices.
Integrated evaluation is crucial for effectively measuring green projects, as it combines various assessment tools and methodologies Chou et al (2017) proposed a unified approach that merges the decision-making trial and evaluation laboratory with the analytical network process, creating a cohesive evaluation system This integrated methodology takes into account all aspects of a project, from inception to execution and impact, helping businesses avoid potential pitfalls and ensuring adherence to the highest green standards.
Performance Associations: It is also essential to discern the intricate associations among different performance criteria, especially when rolling out Green
Effective project management can be significantly enhanced by understanding the interconnections between performance metrics, as noted by Ahmad et al (2019) This recognition enables a more streamlined approach, ensuring that all sustainability criteria are addressed in a cohesive manner.
A life-cycle perspective is essential for accurately assessing a project's environmental impact, as highlighted by the Green Public Procurement (GPP) approach endorsed by the European Commission in 2023.
Adopting a life-cycle perspective allows organizations to assess the environmental impact of their products and services from raw material extraction to disposal or recycling This comprehensive approach provides a clear, verifiable, ambitious, and justifiable evaluation of their environmental footprint.
Evaluating green projects involves a comprehensive approach that integrates multiple analytical methods to accurately assess the project's environmental impact.
An integrated approach that combines methods from various research fields offers a comprehensive perspective on the effectiveness of green projects This synthesis helps to address the complexities associated with green investments, ensuring alignment with globally recognized sustainability standards.
Additionally, recent advancements have introduced even more refined methods to the evaluation process One such approach is the "fuzzy AHP" method Hu and Jin
In 2023, the "fuzzy AHP" technique was utilized to assess sub-factors associated with green bonds, emphasizing the promotion of renewable energy development This method effectively addresses uncertain and qualitative data, making it well-suited for analyzing the complex elements of green initiatives.
Third-party validation and certification are essential in the green investment landscape, as they objectively verify the authenticity of green projects against environmental standards Ehlers and Packer (2017) noted the growing involvement of private sector entities in providing green labels for bond issuances, which guide investors in identifying truly sustainable projects However, the expansion of the green investment market has raised concerns about "greenwashing," highlighting the importance of third-party certifications in ensuring transparency Nygaard (2023) emphasized that these certifications not only confirm a project's green credentials but also encourage companies to pursue genuine innovation and adopt sustainable technologies.
This research builds on the framework established by Song and Yu (2018) to assess green investment, which evaluates a company's strategies and outcomes related to environmental management and sustainable development The assessment involves analyzing green innovation strategies focused on waste reduction, pollution prevention, and environmental management systems Companies can gauge their green investment by examining changes in business practices that enhance green innovation, such as adopting eco-friendly technologies and improving manufacturing processes to minimize resource consumption Additionally, a strong green organizational identity, characterized by the collective environmental awareness of employees and management, plays a crucial role in fostering creativity and innovation This is achieved through employee surveys that highlight pride and knowledge regarding the company's environmental objectives Ultimately, measuring green investment encompasses various factors, including strategic changes, organizational identity, and the outcomes of creativity and innovation.
Factors Affecting Green Investment
2.4.1 Macro-level Factors (PESTLE Analysis)
In the realm of climate change economics, the significant economic factors affecting Green Innovation have often been overlooked Research has primarily focused on developing policies aimed at reducing pollution and global temperatures, emphasizing the trade-offs between costs and the benefits of environmental conservation (Stiglitz, 1998) Various studies have investigated the drivers of energy-efficient innovations within individual companies (Ambec and Lanoie, 2007) and across specific industries (Brunnermeier and Cohen, 2003) Furthermore, some research has examined the factors that influence eco-friendly investments in the manufacturing sector (Martin et al., 2011).
Public policies play a crucial role in shaping the green investment (GI) landscape for businesses, as they can influence institutional investors' preferences by impacting corporate performance in green finance Environmental regulations compel companies to invest in clean and renewable energy, aligning their strategies with sustainability goals (Du et al., 2022) Provincial green governance measures are essential for promoting enterprise green investment, creating an environment that encourages the adoption of green technologies and sustainable practices, as evidenced by the correlation between strong governance and increased investment in green projects (Wang and Wang, 2023) Additionally, government policies aimed at GI innovation and ESG have been shown to enhance corporate ESG ratings, although their effectiveness may vary based on factors such as business size, industry sector, and existing corporate policies (Wang, Elahi, and Khalid, 2022).
