Methodology for Assessing the Relationship between Investment
Attractiveness of Enterprises and Sustainable Development of the
Gennady A. Alexandrov
and Galina G. Skvortsova
Tver State Technical University, 22 Afanasiy Nikitin embankment, Tver, Russia
Keywords: Region, Sustainable Development, Investment Attractiveness of the Enterprise.
Abstract: Consistent transition to sustainable development, whose material basis is not so much quantitative as
qualitative changes in the factors of production of the real economy, the authors focus on the regional aspect
of the problem of creating an environment in territorial entities that favours the investment attractiveness of
enterprises. Following the sustainable development paradigm involves balancing economic, social, and
environmental objectives. The stated conceptual considerations are the basis for the development of the
original universal method of diagnostics and assessment of constraints, threats and challenges of economic,
administrative and legal, resource and technical, social and environmental nature, manifested at the regional
level and affecting the investment attractiveness of enterprises in this research. This approach implies the
possibility of using the diagnostic results to develop specific measures to eliminate or reduce the role of
negative factors determining the investment attractiveness of investment objects in the region, as well as
motivational and stimulating measures to resolve contradictions arising from environmental and social
restrictions on economic activity to ensure a balanced solution of three tasks as we move towards sustainable
development: ensuring
The balance between economic, social, and
environmental issues, i.e., between all the subsystems
in the sustainable development model of the territory
(region), seems to be quite difficult to maintain. Each
subsystem can develop in opposite directions and
manifest itself differently, depending on the sector,
geography. However, as noted by the World
Investment Report 2020, progress in investing for
sustainable development requires fund-raising and
the use of sound environmental, social and
governance practices in business operations to ensure
a positive return on investment.
We draw attention, first of all, to the fact that the
adoption of optimal investment decisions is
conditioned by the risks generated by the introduction
of reasonable restrictions of environmental and social
nature on the economic activities of business
structures. However, when developing and
implementing the investment policy in the region, it
will be necessary to consider that this circumstance
can have a very negative impact on the investment
attractiveness of enterprises in the given region and,
accordingly, on the motivation of businesses to
invest. In this respect, it creates the problem of
resolving the objective contradictions arising in the
relationship between the region with its need to
ensure sustainable development and the economic
interests of investors based on mutually beneficial
solutions. As for investing in the Russian territories'
enterprises, it is necessary to develop and implement
programs for the transition to sustainable
development for each region, focusing on the relevant
priorities in the economic, social, and environmental
The purpose of the research is, firstly, to
determine the impact of investment processes on the
formation of a balanced system of region sustainable
development, in which financial and economic
objectives would be harmonized with environmental
Alexandrov, G. and Skvortsova, G.
Methodology for Assessing the Relationship between Investment Attractiveness of Enterprises and Sustainable Development of the Region.
DOI: 10.5220/0010588602280233
In Proceedings of the International Scientific and Practical Conference on Sustainable Development of Regional Infrastructure (ISSDRI 2021), pages 228-233
ISBN: 978-989-758-519-7
2021 by SCITEPRESS Science and Technology Publications, Lda. All rights reserved
and social processes, and, secondly, to develop a
methodology and a specific method of diagnosis and
assessment of this mutual influence, including the
development of institutional measures aimed at
making investment decisions adequate to the
sustainable development of territories. The need for
implementation also stems from the fact that from the
very beginning of the discussion on the need for
transition to sustainable development, the difficulty
of the practical application of the concept has been
The problem of transition to sustainable development,
including concerning the territorial (regional) level,
predetermines the content of the proposed hypothesis,
which consists in the fact that the nature of investment
processes should be consistent with the goals of
sustainable development. But this compliance can be
ensured only if the region itself is attractive for
investment, which is tantamount to creating in it an
environment in which specific objects of investment
are investment-attractive. Hence, the most important
circumstance is to create conditions in the regions,
firstly, to attract investment for sustainable
development purposes, and secondly, to remove
barriers and constraints, threats and challenges that
negatively affect the investment attractiveness of
enterprises. However, at the same time, the proposed
hypothesis presents an objective contradiction, the
essence of which lies in the fact that in the conditions
of transition to sustainable development, the latter can
be the factors, on the one hand, limiting the
implementation of investment activities, but, on the
other hand, introduced as restrictions to solve
environmental and social problems in the process of
Formation of the hypothesis of solving the
problem of investment focus on the transition of
territorial entities to sustainable development and
then developing a specific method of diagnostics and
assessment of regional factors that determine the
investment attractiveness of enterprises involves a
review of the current situation with the
implementation of the concept of sustainable
development presented in scientific publications.
