Global Journal of Economic and Finance Research

The shift to a low-carbon economy in the world is one of the most acute issues of the 21st century, especially when it comes to developing economies that are both susceptible to climate change and capable of achieving a significant growth in the future. The paper will examine how the interaction between carbon emission, governance, and foreign direct investment (FDI) will move in the right direction toward low-carbon innovation in these economies. Based on a synthesis of the available literature and case studies in the Asian, African, and Latin American regions, the study shows that, strong governance frameworks, which are typified by good carbon pricing, holistic renewable energy policies, and strict environmental laws, play a critical role in improving the ability of the countries to receive sustainable FDI in the areas of clean energy, green manufacturing and low-carbon technologies.
Conversely, poor institutional quality, poor enforcement of regulation, and low accountability systems are likely to discourage sustainable investment, thus limiting innovation and development towards a low-carbon growth path. The paper also proceeds to propose a body of policy proposals that are governance-related, such as the introduction of carbon taxation, emissions trading, and the introduction of specific green investment incentives. The results show that in the cases when the governance systems are oriented at the global sustainability goals and make use of carbon risk management, the developing economies can successfully draw in the high-quality FDI and spur native low-carbon innovation. In addition, the paper highlights how corporate governance and social, environmental and governance (ESG) issues are becoming critical in determining how multinational companies make investment choices, which supports the fact that governance is a key to facilitating a sustainable economic transformation.

Governance, Foreign Direct Investment, Carbon Emissions, Low-Carbon Innovation

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