Do Investors Care About Biodiversity?

110 Pages Posted: 23 Mar 2023 Last revised: 7 Apr 2024

See all articles by Alexandre Garel

Alexandre Garel

Audencia Business School

Arthur Romec

Toulouse Business School

Zacharias Sautner

University of Zurich - Department of Finance; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

Alexander F. Wagner

University of Zurich - Department of Finance; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Swiss Finance Institute

Date Written: March 15, 2024

Abstract

This paper introduces a new measure of a firm's negative impact on biodiversity, the corporate biodiversity footprint, and studies whether it is priced in an international sample of stocks. On average, the corporate biodiversity footprint does not explain the cross-section of returns between 2019 and 2022. However, a biodiversity footprint premium (higher returns for firms with larger footprints) began emerging in October 2021 after the Kunming Declaration, which capped the first part of the UN Biodiversity Conference (COP15). Consistent with this finding, stocks with large footprints lost value in the days after the Kunming Declaration. The launch of the Taskforce for Nature-related Financial Disclosures (TNFD) in June 2021 had a similar effect. These results indicate that investors have started to require a risk premium upon the prospect of, and uncertainty about, future regulation or litigation to preserve biodiversity.

Keywords: Biodiversity, Corporate Biodiversity Footprint, Kunming Declaration, Natural Capital, Nature, Stock Returns, Taskforce for Nature-Related Financial Disclosures (TNFD)

JEL Classification: G12, G30, Q5

Suggested Citation

Garel, Alexandre and Romec, Arthur and Sautner, Zacharias and Wagner, Alexander F.,
Do Investors Care About Biodiversity?
(March 15, 2024). Review of Finance, forthcoming, Swiss Finance Institute Research Paper No. 23-24, European Corporate Governance Institute – Finance Working Paper No. 905/2023, Available at SSRN: https://ssrn.com/abstract=4398110 or http://dx.doi.org/10.2139/ssrn.4398110

Alexandre Garel

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Arthur Romec

Toulouse Business School ( email )

20, bd Lascrosses
Toulouse, 31068
France

Zacharias Sautner

University of Zurich - Department of Finance ( email )

Plattenstr 32
Zurich, 8032
Switzerland

Swiss Finance Institute ( email )

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Alexander F. Wagner (Contact Author)

University of Zurich - Department of Finance ( email )

Plattenstr 32
Zurich, 8032
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Swiss Finance Institute ( email )

Switzerland

HOME PAGE: http://www.alex-wagner.com

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