As individual investors who act independently can generate only limited influence on corporate decisions, this paper considers clustered institutional investors connected through investor networks as salient external stakeholders and investigates whether shared preferences for environmental, social, and governance (ESG) among clustered institutional investors induce more low-carbon innovation of family firms. Using a dataset with 9249 observations over the period of 2007–2019 of Chinese family firms, we develop a novel measurement for the shared preferences for ESG activities among clustered institutional investors and find that such shared preferences are positively related to corporate low-carbon innovation. From a stakeholder perspective, we explore the moderating effects of green finance and family control. Our findings suggest that green finance strengthens the above relationship, but this positive moderating effect is significant only in the low-uncertainty economic context. We also find that as family control increases, the positive impact of the shared preferences for ESG among clustered institutional investors on low-carbon innovation becomes less pronounced, and such a negative moderating effect disappears if a family successor is present in the top management team. •Shared ESG preference of institutional investors (S_ESG) spur low-carbon innovation•Green finance positively moderates the effect of S_ESG on low-carbon innovation•Such moderating effect of green finance is pronounced in stable economic situation•Family control negatively moderates the effect of S_ESG on low-carbon innovation•Such moderating effect of family control weakens if young family member present in TMT