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MF
49,1
66
Received 8 April 2022
Revised 5 July 2022
19 July 2022
Accepted 19 July 2022
Managerial Finance
Vol. 49 No. 1, 2023
pp. 66-87
© Emerald Publishing Limited
0307-4358
DOI 10.1108/MF-04-2022-0162
How does an investor prioritize
ESG factors in India? An
assessment based on fuzzy AHP
Kirti Sood and Prachi Pathak
Department of School of Management, Doon University, Dehradun, India, and
Jinesh Jain and Sanjay Gupta
Department of Commerce and Management,
Sri Aurobindo College of Commerce and Management, Ludhiana, India
Abstract
Purpose – The primary objective of the study is to discover the most prominent criteria and sub-criteria
among environmental issues, social dimensions and corporate governance factors that may impact individual
equity investors’ investment decisions.
Design/methodology/approach – The present study collected data from 438 individual equity investors from
the North Indian region. To achieve the objectives of the study, a fuzzy analytic hierarchy process (Fuzzy AHP)
was applied. The key considerations of the study were environmental, social and governance (ESG) factors.
Findings – The governance criterion was discovered to be the most significant factor influencing individual
equity investors’ investment decisions among the three ESG factors, followed by environmental criteria, while
social criteria were shown to be the least influential.
Research limitations/implications – The present study solely looked at ESG issues as drivers of stock
investors’ investment decisions. In the current world, however, many other factors, including behavioral biases,
accounting information, ownership structure and fundamental analysis, can have a substantial influence on
investors’ investment decisions.
Practical implications – The study’s findings widen the theoretical contribution in the field of responsible
investment by asserting how ESG factors influence investors’ investment decisions in the equity market. From
a practical standpoint, this study applies to retail and institutional investors, portfolio managers, financial
advisors, market regulators, corporations and society at large.
Originality/value – To the best of authors knowledge, no attempt has been made to prioritize the ESG issues
that impact the investment decisions of individual equity investors. Ergo, this study contributes to the existing
literature on socially responsible investment.
Keywords Environmental issues, Social dimensions, Corporate governance, Fuzzy AHP,
Socially responsible investing
Paper type Research paper
1. Introduction
The stock market has expanded significantly in recent years, which reflects the economic
expansion and prosperity of the country (Jain et al., 2021a; Amaresh and Anandasayanan,
2019; Pan and Mishra, 2018; Al-Alawi, 2017; Akbar et al., 2016; Akhter and Sangmi, 2015;
Kagochi et al., 2013; Roser, 2013; Masoud, 2013; Srinivasan, 2012). Investment decisions in the
stock market are crucial for investors and investment managers when picking the finest
stocks to invest in. However, in today’s environment, they are finding it more difficult to make
investment decisions. Traditional financial models assume that most investors consider
traditional metrics of profitability and risk (Cubas-D
ıaz and Martinez Sedano, 2018; Baker
and Filbeck, 2013; Li and Ng, 2000; Samuelson, 1975; Markowitz, 1952; Merton, 1969).
However, the concept of risk is shifting in today’s dynamic economy. It has an effect on the
assets of the portfolio as well, as investors try to maximize financial returns. In addition to the
Conflict of Interest: There is no Conflict of Interest
risks that every business entails, other key challenges like climate change, growing economic ESG factors in
inequality, the disparity in human rights, internal controls and risk management, and high India
tensions among nations are some of the other major issues that pose a risk to businesses.
Profit maximization cannot be the sole purpose of global businesses (Linnenluecke, 2022) in
the “twenty-first” century. As global warming progresses, social and economic inequality has
also increased. Consequently, it is critical to build a corporate climate that prioritizes people,
the planet and profit (3Ps). The 3Ps approach is also termed as “triple bottom line” (TBL)
approach, which was first used in 1994 by John Elkington (Zehir and Aybars, 2020; Milne and 67
Ball, 2005). The TBL approach opposes Friedman’s 1970 principle, which is congruent with the
conventional view that the corporate goal is simply profit maximization. According to
Elkington (2018), the success of TBL should be evaluated not just in terms of revenues and
losses but also in terms of the well-being of a billion people and the overall ecosystem. This
view is shared by many investors and investment companies. This is known as “Socially
Responsible Investment” (SRI), which combines environmental, social, and governance (ESG)
factors into an investment process to generate long-term competitive economic gains as well as
positive social outcomes (G€arling and Jansson, 2021; Kolbel et al., 2018; Puaschunder, 2019;
Tripathi and Bhandari, 2014; Renneboog et al., 2007; Matten and Crane, 2005; Livesey, 2002;
Schueth, 2003). It focuses on several nonfinancial aspects of a stock’s performance.
In accordance with the Sustainable Development Goals (SDGs) of the United Nations
Development Programme, SRI is supported by the term “sustainable investment.” Over the
last few decades, particularly with the inclusion of sustainable development in the World
Commission on Environment and Development (WCED) in 1987, sustainable investment has
become critical for both businesses and individuals (Cubas-D
ıaz and Martinez Sedano, 2018).
Even today, several investors are drawn to sustainable investment for altruistic reasons
(Hartzmark and Sussman, 2019; Riedl and Smeets, 2017). Despite market instability during
COVID-19, sustainable-themed investment in global capital markets grew robustly in 2020,
according to the United Nations Conference on Trade and Development (UNCTAD)’s World
Investment Report 2021 (UNCTAD, 2021a). According to Morningstar and Track Insight, the
total number of sustainable funds in June 2020 was 3,987, a 30% increase from 2019, and
about half of all sustainable funds were launched in the past five years (UNCTAD, 2021b).
Assets under management (AUM) funds have quadrupled in the past five years and nearly
doubled last year alone, growing from around United States Dollar (USD) 900 billion in 2019
to more than USD 1.7 trillion in 2020. In comparison to 2019, UNCTAD estimates that the
value of sustainable-themed investment products in 2020 will be more than 80% higher, or
USD 3.2 trillion (UNCTAD, 2021a). ESG assets are expected to reach USD 53 trillion by 2025,
representing more than a third of the total AUM of USD 140.5 trillion (Bloomberg, 2021).
More than 4,000 signatories in over 60 countries have signed the Principles for
Responsible Investment (PRI), representing more than USD 120 trillion in assets, indicating
the widespread adoption of a more integrated strategy (UNPRI, 2021). This development
illustrates the financial markets’ commitment to ESG norms in investment decisions.
However, the profound shift of conventional investors toward sustainable investment
approaches is still relatively modest (Maiti, 2020; Riedl and Smeets, 2017; Reynolds, 2014;
Busch et al., 2016). Although many recent studies (Broadstock et al., 2021; Palma-Ruiz et al.,
2020; D
ıaz et al., 2021) have discovered that the COVID-19 outbreak represents a watershed
event in ESG investment, investors have exhibited a growing interest in ESG factors while
incorporating them into their investment portfolios (In et al., 2019). Morgan (2020) survey
report anatomized that investors are focusing on climate change, which serves as a wake-up
call for policymakers to prioritize a more sustainable approach to investment portfolios.
Even though ESG factors have become an important component in investment decision-
making, there have been only a few studies that understand how investors take these
concerns into account when making investment decisions. Thus, this field is still in its
MF nascent stage. The majority of previous studies, however, have focused on how institutional
49,1 investors, portfolio managers, and fund managers incorporate ESG aspects into their
investment decisions. A few studies also examined the impact of ESG factors on individual
equity investors’ investment decisions to ascertain to what extent they take ESG issues into
consideration while investing. Since ESG factors have become an increasingly essential
component of decision-making, it is critical to investigate how diverse ESG issues are
prioritized depending on individual investors’ preferences, which, to the best of our
68 knowledge, have not been researched. Corollary, there is a significant gap in the extant
literature that requires further examination in this area. Thus, the study aims to find out the
following research questions (RQs):
RQ1. What are the criteria and sub-criteria amongst ESG factors that impact the
decision-making process of individual equity investors?
RQ2. Which ESG factors have the most influence on individual equity investors’
investment decisions in the Indian stock market?
The multiple-criteria decision-making (MCDM) technique has been used in this study to
prioritize the ESG factors that influence equity investors’ investment decisions. This
technique incorporates the analytical hierarchy process (AHP) along with fuzzy logic. It is the
most appropriate technique for the current study and a strong approach for ranking various
criteria and sub-criteria (Wang and Chin, 2011). It assesses each criterion’s choice options and
assigns an overall ranking. Since we analyzed the perspectives of experienced investors on
how they prioritize ESG factors while making equity investment decisions, the prevailing
study has taken the SRI theory into account. It provides a conceptual framework which
demonstrates that investors can fulfill their social goals along with financial goals during
investments (Ning et al., 2017).
The following is an outline of the remaining research: The theoretical framework has been
introduced in section second. The research methodology is described in section third. The
data analysis and findings are explained in section four, and the conclusion and limitations
are discussed in section five, while the policy implications and future research directions are
explained in section six.

