Sustainable Development Investment Decision: Do Environmental, Social and Governance (ESG) and Behavioral Biases Factors Matter?

Anshita Bihari, Manoranjan Dash, Kamalakanta Muduli, Anil Kumar, Sunil Luthra and Arvind Upadhyay

Sustainable Development, 2025, vol. 33, issue S1, 1161-1181

Abstract: This paper investigates the critical factors involved and evaluates how environmental, social, and governance (ESG), along with behavioral biases, impacts sustainable investment decision making. The researchers employed purposive sampling with random sampling methods to gather data from retail investors; the data is then analyzed in two stages. The first stage involves using partial least squares structural equation modeling (PLS‐SEM) to identify the significant factors influencing investment decisions. The second stage uses the results of SEM as input into an artificial neural networks (ANN) model, with the fusion of ANN and SEM explaining the high predictability of investment decision factors among investors. Using a multilayer perception model, the ANN explains the predictability of the predictors of investment decisions. It reveals the normalized importance values for the significant predictors—confirmation bias, endowment effect, hindsight bias, bandwagon effect, and ESG. By examining the biases from a behavioral finance perspective, a significant academic contribution is made in the context of retail investors, along with ESG as critical determinants influencing investment decisions. The study results enable investment firms to predict the extent to which their investment avenue programs impact investment decisions before developing these programs with appropriate ESG measures, thus enabling a sustainable investment ecosystem. The research contributes uniquely to the existing behavioral finance area by developing a framework to understand ESG dynamics and biases that collectively impact investment decisions.

Date: 2025
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https://doi.org/10.1002/sd.70056

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Persistent link: https://EconPapers.repec.org/RePEc:wly:sustdv:v:33:y:2025:i:s1:p:1161-1181

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