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How do institutional investors respond to climate change exposure? International evidence

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  • Wang, Zhen
  • Wu, Kai

Abstract

This study investigates the influence of climate change exposure on institutional ownership worldwide. Leveraging a comprehensive dataset of firm-level climate change exposure, we document a negative association between climate change exposure and in- stitutional ownership, establishing causality through an instrumental variable approach and the difference-in-differences method. Short-term-oriented institutional investors drive the negative correlation between climate change exposure and institutional ownership. This relationship is particularly pronounced in firms with weaker corporate governance structures and poor information disclosure quality and in countries with stronger environmental policies and higher climate awareness. While institutions generally reduce their holdings in climate-exposed firms, those maintaining ownership positions demonstrate increased engagement in climate risk governance. Our findings emphasize the dual role of institutional investors in responding to climate risks and shaping corporate environmental governance.

Suggested Citation

  • Wang, Zhen & Wu, Kai, 2025. "How do institutional investors respond to climate change exposure? International evidence," Global Finance Journal, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:glofin:v:68:y:2025:i:c:s1044028325001292
    DOI: 10.1016/j.gfj.2025.101202
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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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