Green Stewards: Responsible Institutional Investors Foster Green CapEx

There are markedly different views on the rise of the sustainable investment movement. While some commentators argue that it is just window dressing, others believe that it is having a real impact on corporate sustainability. This paper seeks to determine how changes in the responsible investor base affects corporate green capital expenditures. I identify responsible investors via the Climate Action 100+ initiative and approximate green capital expenditures with green debt issuance. I exploit the fact that the proportion of institutional investors with sustainable preferences is higher in Europe and Asia than in the United States, and use the cross-listing of European and Asian headquartered firms in the United States as a negative responsible ownership shock. In a staggered difference-in-differences estimation, I find that cross-listing firms have a lower responsible investor share and are less likely to undertake green capital expenditures post cross-listing. I also document that responsible institutional investors engage more with management and are associated with stricter green governance. Together, my findings suggest that responsible institutional investors foster greater green capital expenditures by exerting influence on management.