This chapter sets out the context and scope of the review. It briefly outlines the global and economic environment shaping investment in ASEAN. It then focuses on the review’s key findings and policy recommendations, drawn from five chapters covering recent trends in foreign direct investment (FDI) and their impacts, as well as four core policy areas: investment promotion and tax incentives, the legal and regulatory framework for FDI, investment security frameworks, and responsible business conduct.
OECD Review of Investment Policies in ASEAN
Mobilising Investment for the Green and Digital Transitions
Abstract
Over the past two decades, the Association of Southeast Asian Nations (ASEAN) has consolidated its position as a leading destination for foreign direct investment (FDI). Despite periodic fluctuations and successive global shocks, inflows have trended upward, reaching a record USD 225 billion in 2024. The region now accounts for around 15% of global FDI flows, a higher share than other emerging regions. FDI stocks as a share of gross domestic product (GDP) have also increased markedly, reaching historically high levels in many ASEAN economies.
However, since the last OECD Investment Policy Review of Southeast Asia in 2019 (OECD, 2019[1]), the global environment has changed significantly. A series of economic and geopolitical shocks has reshaped the conditions for firms and investors, affecting global value chains (GVCs), investment patterns, and policy priorities. At the same time, the green and digital transitions have become key drivers of economic transformation, creating new investment needs and altering the determinants of competitiveness. Together, these shifts are redefining the role of investment and posing new challenges for ASEAN countries seeking to maximise the benefits of FDI for sustainable growth.
ASEAN has begun to respond to these changes. At the regional level, initiatives such as the ASEAN Sustainable Investment Guidelines (ASEAN, 2026[2]) aim to strengthen the contribution of investment to sustainable development. At the same time, ASEAN Member States (AMS) are increasingly reflecting in their national and sectoral strategies a broader role for investment, not only as a source of capital, but also as a key tool to advance sustainable development and support priorities such as the green and digital transitions. The challenge is therefore shifting from attracting more investment to mobilising investment that is better aligned with development objectives and more resilient to evolving economic and political risks. This calls for policy frameworks that not only facilitate inflows, but also shape their composition, enhance their quality, and strengthen their safety and resilience.
This Review takes a regional perspective to examine how AMS can mobilise more and higher-quality investment to support sustainable development and advance the green and digital transitions that are increasingly central to the region’s development agenda. It focuses on four policy areas that play a critical role in shaping investment outcomes: investment promotion and tax incentives, legal and regulatory frameworks for investment, investment security policies, and frameworks for responsible business conduct (RBC).
Since the 1990s, ASEAN economies have recorded sustained growth, consistently outpacing OECD Members and supporting gradual convergence towards upper middle-income levels (Figure 1.1). This performance has been driven by rapid industrialisation, expanding domestic demand, and increasing integration into the global economy. FDI has played a central role in this process, contributing to the expansion of productive capacity and strengthening ASEAN’s position in global value chains. While the region’s growth outlook remains relatively solid, with growth projected at around 4% in 2026 (IMF, 2026[3]), the economic environment is becoming increasingly complex and uncertain. Global shocks and evolving domestic factors are reshaping the conditions that have underpinned ASEAN’s growth model over recent decades.
Real GDP growth (%), 1990-2025
Source: OECD based on IMF (2026[3]), IMF DataMapper; World Bank (2026[4]), https://databank.worldbank.org/source/world-development-indicators; and OECD (2026[5]), https://www.oecd.org/en/data/indicators/real-gross-domestic-product-gdp.html.
External pressures have intensified. Slower growth among major trading partners is weighing on external demand, while rising trade and geopolitical tensions, together with increasing fragmentation of the global economy, are influencing firms’ decisions and international investment flows. In this context, factors such as policy predictability, regulatory transparency, and institutional stability are becoming increasingly important in investment decisions.
Domestic growth drivers are also evolving. As ASEAN economies advance along the development path, future growth will depend less on the accumulation of production factors and more on productivity gains, innovation, and the ability of firms to move into higher value-added activities (IMF, 2024[6]). Demographic trends reinforce this shift: in several ASEAN countries, labour force growth is slowing and population ageing is emerging as a new policy challenge (ASEAN Secretariat, 2023[7]). Sustaining high growth rates will therefore require an acceleration of structural transformation and economic upgrading, supported by greater investment in infrastructure, skills development, innovation, and the strengthening of domestic productive capacities.