Since the 1980s and up to the present time, foreign
researchers' publications have actively discussed the
problems of assessing the economic impact of
environmental, social, and political problems and the
risks of large-scale migration and conflicts (Stern,
2013). Special attention is paid to social policies and
the population's quality of life (Selahattin and Kitao,
2012). Their research is based on the principle that
tangible and intangible resources should be used to
make life as safe and comfortable as possible for
humankind. It is noted that analysis of the relationship
between natural resource scarcity and sustainable
economic development shows that resource scarcity
induces fear, which can undermine well-being
(Endress, 2015). Moreover, several authors believe
that: "Social fear components have become an
integral part of human existence" (Rudenko,
Rodionova and Stepanova, 2019) and suggest that
non-traditional factors, such as investor sentiment,
should be taken into account with social fear
components (Solanki and Seetharam, 2018).
The World Investment Report 2020 notes that
because the volume and structure of investments
drive the development of any economic system, the
past decade has seen a dramatic increase in the
number of sustainability initiatives around the world,
particularly in the creation of various sustainable
investment funds that pursue environmental, social
and governance outcomes in addition to economic
ones. Investment in inputs, resources, and low-cost
labor, i.e., extensive investment, has underpinned
many countries' development strategies over the past
three decades. However, the opportunities for their
involvement are increasingly narrowing. Moreover,
as the Report points out, economic growth in rich
countries as a mechanism for achieving the task may
not work because, as has become particularly clear,
the true limits to humanity's material growth today are
determined less by physical than by environmental,
biological and even cultural and psychological
Meanwhile, analysis of investment processes in
sustainable development in different economies
shows an ambiguous and contradictory situation with
both domestic and foreign investment. For example,
there has been sluggish growth in international
investment over the past decade. At the same time,
"Inflows to developing countries are projected to be
particularly hard hit, as an investment in export-
oriented and commodity-based industries, in
particular, will be hardest hit" (World Investment
Report, 2020). This very negative trend could become
a long-term problem, especially for developing
countries. Researchers in the United States (Li, Gupta
and Yu, 2017) argue that increased public investment
can boost growth for commodity-exporting countries,
but too rapid fiscal spending will increase
macroeconomic vulnerability. But at the same time,
Methodology for Assessing the Relationship between Investment Attractiveness of Enterprises and Sustainable Development of the Region
as noted in a number of articles (Berg et al., 2013;
Melina, Yang and Zanna, 2016), an analysis of the
effects of investing revenues generated from natural
resource exploitation leads to the conclusion that
public investment is inefficient. As for foreign
investment inflows, they are negatively affected by
uncertainties due to the country's domestic economic
policies (Phuc Canh et al., 2020). Some analysts
confirm that less reliance on commodity exports
contributes to the role of foreign direct investment in
reviving economic growth dynamics (Mohamed,
2016). Incidentally, important for moving towards a
sustainable development path, the social return from
direct investment inflows is significantly higher than
that from domestic investment (Driffield, 2004).
