Institutional Ownership and Greenhouse Gas Emissions: A Comparative Study of the UK and the USA
| Published date | 01 April 2023 |
| Author | Mohammed Benlemlih,Muhammad Arif,Muhammad Nadeem |
| Date | 01 April 2023 |
| DOI | http://doi.org/10.1111/1467-8551.12613 |
British Journal of Management, Vol. 34, 623–647 (2023)
DOI: 10.1111/1467-8551.12613
Institutional Ownership and Greenhouse
Gas Emissions: A Comparative Study of the
UK and the USA
Mohammed Benlemlih ,1Muhammad Arif2and Muhammad Nadeem 3
1EM Normandie Business School, 64 Rue du Ranelagh, Paris,75016, France, 2Department of Business
Administration, Shaheed Benazir Bhutto University, Shaheed Benazirbad, Pakistan, and 3Department of
Accountancy and Finance, University of Otago, Dunedin, 9016, New Zealand
Corresponding author email: muhammad.nadeem@otago.ac.nz
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 emis-
sions. 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 ndings are robust when using alternative measures, econometric specications and
several approaches to address endogeneity. Further, we nd no evidence for a stronger
effect in the UK compared with the USA, as expected from our discussion of the gov-
ernance 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 ad-
ditional analyses, we show that litigation risk and board gender diversity moderate the
relationship between institutional ownership and GHG emissions. Finally, we also docu-
ment a positive effect of the stewardship codes on the relationship between institutional
ownership and GHG emissions. Our ndings make signicant theoretical and regulatory
contributions.
Introduction
With the ongoing discussions on climate change,
and pressure from international institutions to-
wards cleaner and lower emissions industries,
shareholders are facing ethical challenges to as-
sess and track their investments’ environmental
performance and emissions. The importance of
greenhouse gas (GHG) emissions goes beyond
an economic perspective in the political, cultural
and legal spheres. For instance, the current US
president, Joe Biden, moved to reinstate the USA
into the Paris Climate Agreement just hours after
being sworn in as president.1The Paris Climate
1https://www.theguardian.com/environment/2021/jan/20/
paris-climate-accord-joe-biden-returns-us.
Agreement is one of the most important climate-
related initiatives that aim to control climate
change and mobilize all stakeholders’ efforts to-
wards low GHG emissions and climate-resilient
development. Investors, as one of the most impor-
tant rms’ stakeholders, are pressuring rms in
which they invest towards more ethical behaviour
and consideration of the effects of climate change
on their strategies to combat their negative effects
and maintain their protability in the long term.
Motivated by the growing debate on the topic,
this paper sheds light on the role that institu-
tional ownership may play in managing climate
change. More precisely, we investigate whether
© 2022 The Authors.British Journal of Management published by John Wiley & Sons Ltd on behalf of BritishAcademy
of Management. Published by John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main
Street, Malden, MA, 02148, USA.
This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs Li-
cense, which permits use and distribution in any medium, provided the original work is properly cited, the use is non-
commercial and no modications or adaptations are made.
624 Benlemlih et al.
institutional ownership drives the reduction of
rms’ GHG emissions as a response to interna-
tional pressure. Our focus on the relationship
between institutional ownership and GHG emis-
sions is motivated by several considerations. First,
prior literature has widely addressed the relation-
ship between institutional ownership and different
aspects of corporate social responsibility (CSR)
(Dyck et al., 2019; Li, Patel and Ramani, 2020a).
These studies measure rms’ CSR practices based
on an average of dimensions such as diversity,
human rights, environment, product quality,
governance quality and employee relations. Nev-
ertheless, no study has focused on the relationship
between institutional ownership and environmen-
tal performance. Environmental risk is increas-
ingly signicant to corporations aroundthe world,
with costly litigation risk and signicant attention
from the media, policymakers and environmental
activists (El Ghoul et al., 2018). Many enterprises
are nowadays concerned with environmental and
climate-related issues at the expense of social
dimensions and our work providesnew answers to
how institutional ownership drives rms’ environ-
mental practices. By doing so, our study responds
to recent calls for more research into the role of
governance in environmental performance rather
than general CSR issues (e.g. Zaman et al., 2020).
Second, pressures from the media and policy-
makers in relation to climate change have become
signicant and aim at better understanding the in-
formation needs of nancial practitioners when
analysing physical and transition risks associated
with climate change. So far, no study has assessed
how institutional ownership affects a veriable
measure of climate change because of the dif-
culty of assessing rms’ emissions. Our work lls
this gap in the literature and proposes one of the
rst attempts at studying the relationship between
an objective and accurate proxy of climate change
(i.e. GHG emissions) and institutional ownership.
Third, this study aims to explore the underlying
mechanism through which institutional ownership
might affect GHG emissions. By doing so, we de-
part from the existing literature that increases our
understanding of the impact of institutional own-
ership on environmental performance; however,
the indirect and causal channel of this relation-
ship remains less understood, and we tap into this
blackbox.
Finally, prior studies that aim at investigating
how climate change interacts with rms’ per-
formance and outcomes mainly focus on the
American (e.g. Benlemlih and Cai, 2020) and Chi-
nese (e.g. Shahbaz et al., 2020) markets, with little
attention on others. Nevertheless, environmental
activists’ pressures, as well as rms’ governance
structures, differ from one country to another. So
far, no comparative studies have been performed
between countries that have different governance
structures and different sensitivities (Aguilera
et al., 2006). Our work will ll this gap in the liter-
ature by studying the role of institutional owner-
ship in GHG emissions in the UK and the USA,
known to have different governance structures.
We argue, rst, that according to neo-
institutional theory (e.g. DiMaggio and Powell,
1983), mutual awareness in relation to climate
change problematics is likely to lead institutional
investors to adopt similar managerial decisions
in favour of less pollution. Second, the demand
for environmentally friendly investments that
consider climate-related concerns has increased
spectacularly recently (Dyck et al., 2019; Li, Patel
and Ramani, 2020a). In their quest for fund ows,
fund managers are likely to invest in low GHG
emissions investments so they can increase the
attractiveness of their offer and their total assets
under management. We thus expect institutional
ownership to be associated with a decrease in
rms’ GHG emissions.
To empirically test our expectation of the re-
lationship between institutional ownership and
GHG emissions, we rely on a sample of 4352
rm-year observations between 2010 and 2019
that represents 601 individual rms in the USA
and the UK. Our empirical ndings provide strong
support for our expectationthat institutional own-
ership is negatively and signicantly associated
with GHG emissions (both in terms of volume in
tons and intensity per dollar of sales). Our nd-
ings are statistically and economically signicant.
For instance, a one standard deviation increase
in institutional ownership results in a 1.02 metric
tons reduction in GHG emissions. Our ndings
are robust when we use a battery of sensitivity
tests, including alternative estimations, alternative
variables and several procedures to control for
endogeneity and self-selection bias.
Next, we compare the relationship between
institutional ownership and GHG emissions in
the USA versus the UK. We argue that differ-
ences in terms of investors’ behaviour, CEO role
and power, concentration of institutions, rms’
© 2022 The Authors.British Journal of Management published by John Wiley & Sons Ltd on behalf of British
Academy of Management.
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