Assessing the Impact of Biodiversity Risk on Firm Performance

Absztrakt (kivonat)

The study examines how biodiversity awareness and biodiversity risk affect the financial performance of publicly traded companies in the U.S. between 2002 and 2023. We investigate the impact of sentiment-driven and regulatory risks on a firm's return on assets using fixed-effects regression on biodiversity-related disclosures extracted from Giglio’s (2024) textual analysis in 10-K reports. Findings show that biodiversity awareness was not having strong relationship with firm performance but started to show positive correlation with short term performance after 2020. Biodiversity-related regulatory risk exposure negatively impacts affect short-run performance, signaling that they represent an immediate cost for compliance. The results following 2020, however, point to an optimistic change in regulation impact that firms have adjusted to, suggesting firms have adapted, potentially leveraging compliance as a competitive advantage. Lastly, biodiversity risks had no predictive power before 2020 but became positively correlated with firm performance after that. This may reflect a growing tendency for investors to reward firms that identify and manage their environmental impact. These findings imply that companies that incorporate biodiversity considerations into their strategies, which connect environmental responsibility with financial resilience, can benefit from increased stakeholder attention to biodiversity.