So, as it follows from the above, in publications
on investment for sustainable development, scientists
consider investment and investment processes not
only in terms of financial models that calculate the
return on invested capital but also taking into account
several environmental, social, administrative, and
legal (managerial) factors. It is noted in particular that
non-financial attributes have a greater influence on
investment processes (Umar, Kenourgios and
Papathanasiou, 2020). In China, for example, at the
outset of its economic growth path, environmental
concerns were a secondary consideration, and the
focus of factory construction was mainly on job
creation, wage increases, and tax revenues. However,
as these issues were addressed, an environmental
program was announced there in 2014. Despite the
conflicting views of experts on the nature of the
relationship between the state of economies and the
solution of problems of transition to their sustainable
development, nevertheless, an opinion has been
formed that there is no alternative to the
implementation of the concept of sustainable
To identify the factors negatively affecting the
efficiency of sustainable investments, we propose to
use our methodological approach (Alexandrov et al.,
2020), which is based on the principle of "levels-
factors". The specified principle allows us to make a
new diagnosis and evaluate the factors that
characterize the investment climate in the region and
the investment attractiveness of its enterprises
because it involves a complex assessment of the
factors of specific types of groups that are formed not
only directly at the level of enterprises themselves,
but also at the upper levels of the economic hierarchy.
It is meant that the object of the analysis is groups of
external environment factors, manifested as barriers,
limitations at the sectoral, territorial (regional), and
national levels in general.
In this case, we are based on the theoretical
position that, firstly, the production process is based
on the interaction of material and personal factors,
provided by the conditions of production
(infrastructure), production is a unity of productive
forces (means of labor and conditions of production
such as organizational, social and environmental, as
well as labor force) and corresponding to the
production relations. Secondly, on the fact that the
production process is also characterized by certain
organizational-economic organizational and legal
relations, as well as - social and environmental
aspects. Therefore, it would be quite adequate to form
the following four main groups of factors: economic,
administrative-legal, resource-technical, and socio-
This "level-factor approach" should enable
analysis and evaluation of investment attractiveness,
which will allow:
1) a potential investor to make a reasoned
investment decision based on the results of
2) an investing entrepreneur to get a realistic idea
of the factors and trends that negatively affect the
investment attractiveness of his business;
3) an investing entrepreneur and other
stakeholders to identify measures that would
contribute to the elimination of everything that
negatively affects its attractiveness.
To implement the above tasks, we propose using
a step-by-step linear algorithm of diagnostics and
assessing the existing environment in the region,
which determines the attractiveness of enterprises
operating in its territory.
STEP 1. Identify possible factors and integrate
them into their own species group and the appropriate
hierarchical level.
All multiple factors are distributed in the cells of
the matrix, the principal scheme of which is shown in
Figure 1.
Economic levels Large groups of factors
The countr
Figure 1: Diagram of the distribution of factors by group
and corresponding hierarchical levels (source: authoring).
ISSDRI 2021 - International Scientific and Practical Conference on Sustainable Development of Regional Infrastructure
The system "levels - groups of factors", allows to
analyze and evaluate both aspects in close
interrelation. At the same time, given the nature of the
problems solved in the article, as well as its limited
size, the object of our attention here is the link "region
- group of socio-economic factors". This is since the
socio-economic direction, on the one hand, is
becoming increasingly important, as the quality of
habitat, life, and social equality of people in
sustainable development, and, accordingly, the role of
corporate social and environmental responsibility as
a norm of business activity is increasing.
Therefore, investment processes leading to
development cannot be considered in isolation from
the extent to which development investment meets
the requirements of social progress, efficient use of
natural resources, and environmental protection. At
the same time, we should take into account the fact
that for a comprehensive assessment of investment
attractiveness of specific investment objects, it is
necessary to diagnose all the factors that form the
investment climate at all hierarchical levels of
management because all four groups of factors are in
some way interrelated (Fig. 2).
In particular, this is manifested in the fact that, for
example, such factors of the socio-environmental
group as population migration, demographic
dynamics, as well as the social conditions of the
employees of enterprises belong to the group of
resource-technical factors as well, since they
determine the resource supply possibilities of the
invested enterprises. However, to a much greater
extent, with the group of socio-environmental factors,
the group of administrative-legal factors is connected.
In particular, such factors as: the socio-political
situation in the region, the authorities' readiness to
reform it, the degree of independence of the regional
authorities in decision-making on motivation and
stimulation of social and environmental policy. All
the administrative and legal factors listed here that
characterize the region's investment climate under
certain conditions can become significant barriers and
constraints for investors, determining the possibility
of their entry into the region. The regions themselves
can well solve several problems with administrative
and legal factors that harm the investment
attractiveness by reforming the administration system
and regulation of organizational and economic
relations. However, regional capacity may not be
enough. In this case, one can count on their solution
at the federal level of government because at a higher
level, there are opportunities for institutional changes
in the administrative and legal factors that negatively
affect the regional investment climate.
