Environmental, Social, and Governance (ESG) Factors and Their Impact on Investment Decisions in the Pakistan Stock Market

Abstract

This study examines the influence of Environmental, Social, and Governance (ESG) factors on the investment decisions of stock market investors in Pakistan. It explores how ESG considerations, alongside the purpose of investment, shape the decision-making process in a market characterized by underdeveloped ESG reporting practices. A quantitative approach was employed, utilizing a structured questionnaire analyzed through Structural Equation Modeling (SEM) using SmartPLS. The results reveal significant positive relationships between ESG factors and investment decisions, highlighting the growing relevance of environmental responsibility, social considerations, and governance quality in attracting investors. The study also underscores the role of investment purpose, with capital preservation and sustainable growth emerging as key motivators. Despite global advancements in ESG integration, the findings indicate that legislative gaps and inconsistent practices in Pakistan hinder the alignment of investment strategies with global sustainability standards. This research contributes to the literature by addressing the contextual challenges of ESG adoption in emerging markets and providing empirical evidence for the interplay between ESG factors and investment behavior. The study concludes with recommendations for enhancing ESG reporting and aligning corporate strategies with sustainable investment goals.