2. Theoretical framework
Despite the increasing prominence of SRI or ESG investment, it is surprising that there is no
appropriate theoretical framework that can quantify the appropriate level of social
responsibility or define the optimal trade-off between social responsibility and other
investment factors, namely risk and return (Sandberg et al., 2009; Berry and Junkus, 2013).
Different sets of investors have introduced different theoretical frameworks related to the
integration of ESG factors in investors’ investment decisions (Sandberg et al., 2009). For
instance, Brunena and Laubach (2022) used the theory of consistent behavior to create a
framework for their research to explore if sustainable customers incorporate sustainability
into their investment decisions. Sultana et al. (2018) adopted theoretic foundations from the
theory of planned behavior (TPB), goal setting theory (GST), and the behavioral asset pricing
model (BAPM) to examine retail investors’ preferences for ESG issues and their impact on their
investment decisions. Diouf et al. (2016) used theory of complexity to understand investors’
behavior and choices in socially responsible investments since the authors viewed social
investors as complicated individuals who make complex stock market decisions. According to
Przychodzen et al. (2016), ESG diligence among fund managers mostly functions as a risk
mitigation technique and is typically driven by herding; it is far less important as a tool for
generating additional value. As a consequence, the author claimed that behavioral finance
theory governs it. On the contrary, P
erez-Gladish et al. (2012) employed utility theory via
multicriteria decision-making models to examine financial preferences; social, environmental ESG factors in
and ethical concerns; and socio-demographic characteristics of socially responsible investors. India
Ballestero et al. (2012) also applied utility theory in the context of SRI portfolio selection. Peifer
(2014) examined investors’ loyalty to SRI mutual funds despite the notion that they provide a
lower return on investment. Thus, the author employed expectancy-value theory (EVT) in this
research, which succinctly assesses a person’s attitude toward ethical motivation. The
aforementioned perspective has shown that there is no standard framework that encompasses
the decision-making behavior of individual investors in the context of SRI or ESG under one 69
umbrella, as done by conventional finance or behavioral finance theories.
SRI does not fit into the traditional efficient market framework, which is used in finance
theory to assess an investment’s attractiveness (Berry and Junkus, 2013; Brzeszczy
nski and
McIntosh, 2014). Modern portfolio theory (MPT) argues that the investor concentrates on the
highest return for minimal risk, implying that individual investors are solely concerned with
financial profits (Diouf et al., 2016; P
erez-Gladish et al., 2012). Socially Responsible (SR) investors,
on the other hand, do not focus just on financial aspects; they are concerned about their social
values also (Ning et al., 2017). Nonetheless, the question is how much an investor should care
about ESG issues, since if investors care deeply about ESG, they will have to examine their
portfolio, and once they do, every company looks hideous (Cornell, 2020). Consequently, the
Principles of Responsible Investment (PRI) encourage investors to consider ESG aspects to the
extent that they are crucial to the investment performance of specific portfolios, rather than
excluding investments in companies with poor ESG records. Corollary, this study is based on the
SRI theory, which was created from the standpoint of shareholders, i.e. investors (Ning et al.,
2017). SRI theory takes into account individual values and societal well-being as a crucial
component in the cognizance of the investment selection process (Van Dooren and Galema, 2018;
Hernandez and Hugger, 2016; Newell and Lee, 2012; Bennett and Iqbal, 2013). According to Ning
et al. (2017), SRI theory argues that investors often unite their social objectives with their
financial objectives when making investment decisions based on ESG factors.

