This study evaluates the impact of Environmental, Social, Governance (ESG) factors and Market Potential factors on Foreign Direct Investment (FDI) inflows for the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) nations (Bhutan, Bangladesh, Myanmar, India, Nepal, Sri Lanka and Thailand) over the period 2005 to 2021, through the use of panel data methodologies such as Robust Feasible Generalized Least Squares (FGLS) and Principal Component Analysis (PCA). The study models Foreign Direct Investment as the dependent variable, with ESG factors (Carbon emissions, Renewable energy consumption, Human Development Index, unemployment rate, Rule of Law and Regulatory Quality estimate, among others) alongside Market Potential factors(Market Intensity, Market Consumption Capacity, Market Receptivity, Commercial Infrastructure, Economic Freedom and Market Growth rate) as independent variables, while controlling for macroeconomic factors like Inflation, Trade Openness, Gross Domestic Product and Official Development Assistance .The results suggest that investment flows are significantly influenced by both sustainability and the Market specific factors, exhibiting mixed effects with both positive and negative correlations with FDI. This study contributes to the existing literature by providing a holistic approach to investment, incorporating market potential as an umbrella term to the traditional ESG paradigm, thereby outlining a more strategic investment framework for the BIMSTEC nations and aiding policy makers in better sustainable economic management.
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