Institutional Ownership and Greenhouse Gas Emissions: A Comparative Study of the UK and the USA

Abstract

Motivated by the growing attention on climate change and the ethical role that board characteristics and ownership may play in reducing greenhouse gas (GHG) emissions, this paper investigates the relationship between institutional ownership and GHG emissions. Using an extensive dataset from the UK and the USA, we show that institutional ownership is associated with less GHG emissions – a one standard deviation increase in the proportion of institutional ownership reduces carbon emissions by 1.02 metric tons. Our findings are robust when using alternative measures, econometric specifications and several approaches to address endogeneity. Further, we find no evidence for a stronger effect in the UK compared with the USA, as expected from our discussion of the governance contexts in the two countries. We also test the possible channel (i.e. exit and selection) through which institutional investors affect GHG emissions. In a set of additional analyses, we show that litigation risk and board gender diversity moderate the relationship between institutional ownership and GHG emissions. Finally, we also document a positive effect of the stewardship codes on the relationship between institutional ownership and GHG emissions. Our findings make significant theoretical and regulatory contributions.