The link between foreign institutional owners and multinational enterprises’ environmental outcomes

Abstract

Many institutional investors claim to be leaders in their commitment to sustainability, yet their real impact is undetermined. We look at the relationship between the presence of foreign institutional owners and the firm’s environmental outcomes in terms of performance and innovation. We argue that foreign institutional owners seek to mitigate their exposure to reputational risks by encouraging their investee firms to move towards better environmental performance. However, these owners are less likely to engage in long-term investments derived from environmental innovations. We examine these paradoxical motivations in the context of multinational enterprises (MNEs) in the chemical industry across 33 countries in emerging and developed markets and further explore how these investee firms’ international diversification affects these relationships. Our findings contribute to international corporate governance and sustainability research by uncovering that, contrary to institutional owners’ popular claims, foreign institutional owners have a positive effect on their investees’ environmental performance, but their influence is not statistically significant on environmental innovation. Specifically, the influence of foreign institutional owners on environmental performance is strong for MNEs with a low level of international diversification and marginal for those with a higher level of internationalization; meanwhile, domestic institutional owners are committed to advancing both environmental performance and innovation in their MNE investees. In sum, we show that environmental concerns are still quite localized.

The influence of state ownership on environmental proactivity: An institutional perspective of international firms

“…This can lead to a lower ability to deal with the increased institutional complexity (Aguilera et al, 2021; Aragón‐Correa et al, 2020; Bueno‐Garcia et al, 2021; Darnall et al, 2010; Kock et al, 2012; Ortiz‐de‐Mandojana et al, 2016) since a foreign state may be perceived by local agents as an unfamiliar agent (Cui & Jiang, 2012; Li et al, 2019; Wei & Nguyen, 2017; Zhang et al, 2011), thereby lessening its influence on environmental improvements. These findings demonstrate a clear difference between SOEs and private shareholders, the latter increasing their influence on green strategy in a more global context because they are more able to deal with the complexity of more international scenarios (Bueno‐Garcia et al, 2021; Bueno‐García et al, 2022; Ellimäki et al, 2023).…”

“…On the one hand, strategic shareholders may positively influence environmental improvements due to their greater familiarity with the supply chain operations of the firm, a fact which is intensified in more international firms (Bueno‐García et al, 2022). Foreign shareholders may also drive new environmental strategies as they have a better understanding of the different environmental requirements of more international spheres (Bueno‐Garcia et al, 2021; Ellimäki et al, 2023). In sum, the literature supports the finding that a more international context strengthens the impact of (some) private shareholders on a firm's environmental proactivity.…”

Bulls and bears: inscribing SOEs’ roles into the global climate agenda

“…Other variables such as climate engagement of SOEs will require a more careful consideration of measurement. One possible solution here is the data on SOEs’ environmental strategies operationalized through ESG reporting (Ellimäki et al , 2023). All in all, the conditionalities of the relationship between SOE and climate action provide much room for discussion.…”

Research on the mechanism of digital transformation to improve enterprise environmental performance

“…Many studies have explored the influencing factors of environmental performance (Abubakr et al, 2023;Pia et al, 2023;de la Fuente et al, 2022;Bueno-Garcia et al, 2022;Caroline et al, 2019).…”

“…Many studies have explored the influencing factors of environmental performance (Abubakr et al ., 2023; Pia et al ., 2023; de la Fuente et al ., 2022; Bueno-Garcia et al ., 2022; Caroline et al ., 2019). Among them, some researchers have studied the impact of digitization on environmental performance.…”