2.1 Environmental factor and investors’ investment decisions

Environmental factors are a significant factor that individual investors must address since
they have effective consequences for the future success of the majority of firms in emerging
economies (Epstein et al., 2018). According to Newell and Lin Lee (2012), people who are
strongly committed to sustainability demand the company’s environmental reports, as well
as information regarding environmental awards and penalties, which impact their
investment decisions. There are an extensive number of studies (Park and Jang, 2021;
Sultana et al., 2018; Berry and Junkus, 2013; Syed, 2017; Newell and Lee, 2012; Nelson, 2020;
Epstein and Freedman, 1994) stating that environmental factors have a positive significant
impact on investors’ investment decisions. On the other hand, a number of researchers (Al-
Hiyari and Kolsi, 2021; Al-Alawi, 2017; P
erez-Gladish et al., 2012) discovered that
environmental factors do not influence equity investors’ investment decisions since they
are perceived as being somewhat unprofitable to include in their investment decisions. Park
and Jang (2021) discovered that in South Korea, institutional investors prioritize
environmental factors over governance and social factors. According to them, reducing the
impact of greenhouse gas emissions (GHG), controlling pollution and reducing waste in order
to meet the Paris agreement goal has a substantial impact on investment decisions. Similarly,
retail investors in Bangladesh value environmental issues while making investment
decisions such as industrial pollution, climate change issues, environmental deterioration,
risk management and so on (Sultana et al., 2018).
Syed (2017) asserted that investors in the United Kingdom (UK) and France who took
environmental factors into account were better able to manage investment risk since they
believed that an organization that adheres to industry norms for environmental practices
MF would do better in the long run. In a study of American Association of Individual Investors
49,1 (AAII) members conducted in 2013, Berry and Junkus (2013) found that environmental
concerns predominate among both SRI and nonSRI investors, demonstrating that a
company’s environmental performance has a significant impact on investor attitudes.
Individual investors are quite interested in the company’s environmental measures,
according to Epstein & Freedman’s analysis from 1994. Consequently, businesses must
operate ethically to protect the environment and produce high-quality, safe products. Hence,
70 it is hypothesized that:
H1. Environmental factors are the highly prioritized factors for decision-making in the
context of ESG.

2.2 Social factors and investors’ investment decisions

Social issues are a prominent component of ESG factors (de Zwaan et al., 2015), since the
community-employee relationship and human rights are key considerations for investment
choices (Rakotomavo, 2011). Numerous studies have shown that social factors have a positive
and substantial influence on investors’ investment decisions (Sultana et al., 2018; de Zwaan
et al., 2015; Berry and Junkus, 2013; P
erez-Gladish et al., 2012; Rakotomavo, 2011; Epstein and
Freedman, 1994). On the contrary, many studies (Park and Jang, 2021; Al-Hiyari and Kolsi,
2021) have discovered that investors place less attention on social factors than on
environmental and governance factors. Sultana et al. (2018) identified retail investors in
Bangladesh who placed a significant emphasis on social factors while investing, such as
employee health and safety at work, stimulating a healthy work-life balance, prohibiting child
labor and other forms of forced or coerced labor, providing equal opportunities to all people
regardless of their age, gender, ethnicity or religion, and producing standard goods and
services that are mindful of the health and safety of their clients.
Syed (2017) concluded that managers in the UK and France agreed that social
responsibility is superior to managing investment risk. Berry and Junkus (2013) discovered
that investors seem to favor rewarding corporations that exhibit overall positive social
behavior rather than excluding firms based on specific products or activities. Australian
investors place a higher priority on social concerns than they do on environmental and
governance concerns. These concerns include bribery, equality of opportunity, human rights,
breast milk substitutes and community (P
erez-Gladish et al., 2012). According to Epstein and
Freedman (1994), investors are willing to learn about firms’ relationships with society. The
authors claimed that product safety concerns outweigh increased dividends for shareholders.
Hence, it is hypothesized that:
H2. Social factors are the highly prioritized factors for decision-making in the context
of ESG.

