Impact of an institutional investor as common ownership on the corporate environmental performance in Korea

Purpose Large institutional investors have an increasing market share, and they must manage their investees’ environmental performance. This study aims to empirically examine whether a large institutional investor, representing a common owner with economy-wide stakes and who values long-term returns, influences investee firms’ environmental performance. Design/methodology/approach This study used a fixed-effects panel model to examine how the two-period lagged shareholdings of National Pension Service (NPS), which is the largest pension fund institutional investor in South Korea, affected the greenhouse gas (GHG) intensity of 147 investee firms from 2018 to 2023, and considered various financial and governance characteristics of the firms as control variables. Findings The results showed that NPS shareholdings had no significant effect on investee firms’ GHG intensity, indicating that despite efforts such as adopting responsible investment principles, NPS did not effectively induce reductions in investee firms’ emissions. Total assets and turnover had significant negative effects on firms’ GHG intensity, while governance variables showed no significant effects. Originality/value To the best of the authors’ knowledge, this study is the first to empirically examine the relationship between NPS shareholdings and the GHG intensity of its investee firms. The findings highlight the need for NPS to significantly expand its discussions with investee firms regarding climate risk, disclose information on firms with poor environmental performance and take practical measures such as shareholder proposals to strengthen its responsibility and public interest as a large public pension fund.