Preliminary Conference Programme

Biodiversity loss is increasingly recognized as a material financial risk to firms, yet little is known about how biodiversity-related exposure affects the way capital markets process earnings disclosures. We examine whether corporate biodiversity exposure (CBE), defined as the extent to which a firm’s polluting facilities are located near conservation-priority areas, shapes investors’ responses to earnings announcements. Drawing on the disclosure-processing-cost framework, we argue that CBE raises disclosure-processing costs at the integration stage by introducing spatially localized ecological and regulatory complexity, which makes it more difficult for investors to integrate reported earnings into valuation-relevant expectations of future cash flows. Consistent with this prediction, firms with higher CBE exhibit weaker earnings response coefficients, indicating attenuated market responsiveness to earnings announcements. These effects are amplified under greater ecological and regulatory uncertainty and attenuated in stronger information environments and under greater external monitoring. Exploiting staggered protected-area expansions in a stacked difference-in-differences design, we provide causal evidence that newly exposed firms experience a decline in earnings–return sensitivity. Overall, our findings identify biodiversity exposure as a place-based disclosure-processing friction and highlight how disclosure and governance shape the pricing of earnings announcements in the presence of ecological complexity.

This study examines how euro area banks factor pollution-induced biodiversity risks into lending decisions, using data from 832 banks and 5,000 major polluters. Our results show that banks are increasingly pricing these risks by adjusting loan-to-value ratios and interest rates. Banks adjust lending conditions in line with EU pollution and biodiversity protection legislation, particularly for companies with large pollution footprints near biodiversity-protected areas or those contributing to Environmental Quality Standards failures of downstream surface waters. The former is driven primarily by banks’ adoption of biodiversity policies and public commitments to the Equator Principles, while the latter is a result of regulatory risks. Our findings inform financial supervisors on how banks manage risks associated with the EU’s zero pollution ambition, shed light on the interplay between biodiversity protection legislation and banks’ lending decisions, and offer actionable guidance on leveraging existing regulatory frameworks to address the climate-biodiversity-pollution nexus.

While investors increasingly view firm impacts on nature as financially material, quantifying corporate biodiversity footprints remains challenging due to the complex nature of biodiversity. We introduce an ecologically grounded, data-driven method for estimating firm-level biodiversity footprints. We showcase our method by applying a spatial difference-in-difference design to a data set combining 30m-resolution forest biodiversity data, water pollution data by U.S. facilities, and hydrological model results. We find that toxic water releases have an adverse effect on the downstream forest ecosystem, reducing the tree density and its species diversity. A standard deviation increase in toxic effluent is associated with a 7.5% decline in tree population in the immediate downstream area, with aggregate water pollution leading to a total loss of 18 million trees over the seven-year sample period. A facility's biodiversity footprint is driven more by its siting in heavily forested areas than by variations in effluent volume.