Do ESG‐Oriented Common Institutional Investors Reduce ESG Strategic Dissimilarity? Evidence From Multinational Firms

ABSTRACT This study examines whether ESG‐oriented common institutional ownership reduces strategic dissimilarity among multinational rival firms. Prior research primarily examined common ownership in relation to competition, firm performance, ESG disclosure, and ESG ratings, with limited attention to its role in shaping strategic ESG convergence among commonly owned firms. Using a global sample of 7766 listed firms and 110,490 firm‐dyad‐year observations from 2010 to 2024, we employ a dynamic panel system GMM approach to investigate this relationship. The findings show that ESG‐oriented common institutional ownership significantly reduces ESG strategic dissimilarity, indicating that such ownership promotes convergence rather than differentiation in firms' ESG strategies. This convergence effect is stronger in industries with high ESG materiality, where ESG issues are more visible, financially relevant, and reputationally sensitive. Furthermore, additional analyses show that reputational risk avoidance and ESG disclosure coordination explain this convergence effect, while cross‐national distance shapes the effectiveness of ESG coordination across countries. This study contributes to common ownership, institutional investors, and ESG strategy research by showing that ESG‐oriented common institutional ownership serves as a portfolio‐level governance mechanism that promotes ESG coherence among multinational rivals.