Do sustainable institutional investors contribute to firms’ environmental performance? Empirical evidence from Europe

Abstract

In light of current climate change discussions, this paper analyzes the effect of ownership structure on a firm’s environmental performance with a subsequent focus on corporate emission reduction. Based on a cross-national European sample consisting of 7384 firm-year observations between 2008 and 2017, this study explores the relationship between sustainable institutional investors and environmental performance. In line with prior research and embedded in an agency theoretical framework, the nature of institutional investors may act as a stimulating driver towards green business practices. Sustainable institutional investors are defined based on their signatory status to the UN Principles for Responsible Investment and their (long-term) investment horizons. The first classification stems from a content-driven sustainability perspective, while the second is derived from temporal sustainability. The results indicate that sustainable institutional ownership is positively associated with a firm’s environmental performance. Further investigations reveal that sustainable institutional investor ownership is also positively associated with firms’ willingness to respond to the Carbon Disclosure Project. These results indicate a higher carbon-risk awareness in firms with greater sustainable institutional investor ownership. Our paper significantly contributes to prior empirical research on institutional ownership and environmental performance and offers useful theoretical and practical implications. It focusses on a still-underdeveloped research area, namely organizations and their relationships with the natural environment, including institutional equity ownership as a driver towards greener practices on a corporate level.

Do sustainable institutional investors influence senior executive compensation structures according to their preferences? Empirical evidence from Europe

“…Following Dyck et al (2019), Gloßner (2019) and Kordsachia et al (2021), socially responsible investors, as institutional investors, are operationalized as signatories to the UN PRI. By signing the UN PRI, investors pledge to closely monitor the sustainability practices of the invested firms and commit to the incorporation of environmental, social, and governance (ESG) issues into their investment analysis, as well as their decision‐making processes.…”

“…In addition to socially responsible institutional investors, we also examined long‐term institutional investors as a potential driver of CSR‐contingent components within senior executive compensation contracts. Following Kordsachia et al (2021), we considered individual investment characteristics of investors at the single security level of analysis to determine the investment horizon. In particular, we employed the initial investment date of each investor in company to compute the time period of the investment.…”

Which institutional investors drive corporate sustainability? A systematic literature review

“…As sustainability topics (e.g., climate change or gender diversity) represent global challenges, we expect that institutions are aware of stakeholder concerns. Second, most sustainable investors who sign the United Nations Principles for Responsible Investment (PRI) or related voluntary networks belong to institutional investors (Kordsachia et al, 2021). Consequently, institutions tend to demand more corporate sustainability information and successful management tools compared to other forms of equity ownership and are likely to pressure management to strengthen their sustainability performance.…”

Environmental performance and financial performance during COVID-19 outbreak: Insight from Chinese firms

“…Many researchers argue that there is harmony and even complementarity between an environmentally friendly business model and the firm's financial strength. The intense interest in the subject has led to many recent studies that contribute to this debate from different angles (Cheng and Liu, 2018;Duanmu et al, 2018;Banerjee et al, 2019;Ikram et al, 2021;Kordsachia et al, 2021;Zhang, 2021). However, after three decades of theoretical and empirical research, the findings regarding the relationship between EP and FP are still inconclusive (Shen et al, 2019;Brahmana and Kontesa, 2021).…”