This paper employs a novel database to investigate the influence of pressure-sensitive institutional investors (PSIIs) in China on the relationship between managerial climate awareness and firms’ sustainability performance. The paper demonstrates that an increase in pressure-sensitive institutional investors shareholding strengthens the positive impact between managerial climate awareness and firms’ sustainability performance. The existence of robust commercial ties between the majority of pressure-sensitive institutional investors and listed companies enables the transmission of pressure to management teams in the form of constraints on companies’ access to capital. This ultimately promotes firms’ sustainable development. Subsequent research demonstrated that the alignment of interests and risk preferences exerts a more pronounced effect in firms characterized by high managerial ownership. Furthermore, financial support from PSIIs manifests as greater intensity in firms grappling with high financial constraints. The utilization of environmental regulations as a competitive strategy, coupled with the capacity for early implementation, serves to amplify the aforementioned positive effect, particularly in contexts where environmental regulation is minimal.