The Impact Of Institutional Investors On Corporate Green Governance

In recent years,the Chinese government has made green transformation a central focus of its economic and societal development.Green transformation involves a cooperative effort between the government and the market to promote environmentally-friendly practices and reduce pollution,rather than a complete overhaul and abandonment of heavily polluting industries.The government plays a predominant role in environmental governance in China,and heavy polluting enterprises are the primary targets for green governance due to their significant impact on natural resource consumption and pollutant discharge.However,there is still much progress needed to achieve effective green governance of heavy polluting enterprises.Therefore,promoting green governance among these enterprises from a market perspective is of utmost importance and remains the most pressing challenge.Institutional investors are of significant importance as owners and supervisors of Chinese listed companies,information intermediaries in the capital market,and are also integral to China’s green financial system,bearing crucial responsibilities in supporting corporate green governance.The Green Investment Guideline mandates institutional investors to encourage their invested enterprises to enhance their Environmental Performance Index(EPI)and Environmental Disclosure Index(EDI),underscoring their pivotal role in promoting sustainable practices.This paper aims to address two primary questions:(1)Do Chinese institutional investors have a financial incentive to actively participate in corporate green governance?(2)Focusing on the EDI and EPI as pivotal metrics to gauge green governance,how and to what extent can institutional investors augment the quality of corporate information disclosure and environmental performance,particularly in cases when the exercise of control is limited?To address these questions,this paper centers on the economic motives and green governance objectives of institutional investors related to their participation in corporate green governance.The following studies are mainly carried out:Chapter four focuses on the negative influence of environmental risks on institutional investors’ investment returns,clarifying the economic motives behind their interest in corporate green governance as a means to maintain their investment returns.Institutional investors’ participation in corporate green governance will inevitably center on managing portfolio environmental risks.Based on the environmental risk management needs and the government’s ecological environmental regulation priorities,this paper identifies EDI and EPI as two pivotal objectives for institutional investors concerned with green governance.Chapter five investigates the impact of institutional investors’ green visits on enhancing the EDI and analyzes how such visits can help alleviate the low quality of environmental information disclosure issues.In Chapter six,the focus shifts to the impact of institutional investors’ responsible investment on EPI.Responsible investment refers to the commitments made by institutional investors when joining the United Nations Principles for Responsible Investment(UNPRI)to actively promote corporate environmental performance.The main research content and conclusions of this paper are as follows:Firstly,the paper investigates the economic motives driving institutional investors to participate in green governance,which is to reduce the negative impact of environmental risk exposure on their investment returns.The study demonstrates the following findings:(1)Corporate environmental risk exposure has a severe adverse impact on institutional investors’ investment returns.The more severe the government’s environmental penalties and negative media reports,the lower the portfolio excess returns and the higher the downside risks for institutional investors.(2)Institutional investors can mitigate negative impacts by increasing investments in environmental,thereby reducing the government’s environmental penalties and negative media reports.In this regard,resistant institutional investors with no direct business ties to invested companies play a crucial role.(3)Institutional investors are more strongly incentivized to participate in green governance when heavy polluting companies are subject to greater regulatory pressure from the government than other enterprises.The research in this chapter elucidates the economic motives for institutional investors to participate in corporate green governance,laying the groundwork for subsequent research on the impact of institutional investors on EDI and EPI.Secondly,the paper examines the impact of institutional investors’ green visits on EDI.The paper introduces a novel concept of research activities of institutional investors that inquire about enterprises’ environmental governance as green visits.The research findings are as follows:(1)Institutional investors’ green visits significantly improve the EDI.(2)The mechanism is through the information and green supervision functions of green visits.Firstly,the exchange of environmental information reduces enterprises’ adverse selection concerns and increases their motivation to disclose environmental information.Secondly,institutional investors become green-informed traders through green visits and exert pressure on insiders by threatening to withdraw their investments.(3)The paper identifies the spillover effect of green visit information as an incremental governance effect.(4)Further research demonstrates that the main effect is more apparent when companies’ controlling shareholders pledge greater equity,and when institutional investors conduct more vertical environmental protection supervision.Resistant institutional investors play a significant role,as confirmed by the analysis of heterogeneous institutional investors.Thirdly,the paper discusses the impact of institutional investors’ responsible investment on EPI.To promote environmental performance,Chinese green finance policy encourages institutional investors to practice responsible investment.The UNPRI is the world’s most critical green finance initiative,with Chinese institutional investors joining the initiative at the fastest rate in recent years.Fund is the largest institutional investor of UNPRI and has demonstrated the highest level of enthusiasm for green governance,making it an exemplary case of responsible investment practice by Chinese institutional investors.This chapter conducts empirical research at the enterprise and fund levels.The study at the enterprise level found that:(1)Responsible investment practices of institutional investors,represented by funds,can improve EPI.