Essays in sustainable finance and international investment

This thesis investigates the relationship between foreign direct investment (FDI), climate finance, and environmental, social, and governance (ESG) performance across developing and developed economies. It examines how sustainability considerations, through public climate finance and private ESG commitments, influence the scale, composition, and geography of global capital flows. The research is driven by the need to understand how both international financial mechanisms and firm-level sustainability strategies influence the transition towards a low-carbon and resilient global economy. Chapter 2 analyses whether climate finance, disaggregated into adaptation and mitigation categories, influences aggregate FDI inflows into emerging markets and developing economies (EMDEs). Using cross-country panel data for 2000–2020, the study finds that adaptation finance exerts significant positive effects on FDI, suggesting that resilience-building and infrastructure enhancement reduce perceived risks and improve host-country attractiveness. Mitigation finance, primarily aimed at reducing greenhouse gas emissions, shows no significant effect at this level. Chapter 3 explores sectoral and firm-level dynamics by examining whether adaptation and mitigation finance promote greenfield investment in environmental-technology sectors. Drawing on data from 1,931 multinational firms investing across 110 countries between 2003 and 2021, the results indicate that mitigation finance, with the objective of reducing greenhouse gas emissions, significantly stimulates green investment. Adaptation finance, however, shows little direct influence on such projects. These findings reveal that while adaptation finance enhances stability and attract FDI at the macro level, mitigation plays a catalytic role at the project level by mobilising private investment in green technologies. Chapter 4 focuses on assessing whether firm-level ESG performance influences outward greenfield FDI from North America. Using a panel of 7,145 firm–country pairs covering 2003–2023, the study finds that firms with stronger ESG performance invest more abroad, particularly when financially unconstrained. Collectively, the findings demonstrate that climate finance and ESG performance are central to the evolving geography of global investment, linking sustainability commitments to international capital mobilisation. Chapter 5 synthesises these findings, discusses their implications, and outlines directions for future research.