Can Institutional Investors Drive Decarbonization? Evidence from Taiwan

This paper investigates the role of institutional ownership in shaping firms’ greenhouse gas (GHG) emissions in Taiwan between 2013 and 2023. Using a comprehensive panel of listed firms, we find that higher institutional ownership is significantly associated with lower total emissions and carbon intensity, suggesting that institutional investors play a critical role in driving firms’ environmental performance. The effect is primarily attributable to foreign institutional investors, who exhibit superior monitoring capabilities relative to domestic investors and thereby facilitate more efficient emissions reduction. Moreover, our results also reveal that institutional investors influence corporate GHG emissions through an exit-and-selection channel: they employ negative screening by divesting from high-emission firms and positive screening by increasing holdings in low-emission firms. Finally, we uncover heterogeneous effects under Taiwan’s Green Finance Action Plans 1.0 and 2.0: while foreign investors dominate during the early policy phase, domestic institutional investors become more effective under the enhanced framework of Green Finance Action Plan 2.0. JEL Classification: G18; G23; G32; G34; M14