The green and digital transitions are further reshaping ASEAN economies, generating both policy challenges and new avenues for development. In the area of the environment, many countries have adopted ambitious emissions reduction and net-zero targets. However, energy demand continues to grow rapidly, driven by economic expansion and urbanisation, while a significant share of energy supply remains dependent on fossil fuels (IEA, 2024[8]). Investment patterns are not yet fully aligned with these transition goals: although investment in renewable energy has increased, a substantial share continues to be directed towards fossil fuel-based systems (Figure 1.2). This not only increases environmental pressures but also exposes economies to energy price volatility and geopolitical risks, as illustrated by recent tensions in the Middle East. In this context, the green transition in ASEAN is not only an environmental imperative but also an economic and strategic priority.
Total (domestic and foreign) investment in energy by source in ASEAN, 2010-2024
Source: Based on LSEG (Refinitiv) Cross-Border Mergers and Acquisitions Database, https://www.lseg.com/.
Digital transformation is also reshaping production structures and the drivers of competitiveness across ASEAN economies. The region is becoming increasingly integrated into global ICT and electronics value chains and is experiencing rapid growth in digital activities and services. Yet the benefits of this transformation remain uneven, reflecting persistent gaps across countries and firms in access to digital infrastructure, the availability of skills, and the capacity to adopt and effectively use new technologies (ITU, 2025[9]). In addition, the growing economic importance of data, digital platforms, and advanced technologies is raising new policy challenges related to data governance, cybersecurity, and resilience.
Changes in global economic conditions, most notably the acceleration of the green and digital transitions, together with evolving domestic growth dynamics, are fundamentally reshaping both the role and impact of FDI in ASEAN. In this context, the issue is no longer simply one of increasing inflows, but of their impact and their capacity to contribute to the region’s broader economic development. Recent FDI trends in ASEAN reflect these transformations, highlighting the increasingly important role of FDI in shaping the region’s sustainable development trajectory.
1.3.1. ASEAN has consolidated its position as a major FDI destination
ASEAN has consolidated its position as a leading global destination for FDI over the past two decades, accounting for around 15% of global inflows in 2024, surpassing many other emerging regions. This expansion is more notable given that it has taken place against a highly volatile external backdrop, marked by successive economic shocks. This sustained performance reflects the region’s enduring openness to trade and investment, and its evolving role, not only as a manufacturing hub but increasingly as a significant recipient of services investment. While all AMS have benefited from rising inflows, the distribution of gains remains uneven. Singapore continues to attract a disproportionate share of investment, reflecting its position as a global financial centre. It is followed by the larger economies such as Indonesia, Viet Nam, Malaysia, Thailand, and the Philippines, which have steadily drawn investment across both manufacturing and services. In contrast, smaller economies receive comparatively modest inflows, reflecting structural differences in market size, infrastructure, and institutional characteristics.
The growing importance of FDI within ASEAN economies is also evident in the steady rise of inward FDI stock relative to GDP (Figure 1.3). As a cumulative measure, inward FDI stock provides a more robust indication of investors’ long-term commitment. At the regional level (excluding Singapore), the inward FDI stock-to-GDP ratio has increased by approximately 19 percentage points over the past decade, reaching 59%. This upward trend is broadly observed across the region, with several economies recording historically high levels.
Inward FDI stock as a share of GDP
Source: Based on UNCTAD (2026[10]), https://unctadstat.unctad.org/.
1.3.2. FDI is driving economic transformation and advancing the green and digital transitions
In a context where ASEAN economies are increasingly relying on productivity and innovation to sustain growth, FDI has emerged as an important driver of structural transformation. It facilitates technology transfer and supports the development of strategic sectors, fostering a gradual shift towards higher value-added activities. While specialisation in primary sectors and lower-technology manufacturing persists, characterised by low value added and modest productivity gains, there is an increasing shift of foreign direct investment towards more advanced segments within ASEAN. Over the period 2021-2025, around one-third of greenfield investment in ASEAN was directed towards medium- and high-technology manufacturing, particularly in electronics and electrification-related industries, while a further one-fifth was allocated to ICT services. This trend points to a strengthening of knowledge- and technology-intensive activities, although significant cross-country differences persist, reflecting disparities in skills availability, infrastructure quality, and regulatory frameworks.