Government policies can significantly impact the relationship between enterprise innovation vitality and green technology promotion Some studies suggest that these policies may even diminish the positive effects of innovation on green technology, highlighting the intricate dynamics between governmental initiatives and corporate strategies in this sector (Wu et al., 2022).
Public policies play a vital role in promoting green investment among businesses They establish essential frameworks and incentives that encourage companies to embrace sustainable practices and invest in green technologies, ultimately supporting wider environmental and economic goals.
Research into the factors influencing green investment (GI) has uncovered a complex landscape Economic literature identifies two main categories of determinants: traditional factors related to overall investment, including interest rates, income levels, growth, and production costs, and those specifically associated with the accumulation of green capital.
Economic growth and income levels significantly influence the trajectory of green innovation (GI) As economic activities increase, energy demand rises, leading to greater investment in the energy sector, known as the “accelerator effect.” The environmental Kuznets curve (EKC) suggests that as countries develop, they shift towards information-intensive sectors and enhance environmental awareness, resulting in stricter environmental regulations While debates exist regarding the EKC's theoretical framework, studies show that in nations with lower GDP, economic growth can worsen environmental conditions However, once a certain income level is achieved, economic growth tends to correlate with reduced pollution (Stern, 2004).
Interest rates significantly influence gross investment (GI), as higher rates often indicate limited financing and tend to dampen investment activities Renewable energy projects, which require considerable upfront capital and are more capital-intensive than traditional energy projects, are particularly vulnerable to changes in interest rates Empirical studies have explored this relationship by analyzing various indicators, including both short and long-term interest rates and bank capital ratios.
Rising fossil fuel prices significantly enhance the growth of green innovation (GI), particularly in the biofuel sector, as renewable energy becomes more competitive Historical oil price surges have spurred advancements in eco-friendly technologies, such as energy-efficient air conditioners developed in response to oil crises (Newell et al., 1999) Additionally, Popp (2002) establishes a connection between energy prices and the number of patents for energy-efficient innovations This research explores how energy dependency and carbon emissions can affect a nation's inclination towards green investments.
The production costs of green capital goods, such as solar panels, wind turbines, and electric vehicles, have undergone a significant transformation due to technological innovation and cost dynamics Historically, high production costs hindered widespread adoption, but recent advancements have led to a notable decrease in these costs For instance, the price of solar photovoltaic (PV) panels has plummeted by approximately 82% since 2010, making solar energy increasingly competitive with fossil fuels This reduction is attributed to improvements in material efficiency, manufacturing techniques, and economies of scale Similarly, the wind energy sector has experienced a 39% drop in electricity costs for onshore wind, driven by advancements in turbine technology and enhanced supply chain efficiencies.
The electric vehicle sector has experienced a remarkable transformation, highlighted by an 89% decrease in lithium-ion battery prices from 2010 to 2020, according to BloombergNEF This decline is attributed to advancements in battery technology, increased production scale, and heightened competition among manufacturers As production costs for green technologies decrease, their accessibility has expanded for consumers and businesses alike, fostering market growth and attracting further investments This creates a virtuous cycle where the growth of green technology markets leads to economies of scale, driving costs down and encouraging additional investment A prime example of this trend is the global solar market, which saw its installed photovoltaic capacity surge from around 40 GW in 2010 to approximately 707 GW by 2020, as reported by the International Energy Agency (IEA) This growth underscores the relationship between declining costs and rising investments in green technologies.
The relationship between population dynamics and green investment by enterprises is multifaceted, with population factors influencing both the supply and demand sides of green technologies and practices.
The expansion of the population leads to a significant increase in the consumption of essential resources like energy, water, and food, putting pressure on businesses to invest in efficient and sustainable green technologies These advancements are vital for reducing the environmental impact associated with demographic growth Additionally, rising environmental awareness among consumers drives demand for eco-friendly products and services, compelling companies to strategically invest in green initiatives Such investments not only address consumer preferences but also enhance a company's competitive strategy, allowing them to remain relevant and thrive in a market increasingly focused on sustainability.
An expanding population positively impacts the green investment landscape by broadening the labor market, which can lead to reduced labor costs due to increased supply This growth also introduces a diverse range of skills and innovative capacities essential for advancing green technologies, fostering creative solutions and technological breakthroughs vital for environmental sustainability.
Demographic expansion increases the demand for limited resources like arable land and raw materials essential for green technologies This heightened competition may lead to rising costs, affecting the economic viability of green infrastructure investments As resource scarcity grows, businesses might reconsider the financial wisdom of investing in green projects due to potential high input costs that could diminish expected returns Ultimately, while demographic growth offers opportunities for innovation through a diverse talent pool, it also poses risks of resource scarcity, significantly impacting the appeal of green investments.
