Biodiversity physical and transition risk: the relationship with firm financial performance

Abstract

Across 24753 firm year observations, we investigate the relationship of firms' financial performance with biodiversity physical and transition risk from 2000 to 2023. Using dependency rating and pressure rating from Encore as poxy for physical risk and transition risk respectively. The results show that the negative relationship between biodiversity risk and financial performance is more pronounced for firms with high pressure rating, through higher production costs and stakeholder engagement. By categorizing biodiversity dependency into three ecosystem services group, we find negative nexus between biodiversity risk and financial performance strengthens for firm with high dependency rating on regulating and maintenance ecosystem services. Our findings are consistent across several robustness tests. Overall, our study shed light on the relationship of firms' financial performance with biodiversity physical and transition risk.

Keywords: biodiversity, risk, dependencies, pressures, financial performance