Figure 2: Relationship between groups of factors
determining the region's investment attractiveness for
enterprises operating on its territory (source: authoring).
The results of the identification of the factors
constituting the socio-environmental group and
formed at the regional level are aggregated in: the
quality of life of the population; the nature of the
social status of the population; the state of
demography and migration; the availability of
necessary social infrastructure; the level of social
stability; the state of the environment. This may
include the region's ability to solve nature
conservation and environmental protection problems
on its own. Although this factor, in fact, could also be
attributed to the factors of the administrative-legal
STEP 2. According to the empirical Pareto rule,
ranking the multiple factors of each species group at
the appropriate hierarchical level.
As a result, we get a set of factors represented in the
point estimates which to the greatest extent
(conventionally by 80%) predetermine in the
combination "region - factors of the socio-ecological
group" the investment attractiveness of the region as
a whole and a specific object of investment.
STEP 3. Transition from scoring of selected
factors to risks.
Aggregate investment risk is defined as the sum of its
two components systematic and unsystematic. The
mentioned components are obtained by different
methods. The systematic component, obtained by
calculation method, and the non-systematic
component, determined by the method of expert
evaluations. To reduce to a comparable kind of the
summands, the methodology is offered, the essence
of which consists in the use of the coefficient
expressing the average ratio of both parts of the risk.
To determine the non-systematic component of
investment risk, it is sufficient to multiply the
technical group
al group
Economic group
of the
Methodology for Assessing the Relationship between Investment Attractiveness of Enterprises and Sustainable Development of the Region
calculated value of systematic risk by the specified
coefficient (for details, see (Alexandrov et al., 2020))
and thereby solve the additivity problem.
STEP 4. Development of specific adequate
measures and regulatory mechanisms.
Especially considering that the implementation of the
concept of sustainable development imposes socio-
environmental requirements on businesses and,
consequently, investors, which, as shown above, may
come into conflict with the interests of the latter and
undermine their motivation to invest. At the same
time, note that in several cases, to reduce or even
completely eliminate barriers and limiting factors,
threats, and challenges, the regional level's capacity
to address these issues may be limited. But you can
always consider doing it at the federal level. This
applies, first of all, to environmental protection
measures, formation of the social infrastructure of the
region, which are the objects of lawmaking and
economic policy exclusively at the federal level.
The article deals with the problematic theoretical and
methodological issues of ensuring the transition of
regions to sustainable development through the
intensification of investment processes and the
creation of the environment in the regions, ensuring
the increase in the investment attractiveness of the
initial objects of investment, enterprises. The
proposed tool of diagnostics of investment
attractiveness of enterprises and its subsequent
evaluation in the form of a non-systematic component
of investment risk will allow entrepreneurs to justify
and make adequate managerial decisions in their
investment activities, taking into account the need to
implement sustainable development goals. At the
same time, we consider it necessary to emphasize that
the use of the obtained results of the research will, in
our opinion, significantly promote both theoretically
and practically the development and implementation
of sound interim measures to promote the region to
sustainable development. The authors expect that the
results of the research presented in the article will:
1) deepen and expand the understanding of
methodological approaches to determining the
specific factors that characterize the investment
climate of the regions and the investment
attractiveness of enterprises;
2) focus primarily on socio-environmental factors as
the basis for the formation of the relevant component
of unsystematic investment risk;
3) determine areas in which specific measures need to
be developed to help eliminate or minimize specific
factors that, on the one hand, negatively affect the
investment attractiveness of investment targets and,
on the other hand, ensure compensation for possible
additional costs caused by the need to realize not only
economic growth but also to achieve social progress
and improve environmental quality in the process of
Ultimately, the implementation of these measures
should help boost investment processes and ensure
the transition of regions to sustainable development.
The reported research was funded by RFBR, project
number 19-010-00032
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Methodology for Assessing the Relationship between Investment Attractiveness of Enterprises and Sustainable Development of the Region