The Role of Institutional Investors in Shaping Market Confidence in Lens of Transparency and Accountability in Corporate Governance

Abstract

This study examines how institutional investors influence the market confidence in reestablishing transparency and accountability in corporate governance. It evaluates the impact of institutional investors on governance disclosure practices, accountability mechanisms, and the existence of regulatory gaps on market trust. It is through a synthesis of theory and practical policy implications. This study employs a comparative approach, utilising documentary analysis. It conducts a comparative study of the role of institutional investors in Pakistan and the EU, contrasting BlackRock’s proactive, ESG-driven climate advocacy with Vanguard’s passive engagement strategy to illustrate divergent stewardship models. This paper finds that institutional investors can significantly strengthen governance standards; however, their ability to effect change is often hindered by conflicting fiduciary interests, weak stewardship protocols, and inconsistent enforcement of Environmental, Social, and Governance (ESG) requirements, particularly in emerging markets. Limitations that have been identified as major concerns include the lack of homogeneous disclosure rules, the absence of provisions for avoiding conflicts of interest, and the limited options for utilising collective shareholder action. The work suggests specific policy changes, such as the introduction of compulsory principles of stewardship, converged ESG reporting standards, and innovative ways of active and passive investor participation in governance.