Decarbonisation strategies and climate governance: Are institutional investors reshaping the business model of multinationals?

Abstract

Multinational companies are increasingly under pressure to integrate decarbonisation into their business models as a sign of climate leadership and as a strategy for their long-term value. Institutional investors play a key role in this, both directly, by influencing the adoption of decarbonisation strategies, and indirectly, by promoting climate governance mechanisms within companies that facilitate the implementation of decarbonisation initiatives and strategies. Analysing a sample of 4,956 companies from 2015 to 2022, we find that institutional investors positively influence companies' decarbonisation strategies through both direct and indirect channels. Although this is not affected by institutional investors' investment horizon or objectives, some types of institutional investors, in particular cross-holdings, financial institutions and pension funds, strengthen governance frameworks and promote more ambitious climate strategies. These findings underscore the critical role of institutional investors in driving corporate climate action, and highlight the need for policymakers and corporate leaders to consider investor-driven governance structures as a lever for accelerating decarbonisation.