Using global institutional ownership data, we examine how Responsible Investors contribute to the decarbonization of the real economy. Despite holding approximately one-third of global equities, Responsible Investors allocate less capital to high-emission firms and more to already green companies, thereby reducing their leverage for engagement over firms with significant potential for emission reductions. We find no evidence that companies with higher ownership by Responsible Investors decarbonize faster. Instead, companies with greater Responsible Investor ownership exhibit significant improvements in ESG ratings, suggesting a focus on perceived sustainability rather than actual emission reductions. Our findings indicate that Responsible Investors prioritize lower-emission portfolios over facilitating real-economy decarbonization, casting doubt on their role in aligning global financial flows with the Paris Agreement’s targets. The study highlights the need for clearer regulatory guidance on the role of finance in achieving global climate objectives.