2.3 Governance factors and investors’ investment decisions

Governance practices play a critical role in preventing conflicts of interest between
controlling owners and minority shareholders (Al-Hiyari and Kolsi, 2021). It increases long-
term shareholder value (Syed, 2017; Khan et al., 2016). Fund managers in developing
economies such as China, South Korea, India and Brazil prioritize corporate governance
above social responsibility since it is directly tied to firm success (Birgden et al., 2009). The
majority of the studies (Park and Jang, 2021; Al-Hiyari and Kolsi, 2021; Sultana et al., 2018;
Sinha et al., 2020; Bae and Goyal, 2010; Van Duuren et al., 2016; Chang and Wei, 2011) have
found that the governance pillar of ESG has a major influence on investors’ investment
decisions. However, Berry and Junkus (2013) discovered that the inclusion of corporate
governance factors in investment decisions ranks very low among individual stock investors.
According to Park and Jang (2021), shareholder rights, risk, opportunities for long-term ESG factors in
wealth creation and Chief Executive Officer (CEO) reputation have all been shown to have a India
significant impact on investment decisions in South Korea. Sultana et al. (2018) stated that
governance issues such as an effective board with assigned duties and responsibilities,
compliance with financial reporting standards and auditor independence are prioritized over
environmental and social issues in Bangladesh.
Bae and Goyal (2010) found investors prefer those firms in which the largest shareholder
has greater control of cash flow rights, high foreign ownership, independent firms that are not 71
affiliated with business groups and those that pay dividends since the author claimed that
these firms pursue stronger governance practices. Van Duuren et al. (2016) conducted an
international survey among United States (US), UK and European asset managers and
identified that governance factors are more essential than environmental and social
considerations since management quality is a critical component that most asset managers
value. According to Chang and Wei (2011), if family members are prominent shareholders,
they often try to control the board of directors and expropriate the wealth of minority retail
investors. In these circumstances, conducive governance practices are vital for minimizing
controlling shareholders’ power to expropriate minority shareholders’ interests (Filatotchev
et al., 2005). Hence, it is hypothesized that:
H3. Governance factors are the highly prioritized factors for decision-making in the
context of ESG.

3. Research methodology
This section of the paper describes the evaluation framework, the design of the questionnaire
based on fuzzy logic, details of data collection, the demographic profile of respondents and
steps taken while applying the fuzzy AHP process for data analysis.

3.1 Evaluation framework

The present study has attempted to investigate and prioritize ESG factors that influence
individual investors’ investment decisions. The study’s participants included retail equity
investors from the states of Punjab, Himachal, Haryana, Chandigarh, Uttarakhand and Delhi
National Capital Region (NCR) in North India. The survey comprised those participants who
had invested for at least five years in the equity market. Since experienced investors rely on
and value criteria for investment decisions that they evaluate rationally (Merika, 2004). The
methodology for the study was developed after conducting a thorough assessment of the
relevant literature. The opinions of seven stockbrokers with at least 10 years of expertise in
the Indian stock market were also solicited to confirm the suitability of the framework.
Following that, the research problem was divided into sub-problems with different levels of
hierarchy using Saaty’s (1980) MCDM technique. In this context, a goal was defined at the
first stage of the hierarchy to make a final decision. Subsequently, criteria for ESG factors
impacting investors’ decisions were chosen at the next stage. Finally, sub-criteria pertaining
to the aforementioned ESG factors were finalized.

3.2 Designing of questionnaire

The questionnaire used in the study was captioned: “The objective of this survey is to collect
tangible information about ESG investment and its impact on individual equity investors’
investment decisions: an AHP approach based on fuzzy logic.” The questionnaire was
designed using the fuzzy AHP approach, in which respondents were asked to draw
comparisons between ESG factors at the same level.
MF 3.3 Data collection
49,1 The survey began with two qualifying questions with yes/no answers: (1) Are you aware of
ESG investment? (2) Do you have at least 5 years of experience in equity investment? Those
who responded “yes” were given access to the whole questionnaire. Using the snowball
sampling technique, 560 equity investors of various ages, investment corpuses and regions
were approached personally and electronically via email and WhatsApp. A Google-based
online questionnaire was also distributed to a selected group of respondents. Besides,
72 telephonic interviews were also conducted to help the respondents to understand the
concepts and questions better. Reminders were also sent out on a regular basis to ensure the
timely collection of data. The final dataset was collected during a six-month period, from
August 2021 to January 2022. A total of 438 responses were received, resulting in a response
rate of 78.21% (Table 1). All the responses received were complete and valid. Therefore, the
final analysis was performed on the data set of 438 respondents.

3.4 Demographic profile of the respondents

The demographic information of the respondents was comprised of gender, age, qualification,
occupation, annual income and investment experience in the equity market. Out of 438
respondents, 68% were found to be male investors, and the remaining 32% were female
investors. Besides, the majority of the investors (i.e. 63%) were found to be in the age group of
31–40 years. This demonstrates that young and male investors dominate capital investment
in Indian stock markets. Decreased participation of female investors is also associated with a
lack of financial literacy (Lusardi and Mitchell, 2008). Additionally, the respondents
comprised 41% of graduates and 31% of postgraduates. Furthermore, 53% of respondents
were self-employed, while 38% worked in the service sector, with a yearly income ranging
from Rs 5 to 10 lakh. This indicates that educated, self-employed or business-class people in
the medium income bracket are more concerned about ESG issues and driven to incorporate

Variables Category Frequency Percentage

Gender Male 297 68

Female 141 32
Age (in years) 18–30 92 21
31–40 197 45
40–50 98 22
50 and above 51 12
Qualification High School or equivalent 89 20
Bachelor’s or equivalent degree 178 41
Postgraduate or equivalent degree 137 31
others 34 8
Occupation Salaried 168 38
Self-employed/Businessman 233 53
Unemployed/student/retired 30 7
Others 7 2
Annual Income (in ₹) Less than 500,000 85 19
500,000–10,00,000 197 45
10,00,000–15,00,000 117 27
15,00,000–20,00,000 21 5
Table 1. Above 20,00,000 18 4
The demographic Investment Experience (in years) 5–10 years 291 66.44
profile of 10 years and above 147 33.56
investors (n 5 438) Source: Authors’ Compilation
them into their investment decisions. When it comes to investment experience, the majority of ESG factors in
investors were found to have 5–10 years of investment experience. The demographic profile India
of the respondents is presented in Table 1, given below.

