We build a model in which local externalities generate heterogeneous preferences among investors and shape stockholdings, corporate voting, and welfare. We study this mechanism in the context of pollution. Risk-averse investors suffer from pollution produced by local firms, which choose between more productive brown and less productive green technologies through ownership-weighted voting. Diversification attracts brown-voting external investors, distorting local investors’ portfolios and votes, generating inefficient technology choice and risk sharing. A passive fund that maximizes assets under management can alleviate this coordination failure and, in most cases, implement the first best, although its concern for portfolio value can induce excessive brown voting. Pass-through voting weakens the fund’s coordinating role and can reduce welfare. Our findings show how green preferences can arise endogenously from investors’ economic interests.