FDI is also taking on a growing role in the transition towards more digital and sustainable growth models. Since 2020, more than half of greenfield projects in the region have been concentrated in digital-related activities, including ICT manufacturing, digital services, and telecommunications, mirroring both global technological changes and ASEAN’s deeper integration into digital production networks (Figure 1.4). However, the composition of these investments remains heterogeneous: economies more deeply integrated into ICT value chains tend to specialise in manufacturing segments, while others display a relatively stronger orientation towards digital services. Investment in renewable energy has also expanded in recent years, albeit from a relatively low base and with some degree of volatility. Its share of total greenfield investment has reached approximately 8% over the past decade, alongside a gradual decline in fossil fuel-related investment. Nonetheless, significant differences persist across countries. While some AMS attract primarily renewable energy investment, others continue to receive substantial inflows into fossil fuel-based energy systems, pointing to differences in regulatory frameworks, energy market structures, and policy incentives.
Greenfield FDI in Digital and Green Sectors (% of total) and Jobs Created per USD 1 billion Invested, ASEAN, 2003-2025
Note: Digital sectors include digital services (e.g. software development, cloud computing), ICT goods, electronic components, and telecommunications. Renewable energies comprise solar, wind, hydro, geothermal and biomass sources.
Source: Based on Financial Times (2025[11]), https://www.fdimarkets.com/.
1.3.3. FDI is creating fewer but higher quality jobs
As FDI progressively shifts towards more technologically advanced and higher value-added sectors, its contribution to employment is also evolving, from the creation of large volumes of low-skilled jobs towards the generation of fewer, but more skill-intensive and higher-quality positions. Over the period 2021-2025, greenfield investment generated approximately 1.6 million jobs in ASEAN, corresponding to around 6% of net employment growth and about 13% of global FDI-related job creation. Employment generation has become increasingly concentrated in sectors such as electronics, electrical equipment, and ICT services, while industries including construction, energy, and resource-based activities have seen a declining share.
Job intensity, defined as the number of jobs created per unit of investment, has declined across many sectors. This development reflects both the growing orientation of FDI towards more capital- and technology-intensive projects and the increasing diffusion of automation and advanced production technologies. As a result, although fewer jobs are generated per unit of investment, the overall quality of employment tends to improve, as positions in more advanced sectors typically require higher skill levels and are associated with better remuneration.
This pattern is consistent with evidence showing that foreign-owned firms in ASEAN generally offer more favourable employment conditions than domestic firms, particularly in terms of wages and access to structured training. The wage premium associated with foreign firms is estimated at around 33.7% on average, significantly higher than the corresponding figure in OECD Members (22.0%), highlighting the substantial impact of FDI on labour markets in the region. Furthermore, foreign investors contribute significantly to human capital development through formal training programmes and on-the-job learning, thereby supporting the upgrading of workforce skills.
Shifts in FDI patterns and their impacts in ASEAN point to the region’s potential to better leverage investment in support of sustainable growth, particularly in the context of the green and digital transitions. Policy frameworks play a central role in shaping the direction and impact of investment. The allocation of investment across strategic sectors, notably in the digital and green domains, depends in part on the design of investment promotion frameworks and tax incentives. More broadly, transparent, predictable, and coherent regulatory environments remain critical to sustaining investor confidence, especially in a context of heightened uncertainty and intensifying global competition. At the same time, new risks associated with advanced technologies, data, and critical infrastructure are increasing the importance of investment security. Growing attention to environmental and social considerations further underscores the need to ensure that investment is accompanied by high standards of responsible business conduct. How these policy areas evolve will be central to shaping the contribution of FDI to sustainable and resilient growth across ASEAN economies, and to their ability to harness the opportunities arising from the green and digital transitions.
1.4.1. Strengthening investment promotion and tax incentives frameworks
Attracting investment that advances development objectives, particularly in support of the green and digital transition, has become a central priority for ASEAN economies as they pursue more sustainable growth pathways. Investment Promotion Agencies (IPAs) are at the core of this effort. All AMS have established IPAs, although they differ significantly in their mandates, governance arrangements and degree of operational autonomy. These variations are not merely institutional details: they influence the ability of IPAs to engage strategically with investors, to prioritise targeted sectors and activities, and to play an effective co-ordinating role across government.
