This study tackles the challenge of identifying optimal investment sectors amid the growing importance of environmental, social, and governance (ESG) factors, which are often complex and conflicting. This research aims to effectively evaluate and prioritize ten investment sectors based on twelve ESG criteria by integrating expert evaluations with two advanced multi-criteria decision-making (MCDM) methods. Three expert teams assessed each sector’s performance based on these criteria using fuzzy logic to manage uncertainties in expert judgments. The MEREC (MEthod based on the Removal Effects of Criteria) identified biodiversity and land use as the most critical factor, while transparency and disclosure was least significant. The AROMAN (Alternative Ranking Order Method Accounting for two-step Normalization) method was further used to rank the ten alternative sectors, with impact investing funds emerging as the top choice, followed by renewable energy and sustainable responsible investment funds. Conversely, ESG-compliant stocks, ESG-focused exchange-traded funds, and ESG-focused real estate investment trusts ranked the lowest. The study’s findings were validated through comparisons with other MCDM tools and sensitivity analysis, confirming the robustness of the proposed model. This research offers a valuable framework for investors looking to incorporate ESG considerations into their decision-making, promoting sustainable and responsible investing practices.

This study investigates how Environmental, Social, and Governance (ESG) performance is shaped across 31 countries in the European Union (EU) and the Association of Southeast Asian Nations (ASEAN) from 1990 to 2020. To explore these relationships, we employed the Continuously Updated Generalized Method of Moments (CUE-GMM) and the Limited Information Maximum Likelihood (LIML), with additional robustness checks using Instrumental Variables Two-Stage Least Squares (IV-2SLS), Panel-Corrected Standard Errors (PCSE), and Driscoll-Kraay regressions. The results highlight democratic governance as a consistent driver of ESG advancement. Military expenditure can also support sustainability by reinforcing institutional stability, particularly in developing and upper-middle-income countries. Economic factors such as foreign direct investment, industrialization, and human capital show context-dependent effects, whereas globalization and natural resource rents generally enhance ESG performance, and inflation tends to constrain it. Overall, the findings underscore the importance of tailored, context-specific sustainability policies, showing that effective ESG progress depends on the interaction between institutions, economic structures, and global integration.