Demographic factors significantly impact energy consumption and land use in less developed nations, often transcending traditional market dynamics, especially with practices like fuelwood usage Countries with rapid population growth face substantial energy demands that GDP figures may not fully represent To meet these demands, a transition to alternative energy sources is essential, particularly in regions where fossil fuels are expensive and renewable resources are plentiful.
To effectively plan their green investment strategies, enterprises must navigate complex population dynamics, taking into account both immediate economic implications and long-term societal trends Additionally, potential regulatory changes influenced by demographic factors are crucial Therefore, demographic considerations play a vital role in the strategic planning of companies investing in green technologies and sustainable practices.
Theory of Sustainable Development
The rise of industrialization has significantly increased the demand for natural resources, leading to environmental degradation and contributing to climate change (Abbas, 2020; Ji and Zhang, 2019) In response, many manufacturing firms are adopting corporate social responsibility (CSR) practices and eco-friendly approaches, which promote both environmental and economic sustainability (Raimi, 2017) Sustainable development (SD) theory, as defined by the World Commission on Economic and Development, emphasizes meeting current needs without compromising future generations' ability to meet theirs (WCED, 1987) This theory advocates for the integration of environmental, economic, and social sustainability in corporate decision-making (Dibrell et al., 2015) Additionally, the green theory encourages companies to prioritize eco-friendly biodegradable options and innovative technologies to create sustainable products, particularly in developing nations (Eckersley, 2010).
Sustainable development (SD) is a vital concept that integrates environmental, social, and economic dimensions, all of which hold equal significance The environmental aspect emphasizes the importance of preserving natural resources, managing waste, ensuring clean air and water, and reducing harmful emissions (Galdeano-Gomez et al., 2013) This study focuses on the environmental dimension of sustainability Furthermore, green investment, rooted in sustainable development principles, illustrates the connection between corporate activities and their environmental impact (Cancino et al., 2018) It serves as a strategy for businesses to reduce their negative effects on the environment (Chen, 2008; Fernando et al., 2019).
Recent studies have highlighted various factors influencing eco-friendly investments Chang (2011) found that ethical business practices positively affect these investments, while Weng et al (2015) emphasized the significant role of pressure from both internal and external stakeholders Cai and Li (2018) identified key drivers such as environmental regulations, technological expertise, market forces, and the demand for eco-conscious products, all of which enhance corporate performance Awan et al (2019) noted that innovative thinking fosters sustainable growth through eco-friendly investments Dangelico et al (2017) revealed that a company's focus on environmental issues greatly impacts these investments However, Zhu et al (2019) pointed out that the influence of Corporate Social Responsibility (CSR) practices on eco-friendly investments remains underexplored This study posits that a strategy centered on sustainable environmental practices, in conjunction with CSR activities, could significantly predict eco-friendly investments, reinforcing the notion that commitment to environmental sustainability drives such initiatives.
Corporate Social Responsibility
The literature review identifies two primary groups of factors influencing green investment decisions: macro and micro factors Macro factors encompass national elements like legislation, financial support, and infrastructure, which can hinder green investments if basic infrastructure does not meet requirements In contrast, micro factors involve corporate culture, employee skills and knowledge, financial resources, and leadership attitudes Companies led by visionaries who prioritize long-term resource and environmental sustainability are more inclined to pursue green initiatives Furthermore, enhancing employee training and knowledge on environmental issues is crucial for recognizing the benefits and impacts of green investments.
In today's world, Corporate Social Responsibility (CSR) and Green Initiatives (GI) are viewed as interconnected elements essential for businesses CSR serves as a strategic approach that enhances a company's reputation and builds customer trust while fulfilling environmental and community responsibilities It has emerged as a critical area of management, gaining importance in society (Nguyen, Bensemann, and Kelly, 2018) Carroll and Brown (2018) define CSR as the social obligations of organizations, encompassing legal, economic, ethical, and philanthropic expectations from society They highlight four key components of CSR: philanthropy, ethics, legality, and economics (Carroll, 2016).
Businesses can demonstrate their commitment to environmental sustainability through corporate social responsibility (CSR) initiatives focused on the environment (CSREN) This includes reducing carbon emissions, increasing the use of renewable energy, minimizing waste, and promoting recycling The main goal is to mitigate the negative impacts of corporate activities on the environment and support long-term sustainability (Sarfraz et al., 2023).