Across AMS, investment promotion strategies are broadly aligned with national development plans and regional priorities. In line with global technological and industrial shifts, these strategies are placing growing emphasis on green and digital activities. Priority sectors typically include renewable energy, electric mobility, semiconductors, data infrastructure and advanced manufacturing. This reflects a clear recognition that future competitiveness will depend on the ability to attract investment in knowledge‑intensive, digital and low‑carbon activities. At the same time, the accessibility of such strategies often remains limited. In many cases, the absence of publicly available or easily accessible documents reduces transparency and makes it more difficult for investors to anticipate policy direction and reform trajectories.
Investment tax incentives continue to play a prominent role in these strategies. All AMS rely on a combination of tax and non‑tax tools, with corporate income tax incentives being the most widely used. IPAs themselves attach considerable importance to incentives, often ranking them highly among the instruments available for attracting investment. Yet international evidence suggests that incentives are rarely decisive on their own. Investors tend to give greater weight to fundamentals such as infrastructure quality, the predictability of regulations and the availability of skilled labour. In this context, incentives are best understood as a complementary tool rather than a substitute for a strong investment climate.
The design of tax incentives also raises important questions of effectiveness and efficiency. In many AMS, income‑based tax incentives dominate. While these can provide substantial benefits to profitable firms, they are often less effective in stimulating additional investment, particularly where projects would have gone ahead in their absence. They may also create significant fiscal costs and carry a risk of redundancy. By contrast, expenditure‑based instruments, such as tax allowances or credits, offer a more targeted approach. By directly lowering the cost of specific activities, they are better suited to encouraging investment in areas aligned with policy priorities, including the green and digital transition. They also tend to be less vulnerable to tax planning and can be designed in a more cost‑effective manner.
Aligning incentive regimes more closely with strategic objectives remains a key challenge. In several AMS, tax incentives are applied broadly across sectors, which can dilute their impact and weaken the focus on emerging, high‑priority activities. While broad schemes may reduce distortions, they often increase fiscal costs and limit governments’ ability to steer investment towards areas of greatest strategic value. More targeted approaches, supported by clear eligibility criteria and adequate administrative capacity, can help to balance these trade‑offs, strengthening policy coherence while safeguarding public resources.
Institutional arrangements for managing incentives add a further layer of complexity. Tax incentives are frequently embedded across multiple legal instruments and administered by different authorities. Although many IPAs operate within structured co-ordination frameworks and provide guidance to investors, the fragmentation of legislation can reduce transparency and complicate implementation. Clearer consolidation and communication of incentive frameworks would improve both investor understanding and administrative efficiency. The respective roles of IPAs and other public institutions also warrant careful consideration. In some AMS, IPAs are involved not only in promoting and facilitating investment but also in granting and administering tax and non-tax incentives. This can stretch institutional capacity and blur accountability, particularly in relation to fiscal oversight. While IPAs are well placed to act as a central interface for investors, the ultimate authority over tax incentives is more appropriately vested in finance ministries. For non‑tax incentives, responsibilities may vary depending on the nature of the measure, but effective co-ordination across institutions remains essential.
Finally, ensuring that incentives deliver value for money requires robust monitoring and evaluation. While most AMS collect data on the use of incentives and assess compliance, and a majority report undertaking some form of evaluation, the scope and regularity of these exercises appear uneven. Strengthening evaluation practices, and ensuring that results feed back into policy design, would enable governments to identify ineffective measures and reallocate resources more strategically.
Strengthen the strategic alignment and co-ordination of investment promotion and incentives. Ensure that investment promotion strategies and tax incentives are closely aligned with national development priorities, particularly for the green and digital transitions. This requires well-defined and adequately resourced IPA mandates, stronger co-ordination across government to address regulatory and permitting bottlenecks, and greater coherence between promotion efforts, incentive targeting, and broader economic policies.
Move from broad tax incentives toward more targeted measures, in addition to a balanced investment promotion policy mix and other reforms that enhance the business climate. Reduce reliance on broad tax incentives and place greater emphasis on a balanced toolkit that includes targeted promotion, streamlined administrative procedures, and a predictable regulatory environment. Where incentives are used, prioritise well-targeted and cost-effective instruments, such as expenditure-based incentives, to support additional investment that aligns with development objectives.
