ESG Factors and their Influence on the Investment Behavior of Individual Investor: A Case from Pakistan

Abstract

Companies are extensively mobilized about their sustainability due to the inequalities and problems in the presence of resource scarcity at a global level. Sustainable responsible investment (SRI) holds the belief to merge Environmental, Social, and Governance (ESG) factors in strategies, policies, and investment allocations to act socially impactful. This article postulates a deductive study framework based on a theory of planned behavior (TPB) to further enlighten the stakeholders on this subject. The research study has analyzed the ESG factors' influence on investors' investment where primary data has been collected from individual investors based on GPower analysis (sample 300) through snowball non-probability sampling technique in the Pakistan Stock Exchange (PSX). The results obtained through Structural Equation Modeling (SEM), demonstrate that investors are sensitive to ESG factors. The combined effects of the three factors are statistically significant and favorable for investing. The respondents' investment decisions are significantly and dominantly influenced by the governance factors, followed by social factors, and then environmental factors have additional effects. The results revealed the impact of perceptions about (ESG) aspects on outcomes (Investment). The research suggested the assessment of ESG factors as an integral part of a suitable investment process for investors. There are few studies available to measure the perception of individual investors in the market about non-financial criteria that brings variation in investors' investment decision. The subjective studies are also lacking in finance. Theoretically, it has been found that each person's attitude is shaped by their beliefs that further lead to certain behavior. For businesses, it has been suggested that management should improve their ESG performance to draw large amounts of investment from the market. The results also showed that investors should invest in companies that can safeguard their capital and increase their cash inflows by undertaking ESG factors.