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

Author

Listed:
  • Pia Ellimäki

    (University of Granada)

  • Ruth V. Aguilera

    (Northeastern University
    Universitat Ramon Llull)

  • Nuria Esther Hurtado-Torres

    (University of Granada)

  • J. Alberto Aragón-Correa

    (University of Granada)

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.

Suggested Citation

  • Pia Ellimäki & Ruth V. Aguilera & Nuria Esther Hurtado-Torres & J. Alberto Aragón-Correa, 2023. "The link between foreign institutional owners and multinational enterprises’ environmental outcomes," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 54(5), pages 910-927, July.
    • Handle: RePEc:pal:jintbs:v:54:y:2023:i:5:d:10.1057_s41267-022-00580-0
    DOI: 10.1057/s41267-022-00580-0
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