3.5 Fuzzy analytical hierarchy process (Fuzzy AHP)

The AHP is a decision procedure that decomposes a complicated multicriteria decision
problem into a hierarchy (Saaty, 1980). It allows the decision-maker to prioritize choices and 73
select the optimal alternative. It has been extensively utilized in research studies for
alternative selection, cost-benefit analysis, allocation of resources and barrier prioritization.
However, AHP is ineffective when used to alleviate the inherent ambiguity and imprecision
connected with the mapping of a decision-maker’s viewpoint to specific numbers. Therefore,
fuzzy logic is applied to solve the problem of data ambiguity. The fuzzy set theory was first
introduced by Zadeh in 1965 (Dernoncourt, 2013). It seeks to choose, prioritize or rank a finite
number of courses of action by analyzing a set of predetermined criteria. Zadeh (1965) defined
a linguistic variable as one whose values are presented in natural language words. “Fuzzy
Weight,” for example, is a linguistic variable that has values of “Very High,” “High”,
“Medium”, “Low”, “Very Low” and so on. In this paper, linguistic variables are defined by a
triangular fuzzy scale (Table 2), which is used for evaluating the criteria and sub-criteria. A
membership function (Figure 1) m∼A ðxÞ defines a fuzzy subset A of a universe of discourse X.
m∼A ðxÞ converts each component x in X to a real number between 0 and 1 (equation 1). The
hierarchical structure of ESG factors have been shown in Figure 2:
8
>
> 0; x < l
>
>
>
> ðx – lÞ
>
>
< ðm – lÞ; if l ≤ x ≤ m
>
m∼A ðxÞ ¼ (1)
>
> ðu – xÞ
>
> ; if m ≤ x ≤ u
>
> ðu – mÞ
>
>
>
:
0; x > u

The abovementioned ESG factors must be identified and prioritized. The following steps, as
given below, are used to identify and prioritize constraints in this study.
Step 1: Linguistic terms (Table 2) have been used for preparing a pairwise comparison
matrix for all the criteria and sub-criteria (equations 2 and 3).

The linguistic term for Reciprocal of Fuzzy

fuzzy pairwise matrix AHP Scale AHP Scale Triangular Fuzzy Scale (l, m, u)

Equally Important (1, 1, 1) 1 (1, 1, 1)

Weakly Important (1/4, 1/3, 1/2) 3 (2, 3, 4)
Fairly Important (1/6, 1/5, 1/4) 5 (4, 5, 6)
Strongly Important (1/8, 1/7, 1/6) 7 (6, 7, 8)
Absolutely Important (1/9, 1/9, 1/9) 9 (9, 9, 9)
The intermittent values between (1/3, 1/2, 1) 2 (1, 2, 3)
two adjacent scales (1/5, 1/4, 1/3) 4 (3, 4, 5)
(1/7, 1/6, 1/5) 6 (5, 6, 7) Table 2.
(1/9, 1/8, 1/7) 8 (7, 8, 9) Fuzzy pairwise
Source(s): Jain et al. (2021b) linguistic scale
MF Y
49,1
1

M l(y) M r(y)

( )
74
Figure 1.
Triangular fuzzy
number 0 l m u X

Figure 2.
Hierarchical structure
of ESG factors

2 3
1 e
a12  e
a1n
6 7
2 3 6 .. .. 7
1 ea12    e
a1n 6 . 1 . 7
6 1 7
6 .. .. 7 6 7
6
e ¼6 . 1 1 . 7 6 7
P 7¼6 1 1
1 ea3n 7 (2)
4ea31 e
a32 1 e a3n 5 6 f f 7
6 a31 a32 7
e
an1 e
an2    1 6 7
6 1 1 7
4  1 5
g
an1 g
an2
 8 ESG factors in
> e 3;
< 1; e 5 e
e ; 7e ; 9 Criteria 0 i 0 is of relative importance to criteria 0 j 0 India
e ij ¼ 1
a i¼j
>
: e1 e 1 e 1 e 1 e 1
1 ;3 ;5 ;7 ;9 Criteria 0 j 0 is of relative importance to criteria 0 i 0
(3)
75
Step 2: To avoid inconsistency in the decision-maker’s preferences, the consistency of the
matrix is quantified using a standard equation of consistency index (CI) and consistency
ratio (CR) (as mentioned in equations 4 and 5). The matrix is considered to be consistent if
CR is less than or equal to 0.1, and absolutely consistent if the CR is 0 (Saaty, 1980).