CSR for employees (CSREM) emphasizes the importance of fostering a safe and equitable work environment while promoting personal growth Key elements include offering appropriate benefits, training, and advancement opportunities, alongside cultivating a positive company culture Ultimately, CSREM prioritizes the well-being and interests of employees.
Corporate Social Responsibility to communities (CSRCO) signifies a company's beneficial impact on local communities where it operates Common initiatives involve establishing funds for community projects, supporting educational efforts, and engaging in charitable activities The primary aim is to foster a positive and sustainable influence on the community (Turker, 2008).
Corporate Social Responsibility towards consumers (CSRCS) highlights an organization's duty to ensure that its products and services are safe, high-quality, and ethically produced It emphasizes the importance of honest communication with customers and the prompt resolution of their concerns or complaints, ultimately fostering a trustworthy relationship with consumers (Shahzad et al., 2020).
According to Jamali and Karam (2016), CSR in developing regions prioritizes humanitarian issues over environmental and social responsibilities, addressing immediate concerns like poverty, healthcare, and education Implementing CSR in these contexts offers organizations multifaceted benefits, notably enhancing corporate reputation Companies recognized for their social responsibility can cultivate stronger brand loyalty and trust among consumers, who increasingly prioritize ethical practices Additionally, CSR initiatives contribute to greater employee loyalty and satisfaction, as employees take pride in their organization's meaningful social contributions, leading to improved job satisfaction and productivity.
Corporate Social Responsibility (CSR) significantly enhances labor efficiency and sustainability by fostering investment in local communities and ensuring fair working conditions Engaging in ethical business practices contributes to a stable socio-economic environment, which can lead to more efficient operations Research by Shahzad et al (2020) demonstrates a positive correlation between sustainable corporate performance and CSR implementation, indicating that companies committed to social responsibility often achieve higher sustainability levels This relationship is driven by improved risk management, innovation, and enhanced stakeholder engagement, all of which are bolstered by responsible business practices.
Additionally, Abbas (2020) discovered a positive relationship between CSR and sustainable corporate performance in the manufacturing sectors of Pakistan Suganthi
In 2019, it was discovered that Corporate Social Responsibility (CSR) initiatives significantly impact the adoption of sustainable practices in India's manufacturing sector Organizations increasingly acknowledge the importance of addressing social, environmental, and ethical concerns beyond mere legal compliance As a result, CSR has driven these companies to embrace their natural and social responsibilities, actively seeking resources to enhance their overall prosperity.
Environmental Corporate Social Responsibility (CSR) plays a crucial role in advancing sustainable practices within the corporate sector, driven by regulatory pressures and a heightened awareness of environmental stewardship Corporations are increasingly required to adhere to environmental standards, adopting the Triple Bottom Line (TBL) framework that emphasizes financial, social, and environmental accountability This shift encourages firms to proactively minimize ecological risks and pollution, reflecting a deeper commitment to environmental protection Research indicates that organizations are becoming more cognizant of their responsibility to conserve the natural environment, leading to management practices that reduce their ecological footprint through emission cuts, resource conservation, and investments in sustainable technologies Furthermore, embracing Environmental CSR not only aids in environmental preservation but also enhances a company's competitive edge, as consumers and stakeholders are increasingly prioritizing environmental responsibility Businesses that demonstrate a commitment to sustainability can differentiate themselves and attract a growing base of eco-conscious customers.
Research from 2016 indicates that Environmental Corporate Social Responsibility (ECSR) significantly impacts economic and environmental outcomes, particularly in emerging nations By implementing ECSR initiatives, companies can drive substantial improvements in environmental conservation and foster economic growth.
Previous research, such as that by Martinez-Conesa et al (2017), Mehralian et al (2016), and Saeidi et al (2015), has primarily emphasized the economic benefits of Corporate Social Responsibility (CSR), often neglecting its environmental aspects This narrow perspective may diminish the overall advantages of environmental CSR, which includes a wider range of environmental and social effects in addition to economic benefits.
Establishing the significance of diverse environment-focused CSR strategies is crucial for integrating environmentally sustainable development into the wider knowledge framework.
H1: CSREN has a significant impact on ESD.
Employees play a crucial role in the successful functioning and achievement of a company's goals, especially in the pursuit of sustainability Suganthi (2019) underscored that employees are essential internal stakeholders and pivotal contributors to an organization's sustainable development Additionally, Turker's research further supports this perspective.
In 2009, it became evident that an excessive emphasis on external CSR initiatives, like customer focus and market orientation, can diminish employee commitment This shift may create a disconnect with internal stakeholders, ultimately jeopardizing the organization's core foundation.