Enhance transparency, governance, and evaluation of incentives. Strengthen the design, governance, and monitoring of tax incentives by ensuring clear eligibility criteria, improving access to information, and institutionalising regular evaluations. Clearer institutional responsibilities, with ministries of finance retaining final authority over tax incentives and specialised bodies leading regular evaluations, can help improve effectiveness, reduce inefficiencies, and ensure incentives remain aligned with evolving policy priorities.
1.4.2. Enhancing the legal and policy framework for sustainable investment
A supportive institutional, legal, and policy setting remains a fundamental condition for leveraging FDI in pursuit of sustainability goals, notably the green and digital transitions. Across ASEAN, recent policy developments signal a clear and consistent commitment by AMS to foster such an enabling environment. This direction is embedded in comprehensive regional frameworks, including the ASEAN Economic Community (AEC) Blueprint 2025, and reinforced through a range of sectoral and thematic initiatives targeting specific priorities such as the expansion of the digital economy and the advancement of the energy transition. It is further supported by soft-law instruments such as the ASEAN Guidelines for Sustainable Investment, which provide a common reference framework to encourage responsible investment practices aligned with environmental and social objectives.
Despite these policy signals, the translation of commitments into domestic legal frameworks remains uneven. ASEAN has gradually reduced statutory FDI restrictions since 2018, continuing a longer trend of liberalisation (Figure 1.5). Yet the region still scores above both OECD and non-OECD averages, signalling persistent barriers to entry. These constraints are most visible in services and infrastructure, including in sectors central to green and digital transitions. High restrictiveness in real estate, construction, transport, telecommunications, distribution, media, and finance continues to limit foreign participation. These limitations risk weakening the contribution of FDI to key drivers of sustainable growth, including green and digital infrastructure.
OECD FDI Regulatory Restrictiveness Index, 2024 (open=0; closed=1)
Note: The index is based on regulation in force up to 31 December 2024. Economy-wide scores are shown for 2024, with 2018 values reported for ASEAN economies for comparison. OECD and non-OECD averages refer to 2024 values only. The OECD average covers all 38 Members. The non-OECD average covers 57 non-Members, excluding AMS. The ASEAN average refers to only 10 ASEAN Members; Timor-Leste is not currently covered by the FDIRRI. Further methodological details are available in the latest FDIRRI methodological paper (OECD, 2024[12]).
Within this broader landscape, AMS have, with few exceptions, established dedicated legal frameworks governing investment. These laws typically address core elements such as investor protection, dispute settlement, and, in some instances, investor obligations. A notable degree of convergence can be observed across national regimes, particularly in their approach to protection standards, which generally reflects the principles embedded in ASEAN-level agreements such as the ASEAN Comprehensive Investment Agreement (ACIA) and the ASEAN Trade in Services Agreement (ATISA).
At the same time, divergences persist in the formulation of specific legal provisions. This is most evident in the treatment of expropriation. While all AMS provide protection against direct expropriation, the extent to which national laws align with the more detailed and internationally consistent approach of the ACIA varies. Differences are even more pronounced in relation to indirect expropriation, where only one country closely follows the ACIA model. However, given the lack of a uniform international standard in this area, such variation does not necessarily represent a structural weakness.
Another area of variation lies in the incorporation of treaty-derived standards, such as national treatment (NT), most-favoured-nation treatment (MFN) and fair and equitable treatment (FET), into domestic legislation. While this practice may strengthen investor protections, it may also introduce challenges, including potential constraints on regulatory space, broader scope for interpretation in domestic courts, and increased legal uncertainty. Where these standards are included, careful drafting is therefore essential to ensure clarity and to mitigate unintended effects.
By contrast, dispute settlement frameworks tend to display greater consistency across the region. Investors generally benefit from access to multiple avenues for resolving disputes, ranging from informal mechanisms, such as consultation and conciliation, to formal processes including arbitration. In certain cases, such as in Lao PDR and Myanmar, specific grievance mechanisms have been introduced to address investor concerns at an early stage, facilitating dialogue with public authorities and potentially reducing recourse to formal dispute resolution.
Sustainability considerations, although increasingly visible, remain largely embedded at the level of general policy orientation rather than binding legal obligation. Only a limited number of AMS have introduced explicit provisions requiring investors to comply with environmental and social standards, undertake impact assessments, report on sustainability-related matters, respect local customs, or contribute to technology transfer and skills development. For most countries, such elements remain indicative rather than prescriptive.