λ max  n
Consistency Index ðCIÞ ¼ (4)
n1
Where λmax is the comparison matrix’s largest eigenvalue and “n” is its component. The CR
is determined with the help of the following equation.
CI
Consistency Ratio ðCRÞ ¼ (5)
RI
Where CI is the CI and RI is the random Index.
Step 3: For combining the group opinion, geometric mean techniques (Kaur and Gupta,
2021) were employed (Equations 6 and 7).
!1=k !1=k !1=k
Y
k Y
k Y
k
lij ¼ lijk ; mij ¼ mijk ; uij ¼ uijk (6)
k¼1 k¼1 k¼1
 1=n
er i ¼ eai1 * e
ai2 * e
ai3 * . . . :: * e
ain (7)

Step 4: Equation (8) has been appertained for calculating the fuzzy weight for each
criterion and sub-criteria.
 1
e i ¼ er i * er 1 þ er 2 þ er 3 þ . . . þ er n
w (8)
e i shows the fuzzy weight of each criterion and sub-criteria, i.e. (lwi ; mwi, uwi). Here, lwi
w
signifies the lower fuzzy weight, mwi signifies the middle fuzzy weight, and uwi signifies the
upper value of fuzzy weight.
Step 5: The center of area (COA) technique has been applied to find the BNP i.e. the best
nonfuzzy performance (equation 9).

ðuwi  lwi Þ ðmwi  lwi Þ

wi ¼ þ þ lwi (9)
3 3
Step 6: Matrix wi has been converted into a matrix N wi in order to normalize wi matrix
(equation 10).
MF
wi
49,1 Nwi ¼ Pn (10)
i¼1 wi
Table 3 represents the pairwise judgment matrix of ESG and the normalized weights of its
main criteria.

76 4. Analysis of results and discussion

The goal of the present research was to prioritize each criterion and sub-criterion of ESG
factors impacting retail investors’ investment decisions. Relevant literature helped in
identifying 29 evaluation criteria, which finally assisted in framing the evaluation
framework. A fuzzy AHP was employed, and weights for each criterion were determined
to obtain accurate results. Based on the global weights revealed by Fuzzy AHP, the ranking of
each criterion has been determined and is presented in Table 4. It can be justified with the
criterion weights, i.e. governance factor (0.4583) > environmental factor (0.4131) > social
factor (0.1286), which revealed that the governance criterion obtained the first rank, followed
by environmental and social criteria, respectively. Besides, the weight score of each sub-
criterion related to the equity investment decisions of Indian equity investors in the context of
ESG has been revealed in Figure 3. According to the global ranking, the top five global sub-
criteria that affect equity investors’ investment decisions are G5 > G3 > G2 > E2 > E9.
The results of the study revealed that the price that individual investors are willing to pay
for stocks increases with governance strength. Since the study’s participants are experienced
investors, they are more competent than those with less experience in evaluating the
governance strength of the company while making investment decisions (Chang and Wei,
2011). According to the participants, the most significant component of corporate governance
is analyzing the company’s shareholders’ profile before investing. Investors are keen to know
who owns the majority of the company’s shares, as this determine who has ultimate decision-
making power in the corporation. Many of them believe that if control of a company’s
activities were heavily concentrated in the hands of a single family, they would try to
expropriate the wealth of minority retail investors on a frequent basis. Investors are also
cautioned to investigate whether the company they are considering for investment is an
independent entity or affiliated with a business group. Much of the evidence has stated that
investors prefer independent firms since those firms that are affiliated with business groups
frequently trade at lower values than comparable independent firms (Bae and Goyal, 2010; La
Porta et al., 2002; Claessens and Fan, 2002). However, Khanna and Palepu (2000) argued that
business groups have an advantage over independent firms in emerging economies due to
savings from intragroup trade and internal capital markets. Moreover, investors are more
attracted to those firms that have greater foreign ownership and provide higher dividends.

Normalized
Main Criteria E-Environmental S-Social G-Governance Fuzzy weight weight

E-Environmental 1, 1, 1 6.00, 8.00, 0.11, 1.75, 0.09, 0.41, 0.4131

9.00 6.00 2.76
S-Social 0.11, 0.13, 1, 1, 1 0.11, 6.04, 0.02, 0.16, 0.1286
0.17 9.00 0.84
Table 3. G-Governance 0.17, 5.40, 9.00 0.11, 3.07, 1, 1, 1 0.03, 0.43, 0.4583
Fuzzy pairwise 9.00 3.16
judgment matrix
of ESG Consistency Ratio (CR) 5 0.0786 which is less than 0.10
 Sub-
ESG factors in
Criteria criteria Global Global India
Criteria weights Sub-criteria weights weights ranking

Environmental 0.4131 E1-Corporations that I invest in 0.053 0.0219 21

(E) should use more company funds to
clean up their plants and stop
environmental pollution (Epstein 77
and Freedman, 1994)
E2-The environmental record 0.152 0.0629 4
(awards/penalties) of the company
affects my investment decision
(Newell and Lee, 2012)
E3-Environmental reporting 0.106 0.0437 10
influences my investment decisions
(Newell and Lee, 2012)
E4-I wish to invest in companies that 0.056 0.0231 20
care about the risk of climate-changing
issues like global warming, the
greenhouse effect, etc. (Sultana
et al., 2018)
E5-I consider companies that care 0.077 0.0320 14
about the proper waste management of
harmful wastes from the production
process (Sultana et al., 2018)
E6-I consider companies that care 0.076 0.0314 16
about the optimum use of materials,
energy or water, and to find more
environmentally friendly solutions like
solar power (Sultana et al., 2018)
E7-I consider companies that care 0.105 0.0433 11
about reducing harmful gases (carbon
dioxide and chlorofluorocarbons) from
the production process (Sultana
et al., 2018)
E8-I consider companies that care 0.115 0.0475 6
about producing environmentally
friendly and durable products
(Sultana et al., 2018)
E9-I consider companies that care 0.148 0.0611 5
about creating new market
opportunities through new
environmental technologies and
processes (Sultana et al., 2018)
E10-I consider companies that care 0.112 0.0463 8
about the pressure from civil society to
improve performance, transparency
and accountability on environmental Table 4.
practices (Sultana et al., 2018) Global weights and
ranking of all criteria
(continued ) and sub-criteria of ESG
MF Sub-
49,1 Criteria criteria Global Global
Criteria weights Sub-criteria weights weights ranking

