Methodology for Assessing the Relationship between Investment

Attractiveness of Enterprises and Sustainable Development of the

Region

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

1 INTRODUCTION

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

https://orcid.org/0000-0002-9105-0374

https://orcid.org/0000-0002-7965-5995

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

spheres.

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

228

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

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

stressed.

2 LITERETURE REVIEW AND

HYPOTHESIS DEVELOPMENT

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

investment.

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

causes.

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

229

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

development.

3 RESULTS

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-

environmental.

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

diagnostics;

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

Region

Industr

Compan

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

230

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

group.

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

Resource-

technical group

factors

Socio-

ecologic

al group

factors

Economic group

factors

Factors

of the

administ

rative

and

legal

group

Methodology for Assessing the Relationship between Investment Attractiveness of Enterprises and Sustainable Development of the Region

231

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.

4 CONCLUSIONS

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

investment.

Ultimately, the implementation of these measures

should help boost investment processes and ensure

the transition of regions to sustainable development.

ACKNOWLEDGEMENTS

The reported research was funded by RFBR, project

number 19-010-00032

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