Abstract

Environmental, Social, and Governance (ESG) investing has gained substantial momentum across global financial markets, yet its adoption and dynamics in emerging economies remain complex and underexplored. This study investigates the evolving trends in ESG investing within emerging markets through the lens of behavioral finance, emphasizing how cognitive biases, investor psychology, and socio-cultural factors shape investment decisions.

Drawing on empirical data, case studies, and recent ESG index performances, the research analyzes the behavioral drivers that influence ESG investment flows in regions such as Southeast Asia, Latin America, Africa, and Eastern Europe. Key behavioral constructs—including herding behavior, loss aversion, overconfidence, and social norm adherence—are examined to understand how they affect ESG fund selection, risk perception, and portfolio rebalancing among retail and institutional investors. The study also explores how regulatory frameworks, media narratives, and digital platforms contribute to shaping ESG awareness and sentiment in these markets. It highlights notable disparities in ESG data availability, corporate transparency, and investor education that continue to pose challenges for ESG integration.

Findings suggest that while ESG investing in emerging markets is rising, it is often driven by reactive behaviors rather than long-term sustainable convictions. Moreover, cultural and regional nuances play a significant role in defining what constitutes “ESG” in local contexts.

By combining behavioral finance theory with ESG investment analytics, this paper provides nuanced insights for policymakers, asset managers, and educators seeking to enhance ESG adoption responsibly. Ultimately, the study underscores the importance of behavioral awareness, data integrity, and tailored communication strategies in bridging ESG investing with sustainable development in emerging economies.