At the international level, sustainability remains only modestly integrated into ASEAN’s investment agreements, where it is often framed primarily through an environmental lens. At the same time, such agreements are not the principal vehicle through which AMS advance sustainability agendas. Increasingly, attention has shifted toward alternative forms of international co-operation that operate at the intersection of economic policy and sustainable development. These include non-binding initiatives such as green economy collaborations and digital economy partnerships, both within ASEAN and with external partners, reflecting a gradual evolution in the region’s approach to linking investment with sustainability outcomes.
Strengthen openness, clarity and predictability of investment frameworks. Periodically review foreign equity caps and operational restrictions, particularly in services and infrastructure sectors central to the green and digital transitions. Clearer, consolidated and regularly updated negative lists, supported by more consistent sectoral legislation and implementation of regional commitments, can help reduce unnecessary barriers and create more predictable conditions for long-term investment.
Ensure a balanced investment protection framework that preserves policy space. Maintain strong and clear protections for investors, particularly with respect to expropriation, while safeguarding governments’ ability to regulate in the public interest. Careful design of national investment laws and treaty commitments can help avoid overly broad obligations that may constrain policy flexibility, especially in areas linked to sustainable development.
Modernise and monitor international investment agreements. Review and update existing investment treaties to better balance investment protection with sustainable development objectives and national regulatory priorities. Strengthen processes to measure the effectiveness of new international partnerships, including those supporting green and digital transitions, to ensure they deliver intended outcomes and support domestic policy priorities.
1.4.3. Building investment security frameworks: strengthening openness and security
A changing geopolitical and geoeconomic environment has sharpened attention to the potential security implications of certain foreign investments. This reflects a broader shift in policy priorities: while openness to investment remains a core objective, governments are increasingly seeking to manage potential security risks associated with foreign investment in a more systematic and targeted manner. Recent shocks, including the COVID-19 pandemic, supply chain disruptions, and rising geopolitical tensions, have highlighted vulnerabilities linked to dependencies in critical inputs, infrastructure, and technologies. These developments have reinforced the importance of economic resilience and brought investment security more firmly into the policy debate. In ASEAN, this discussion is also gaining traction, in a context of deep regional integration and strong reliance on global value chains.
Beyond ASEAN, the scope of investment security policies has broadened considerably to face new and more complex risks. While earlier policies often focused on defence-related sectors and sensitive locations, many contemporary investment security policies now also extend to critical infrastructure, digital technologies, and data-intensive activities, reflecting evolving assessments of security-related risks. A trend that is not observable within AMS investment security policies.
AMS have adopted a diverse range of approaches to managing investment security risks. In contrast to the trend observed in many OECD Members, where dedicated investment screening mechanisms have become the primary tool, most AMS continue to rely on a combination of pre-existing instruments, including foreign ownership ceilings, registration processes, licensing systems, and administrative authorisations. These frameworks were often introduced decades ago and generally provide limited guidance to investors and do not always establish dedicated authorities, investigative powers, or structured security review processes for assessing sensitive transactions. At the same time, preserving an open and predictable investment environment remains a key objective, and it is unclear whether existing frameworks can support tailored and proportionate risk-mitigation measures, rather than relying on more categorical or binary forms of intervention that could deter investment. Recent reforms in a small number of AMS, including Singapore and the Philippines, illustrate a gradual shift towards more targeted and flexible approaches that seek to balance security considerations with continued openness to foreign investment.
In this context, the challenge for AMS is not to reduce openness, but to sustain it by strengthening the management of risks. Well-designed investment security policies can support this objective by maintaining investor confidence while protecting countries’ security interests. International experience points to the importance of transparency, proportionality, and predictability in this regard. At the regional level, enhanced dialogue and co-operation could help build a shared understanding of risks, reduce policy fragmentation, and support coherent approaches that preserve AMS’s attractiveness as an investment destination.
Maintain open investment regimes with clear investment security safeguards: Review investment security policies at regular intervals. Use these reviews to assess whether the rules effectively address identified security risks and whether procedures create unnecessary barriers to foreign investment. Clear and calibrated investment regimes can support security risk management and preserve openness to foreign investment.
Base investment security measures on recognised good practices: Design investment security policies to address identified security risks. Measures should be targeted, transparent, proportionate, predictable, and non-discriminatory. Drawing on internationally recognised principles can help maintain security objectives with a stable and attractive investment environment.