Social (S) 0.1286 S1-Corporations that I invest in 0.128 0.0164 25

should use more company funds to
increase their involvement in solving
78 community problems like housing and
education (Epstein and Freedman,
1994)
S2-Corporations that I invest in 0.080 0.0102 26
should use more company funds to
contribute to charity and to benefit
women and minorities (Epstein and
Freedman, 1994)
S3-Corporations that I invest in 0.043 0.0055 29
should use more company funds to
establish child-care centers for
employee use (Epstein and
Freedman, 1994)
S4-I prefer to reward firms that 0.144 0.0185 22
display overall positive social behavior
rather than exclude firms on the basis
of certain products or practices
(Berry and Junkus, 2013)
S5-I consider companies that care 0.055 0.0071 28
about the workplace health and safety
of their employees and workers (Park
and Jung, 2021)
S6-I consider companies that care 0.208 0.0267 18
about maintaining good relations with
the government and general
community (local, national and global)
by donating cash, goods, etc. (Park
and Jung, 2021)
S7-I consider companies that care 0.131 0.0169 24
about respecting the fundamental
human rights conventions (not using
child, forced or compulsory labor, etc.)
(Park and Jung, 2021)
S8-I consider companies that care 0.134 0.0172 23
about producing quality goods and
services, considering the customers’
health and safety, and providing
accurate product information and
labeling (Sultana et al., 2018)
S9-I consider companies that care 0.079 0.0101 27
about the pressure from civil society to
improve performance, transparency
and accountability on social practices
(Sultana et al., 2018)

Table 4. (continued )
 Sub-
ESG factors in
Criteria criteria Global Global India
Criteria weights Sub-criteria weights weights ranking

Governance (G) 0.4583 G1-I expect a firm that pays a 0.104 0.0475 7
dividend to be better governed than
one that is nondividend paying, thus
such indicators of dividend-paying 79
firms influence my investment
decisions (Bae and Goyal, 2010)
G2-The size of a firm’s shareholders’ 0.141 0.0645 3
ownership influences my investment
decisions (Bae and Goyal, 2010)
G3-The firm’s affiliation with a 0.145 0.0663 2
business group affected my
investment decisions (Bae and
Goyal, 2010)
G4-Corporations that I invest in 0.065 0.0297 17
should use more company funds to
monitor ethical conduct by company
personnel (Epstein and Freedman,
1994)
G5-I consider the company’s 0.158 0.0724 1
shareholders’ profile for investment
(Chang and Wei, 2011)
G6-I consider companies that care 0.070 0.0323 13
about the independence and
accountability of their board of
directors (Sultana et al., 2018)
G7-I consider companies that care 0.069 0.0314 15
about setting up an effective board
with allocated duties and
responsibilities (Sultana et al.,
2018)
G8-I consider companies that care 0.098 0.0451 9
about taking necessary actions to
control corruption and bribery issues
in the organization (Sultana et al.,
2018)
G9-I consider companies that care 0.057 0.0262 19
about ensuring equal rights and
privileges of their shareholders,
including minority shareholders
(Park and Jung, 2021)
G10-I consider companies that care 0.093 0.0424 12
about creating and communicating an
appropriate vision and strategy in
their day-to-day decision-making
processes (Sultana et al., 2018) Table 4.

Besides, investors feel that investing in a firm that has been reprimanded by regulatory
authorities for embezzlement or other governance violations is a perilous proposition.
Overall, investors equate good corporate governance with greater and longer-term financial
success. They believe that in the long term, it pays off. These findings are consistent with
Park and Jang (2021), Al-Hiyari and Kolsi (2021), Palma-Ruiz et al. (2020), Sultana et al. (2018),
MF G108.00%
E1
E2
49,1 G9 E3 6.29%
7.00% 4.24%
G8 2.62% E4
6.00%
G7 4.51% 2.19% E5 4.37%
5.00%

80 G6 3.14% 4.00% E6

3.23% 3.00% 4.75%

G5 2.00% E7
7.24% 2.31%
1.00% 4.33%
G4 0.71% E8
2.97% 0.00%
1.64% 3.14% 3.20%
G3 E9
4.63%
6.63% 1.01%
G2 E10 6.11%
0.55%
1.02%
1.85%
6.45% G1 4.75% S1
1.72% 2.67%
S9 1.69% S2
Figure 3.
Radar chart showing S8 S3
sub-criteria weight
S7 S4
of ESG S6 S5