(2)Responsible institutional investors,through their role as well-informed green traders,enhance EPI through the threat of exit.(3)Heterogeneous research reveals that better corporate governance levels and higher shareholding stability of institutional investors result in a more marked impact on EPI improvement by responsible investment practices.At the fund level,the research found that:(4)After institutional investors joined UNPRI,the investment portfolio’s EPI,returns,and risks improved significantly,but there was no significant increase in net capital inflows for the investment portfolio.(5)Investment strategy research shows that institutional investors’ participation in corporate green governance is the reason for EPI improvement.The research findings illustrate that Chinese institutional investors have substantially practiced responsible investment without greenwashing,unlike their counterparts in the United States.The difference in the governmental system and market environment may explain the contrast between the two countries’ institutional investors’ responsible investment practices.The innovation and contribution of this paper are summarized as follows:Firstly,the paper provides a new research perspective for corporate green governance by studying the impact of institutional investors from a market perspective.While previous research on corporate green governance has mainly focused on the effectiveness of government environmental regulation,this paper emphasizes the need for more effective interaction between the government and the market to achieve effective corporate green governance.The paper explores the economic motivations and governance objectives of institutional investors’ participation in green governance,and examines the connection between institutional investors’ multiple identities and corporate green governance.In addition,this paper addresses the gaps in existing literature by identifying the economic motivations and specific mechanisms behind institutional investors’ influence on corporate green governance.By examining the environmental risk exposures of institutional investors,this paper sheds light on the ways in which institutional investors can promote corporate green governance.Secondly,the paper further deepens the understanding of the mechanism behind institutional investors’ participation in corporate green governance and enriches the existing literature on institutional investors and corporate governance.While recent literature has identified the promotion role of Chinese institutional investors in corporate green governance,the specific mechanisms of their participation in corporate green governance still require exploration.The literature has shown that in mature capital markets,institutional investors are directly involved in the corporate green governance mechanism through green proposals and voting at shareholder meetings.However,in China,controlling shareholders’ decisions cannot be changed easily through formal general meeting processes because of the concentration of listed companies and the limited discourse power of small shareholders such as institutional investors.Therefore,this paper aims to explore the concrete mechanism of institutional investors in corporate green governance.This paper provides empirical evidence of three distinct mechanisms through which institutional investors can influence corporate green governance: the green information function of institutional investors,the supervision and governance function of the exit threat of green informed traders,and the governance mechanism of leading other investors and group participation in green governance.By exploring these mechanisms,this paper enriches the literature on the mechanisms of institutional investors’ influence on corporate green governance and contributes to a better understanding of institutional investors’ role in advancing sustainable development.Thirdly,the paper also expands the relevant literature on institutional investor visits and explores the governance function of thematic visits.While existing studies have mainly focused on the supervisory role of institutional investor research,the information function of visits has been largely overlooked,and targeted research on certain types of thematic visits has been scarce.The paper examines the role of "green visits" on corporate green governance and verifies their information function in environmental information disclosure.By focusing specifically on the role of institutional investors’ visits,this paper offers a unique perspective on the governance function of thematic visits.Additionally,this paper enriches the literature on the incremental governance effect of visits on information spillover to small and medium-sized investors.Finally,the paper enriches the literature on green finance and responsible investment by exploring the practices of Chinese institutional investors in promoting green governance through responsible investment.While existing literature on green finance mainly focuses on the role of green credit,little research has been conducted on the role of capital markets in promoting corporate green governance.Although foreign literature has studied the role of responsible investment by institutional investors on corporate environmental performance,there is no consensus on the topic,and the situation in Europe and America cannot be generalized to China.Chapter six of this paper examines the relationship between responsible investment and environmental performance of Chinese institutional investors and investigates its influence mechanism.This empirical study provides new insights into the theoretical research of green finance in the capital market and responsible investment of institutional investors.