Green Initiatives, Financial Performance, and Institutional Investors

ABSTRACT Sustainability in corporate finance has gained prominence under growing societal and regulatory pressures. Green initiatives, encompassing sustainable technologies and practices, enhance environmental responsibility, financial performance, and competitiveness. This study examines a global data set of 2560 firms (2009–2023) to explore links between environmental innovation, financial performance (measured by return on equity), and institutional investors' influence. Findings reveal that pension funds promote green innovation due to long‐term goals, while investment firms prioritize short‐term returns, discouraging such activities. These results, robust across tests, highlight how investment horizons shape sustainability strategies, offering actionable insights for policymakers, investors, and regulators fostering sustainable growth. Lastly, our study aims to contribute to the advancement of the research stream from a theoretical standpoint by offering insights into overcoming the assumption of shareholder preference homogeneity, as posited by classical agency theory.