Unpacking the Nexus between Institutional Investors’ Ownership and Corporate Sustainability: A Recent Systematic Exploration

Abstract

The nexus between institutional investor ownership and sustainability has emerged as a critical research area, given the increasing emphasis on corporate accountability and environmental, social, and governance (ESG) practices. Despite extensive research on the role of institutional investors in shaping sustainability outcomes, the extent and consistency are still up for debate. This study aims to systematically examine the relationship between institutional investors and corporate sustainability outcomes by conducting a systematic literature review (SLR). Using an advanced search strategy across Scopus and Web of Science databases, 25 relevant primary data sources were identified. The review employs a qualitative content analysis methodology to synthesize findings from diverse contexts, offering insights into the interplay between institutional investor ownership and sustainability outcomes. The flow of this study is based on the PRISMA framework.  The finding from the analysis was divided into three themes which are (1) Institutional Investors' ESG Preferences and Ownership Impact on Corporate Sustainability, (2) Factors Affecting the Relationship between Institutional Investors and Corporate Sustainability, and (3) Institutional Investors’ Role in Sustainability Governance.  The results reveal that institutional investors influence sustainability outcomes through various mechanisms, such as active ownership, stewardship engagement, and ESG-focused investment strategies. The efficacy of these mechanisms fluctuates based on investor classification, geographic distribution, and the regulatory environment. The findings highlight the significance of governance frameworks, investor diversity, and financial motivations in influencing corporate ESG performance. This study not only contributes to the ongoing discourse on institutional investors' role in corporate sustainability by providing a structured synthesis of recent literature and identifying critical gaps for future research, but also provides practically pertinent insights for (1) policymakers in developing stewardship codes or ESG disclosure requirements, (2) corporate executives in interacting with institutional investors and (3) institutional investors seeking to enhance their investment strategies.