The Impact of Institutional Shareholders' Networks on Corporate Greenhouse Gas Emissions

Abstract

We investigate the nexus between institutional investor networks and greenhouse gas (GHG) emissions. Using firm-level emissions data on publicly listed U.S. firms, we provide empirical evidence of a negative association between institutional shareholder connectedness and firm-level GHG emissions. The channel analysis suggests that institutional investors can actively influence corporate GHG emissions through two mechanisms: the "threat of exit" and "shareholder activism". We also find that the impact of institutional investors' networks is greater when they are United Nations Principles for Responsible Investment (UN PRI) signatories and that the Paris Agreement and governance quality negatively mitigate the network effect. We address endogeneity concerns, with the results surviving a battery of robustness tests. Our findings have policy implications for a wide range of stakeholders.

Keywords: ESG, Greenhouse Gas Emissions, Institutional Investors, Network Centrality

JEL Classification: G23, G32, G34, M14