Bae and Goyal (2010), Van Duuren et al. (2016), Khan et al. (2016) and Chang and Wei (2011).
Thus, hypothesis H1 has been accepted.
Environmental factors are the second important criterion chosen by investors. According
to the findings of the study investors opinionated that organizations that received
environmental awards are preferable for investments over those organizations that are
reprimanded for noncompliance with environmental regulations. Concerning environmental
concerns, investors typically prefer those firms that create contemporary market
opportunities through sophisticated environmental technologies and processes that create
environmentally friendly and durable goods so that toxic gases are reduced from the
manufacturing process. Furthermore, investors feel that firms with bad environmental
records or that emit harmful gases into the environment would see their market demand drop
sooner or later, affecting the stock’s long-term profitability. This finding is consistent with
previous research studies (Park and Jang, 2021; Sultana et al., 2018; Berry and Junkus, 2013;
Syed, 2017; Newell and Lee, 2012; Nilsson, 2008). Thus, hypothesis H2 has been accepted.
Social considerations are the least significant criterion that investors use to make investment
decisions. This does not imply that these factors are not significant. People are concerned
about social causes too, but when it comes to investing, social aspects are not as essential in
their decision-making since investors opinionated that they invest for profit rather than for
social causes. These findings are consistent with those mentioned by Park and Jang (2021)
and Al-Hiyari and Kolsi (2021). Thus, hypothesis H3 has not been accepted.
5. Conclusion and limitations of the study ESG factors in
One of the most prominent developments in the investment sector is the incorporation of India
sustainability themes into the investment process (Blitz and Groot, 2019). The primary
objective of the study is to discover the most prominent criteria and sub-criteria of ESG
factors that may impact individual equity investors’ investment decisions using the MCDM
technique, i.e. Fuzzy AHP. Based on global weights, governance criteria were found to be the
most influential, followed by environmental criteria, while social criteria were shown to be the
least influential. Since corporate governance provides a set of rules that regulate how a 81
company functions and makes sure that the interests of all stakeholders are aligned,
therefore, investors claim that examining corporate governance is essential for producing a
decent profit. It encourages moral behavior, which generates financial viability. Furthermore,
investors avowed that it is vital to consider the company’s environmental performance while
making investment selections since it not only helps us towards the exponential growth of
climate-related concerns but also has a long-term influence on our portfolio performance.
However, investors asserted that social factors are not a critical determinant when making
financial decisions.
Among the most important sub-criteria that investors consider in the context of ESG are
the company’s shareholders’ profile, the affiliation of the firm with business groups or
independent firms, the size of a firm’s shareholder ownership, records of the company’s
environmental awards and penalties and environmental reporting. Overall, the study’s
findings showed that investors, particularly experienced investors, are taking ESG
considerations into account these days. Nonetheless, in a rising economy like India, ESG
investment is still in its infancy. Though this might be only the beginning, there is a need for
increasing investor awareness of the principles and benefits of ESG investment in emerging
economies. This study recommends that investors must invest in companies that are actively
pursuing sustainable development objectives since doing so is good for the environment,
society and our wallets.
However, there are certain limitations attached to the study. First, the study is incomplete
since it solely examines how ESG factors influence investors’ investment decisions, even
though other factors have a greater influence on stock investors’ behavior, which is entirely
overlooked. Second, only individual investors’ investment decisions, which differ from those
of institutional investors, have been studied. As a result, the research findings may not be
appropriate for institutional investors. Third, because this study was only done in northern
India, the results may differ if the research was undertaken throughout the country. Fourth,
the research also ignores overseas markets and exclusively concentrates on the Indian stock
market.

6. Policy implications and future research directions

The study’s findings widen the theoretical contribution in the field of responsible investment
by asserting how ESG factors influence investors’ investment decisions in the stock market.
It will aid investors in determining what ESG components they are most likely to incorporate
into the equity market and will increase their understanding of the most efficient approach to
making smart investment decisions. It will also inspire financial experts to acknowledge that
only conventional and behavioral finance theories and expertise are insufficient for success in
the equity market. As a result, they must also improve their understanding about ESG
investment and become more knowledgeable about it.
From a practical standpoint, this study is applicable to retail and institutional investors,
portfolio managers, financial advisors, market regulators, corporations and society at large.
By incorporating ESG criteria into investment decisions, individuals may be able to increase
their wealth while also fostering overall sustainable growth in the country. Investors’
MF predilection for sustainable investment would lay the foundation for the improvement in the
49,1 performance of ESG stocks. Furthermore, this research will help portfolio managers and
financial advisors determine which ESG components have the greatest effect on investors,
allowing them to give suitable investment advice to their customers. These factors also have
major implications for those looking to do business, such as active portfolio management in
emerging economies. Besides, the research findings will be useful for both market regulators
and researchers since they will aid in understanding the diverse psychology of individual
82 investors. Furthermore, the study’s findings will inform firms on how investors incorporate
ESG criteria into their decision-making processes, allowing them to obtain long-term
financing from them. The study also emphasized the importance of expanding the role of ESG
investment in India for the benefit of people, communities and society as a whole.
Finally, the study has a lot of future research prospects in this field. First, the influence of
other important factors such as behavioral biases, accounting information, ownership
structure, fundamental analysis, etc., on investors’ investment decisions will be examined
alongside ESG factors. Second, the study’s findings are based on individual equity investors
in north India. Future research may take this into account by considering nationwide data.
Third, the study will be conducted from the viewpoint of institutional investors to assess the
influence of these parameters on investment decisions, which will provide more impactful
results. Fourth, some ESG barriers will not be addressed in this study, such as a lack of
convergence and transparency, investment in sin stocks, misconceptions about investors,
etc., which will be addressed in future research. Fifth, a comparison study of ESG and
nonESG stocks will be done to compare their performance. Sixth, the influence of these
variables on investment performance may be investigated.

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20-530.pdf.
World Commission on Environment and Development (WCED) (1987), “World commission on
environment and development: our common future (Brundtland report)”.

Corresponding author
Sanjay Gupta can be contacted at: researchsaccm@gmail.com

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