The Impact Of ESG Disclosure On Foreign Investment In India: Strengthening The Role Of Institutional Investors Through The Rule Of Law

Abstract

This study examines the impact of Environmental, Social, and Governance (ESG) disclosure on foreign investment inflows in India, emphasizing the critical role of institutional investors and the rule of law in shaping sustainable capital markets. While existing research highlights sectors like energy and IT, this paper addresses gaps by incorporating sector-specific ESG challenges in textiles, infrastructure, and agriculture, offering a comprehensive analysis of India’s diverse economic landscape. The study highlights emerging concerns such as greenwashing and its implications for investor trust, supported by Indian and global case studies. Further, it integrates qualitative insights from stakeholders including corporates, regulators, and ESG rating agencies to present a nuanced perspective. To enhance practical applicability, the paper proposes a risk assessment framework tailored for Foreign Institutional Investors (FIIs), alongside exploring the transformative role of technology—AI, blockchain, and data analytics—in improving ESG transparency. Finally, it offers actionable policy recommendations advocating coordinated regulatory efforts by SEBI, RBI, and MCA to strengthen ESG standards, mitigate greenwashing, and incentivize genuine sustainability disclosures. This holistic approach aims to reinforce India’s position as a responsible destination for ESG-aligned foreign investments, fostering long-term economic and social development.Key words-ESG Disclosure, Foreign Institutional Investors, Greenwashing, Institutional Investors, Sustainable Finance