Deepen regional co-operation and knowledge sharing on investment security: Enhance dialogue within ASEAN and with international partners on investment security interests and risks. Greater co-operation and exchange of experience can support more coherent approaches across countries and reduce fragmentation in policy responses.
1.4.4. Strengthening responsible business conduct frameworks and practices
Responsible business conduct (RBC) is increasingly central to ASEAN’s development model as the region seeks to sustain growth while managing social, environmental and governance risks. RBC sets clear expectations that businesses contribute to sustainable development while avoiding adverse impacts on people, society and the environment. In ASEAN, these expectations are shaped both by international standards and by a growing body of regional and national initiatives that embed responsible practices into economic policy frameworks.
RBC considerations are now integrated in ASEAN’s regional vision. Strategic frameworks such as ASEAN 2045 and related sectoral plans emphasise inclusive, sustainable and resilient growth, with explicit references to human rights, anti-corruption, sustainable finance and digital transformation. These commitments are supported by a wide range of instruments, including sector-specific guidelines, sustainable finance taxonomies, and emerging frameworks on artificial intelligence governance. Together, these initiatives signal a shift from viewing RBC as a peripheral concern to recognising it as a core element of competitiveness and long-term development.
Gaps persist between policy ambition and implementation. Rapid economic expansion, industrialisation and integration into global value chains have generated significant development gains for ASEAN. Rapid economic growth can also be associated with new risks. These include environmental degradation, climate vulnerability, labour rights violations, and corruption, particularly in sectors such as extractives, agriculture, infrastructure and manufacturing. Emerging areas such as critical minerals and digital technologies present additional opportunities but also amplify governance challenges where regulatory capacity has not kept pace with investment flows.
National policy frameworks have evolved unevenly in response. While several AMS have developed National Action Plans on business and human rights and strengthened regulatory frameworks across environmental, labour and anti-corruption domains, implementation and enforcement remain inconsistent. Institutional capacity constraints, fragmented policy approaches, and limited co-ordination across government bodies continue to influence effectiveness. In many cases, existing instruments focus on compliance with minimum legal standards rather than promoting a comprehensive, risk-based approach to due diligence across value chains.
Expectations on businesses are nevertheless rising. Increasing demands from investors, consumers and regulators, both within ASEAN and in key export markets, are driving greater attention to RBC across supply chains. This is particularly evident in areas such as sustainability reporting, responsible sourcing, and due diligence expectations linked to international trade and investment agreements. ASEAN’s participation in global value chains is therefore an important vector for diffusion of RBC standards, even where domestic frameworks are still evolving.
Government action to promote RBC is expanding but remains underutilised. Investment promotion, public procurement, state-owned enterprise governance and sustainable finance offer significant leverage to shape business conduct, yet RBC considerations are not systematically embedded in these policy areas. Where they are used, such as in green procurement policies, sustainable finance taxonomies or ESG disclosure frameworks, they demonstrate the potential to align investment flows with sustainability objectives.
The key policy challenge is to translate existing commitments into consistent and effective practice. This will require stronger policy coherence, greater alignment with international standards, and meaningful engagement with stakeholders. Enhanced regional co-operation can support these efforts by fostering shared understanding, reducing fragmentation, and reinforcing ASEAN’s position as an attractive destination for high-quality, responsible investment.
Strengthen policy coherence and alignment on responsible business conduct: Improve co-ordination across regional and national initiatives promoting responsible business conduct, ensuring alignment with ASEAN policy priorities and international standards. Greater coherence can enhance clarity for companies, increase the effectiveness of implementation, and raise visibility of the region’s commitment to sustainable development among potential investors and businesses.
Support companies in adopting responsible business practices: Provide clear guidance, including to Micro, Small, and Medium-sized Enterprises (MSMEs), and encourage dialogue between international and domestic firms to implement risk-based due diligence in their operations and supply chains. This will foster greater alignment with international standards and help more ASEAN-based companies to be integrated into global value chains.
Enhance access to remedy and encourage stakeholder engagement: Ensure effective access to remedy through both judicial and non-judicial mechanisms to address business-related adverse impacts, including by reinforcing existing institutions such as national human rights bodies and labour inspectorates. Promote and encourage businesses to undertake meaningful engagement with stakeholders.
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