Traditionally, site selection was driven by a set of well-established criteria: proximity to markets; availability of skilled labour; infrastructure; tax incentives; and cost of doing business. While these factors remain important, environmental, social and governance (ESG) criteria and sustainability considerations are now taking a more prominent role.

Companies are looking beyond the immediate cost-benefit analysis and are beginning to factor in the long-term risks and opportunities associated with sustainability.

While this shift is not uniform across all sectors and regions, it is clear that companies are increasingly prioritising sustainability as a core factor in their long-term strategic planning. This trend reflects a broader recognition that environmental and social responsibility are not just ethical imperatives, but key components of a company’s economic resilience and market competitiveness.

Demand for ESG principles

One of the main drivers behind this shift is the growing pressure from stakeholders – including investors, customers, employees, and regulators – who are increasingly demanding that companies demonstrate their commitment to ESG principles. Investors, in particular, are now more likely to assess the ESG performance of a company before committing capital, viewing strong sustainability practices as an indicator of lower risk and long-term viability.

This has led companies to seek locations that align with their sustainability goals, whether that means access to renewable energy, proximity to sustainable supply chains, or regions with strong environmental regulations that encourage innovation in green technologies.

However, the impact of ESG on site selection varies significantly by sector and geography. For instance, tech companies and financial institutions, which are often at the forefront of ESG adoption, may prioritise locations with robust green infrastructure, such as LEED-certified buildings and access to clean energy. In contrast, manufacturing sectors, particularly in developing economies, might still weigh traditional factors more heavily.

“Investors, customers, employees, and regulators are increasingly demanding that companies demonstrate their commitment to ESG principles.”

Courtney Fingar, editor, Real FDI

The geographic variation in ESG-driven site selection is also pronounced. In Europe, where environmental regulations are stringent and consumer expectations for corporate responsibility are high, ESG is likely to play a decisive role in site selection. In contrast, in regions where regulations are more lax, or where the cost of compliance with ESG standards is perceived as high, companies may be slower to integrate these considerations into their decision-making processes.

Significant challenges

Despite the increasing importance of ESG in site selection, there remain significant challenges, particularly regarding the availability and quality of sustainable infrastructure. A critical issue is the limited stock of green buildings that meet the standards required by many companies committed to ESG principles. While demand for such buildings is rising, supply has not kept pace, leading to a shortage of adequate facilities in many markets.

Moreover, the lack of standardised metrics to assess the sustainability of buildings further complicates site selection decisions.

The increasing focus on ESG and sustainability will continue to change corporate location decision-making and therefore foreign direct investment flows. However, for this trend to continue and gain momentum, the real estate market must address the challenges of green building supply and the need for standardised, reliable metrics to measure sustainability. As these issues are resolved, we can expect ESG to play an even more central role in shaping the future of corporate site selection and investment strategies.