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Biodiversity Risk

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Listed:
  • Giglio, Stefano
  • Kuchler, Theresa
  • Stroebel, Johannes
  • Zeng, Xuran

Abstract

We explore the effects of physical and regulatory risks related to biodiversity loss on economic activity and asset values. We first develop a news-based measure of aggregate biodiversity risk and analyze how it varies over time. We also construct and publicly release several firm-level measures of exposure to biodiversity risk, based on textual analyses of firms' 10-K statements, the holdings of biodiversity-related funds, and a large survey of finance professionals, regulators, and academics. Exposures to biodiversity risk vary substantially across industries in a way that is economically sensible and distinct from exposures to climate risk. We find evidence that biodiversity risks already affect equity prices: returns of portfolios that are sorted on our measures of biodiversity risk exposure covary positively with innovations in aggregate biodiversity risk. However, our survey indicates that market participants do not perceive the current pricing of biodiversity risks in equity markets to be adequate. We also construct several measures of biodiversity risk exposure across U.S. counties, but find little evidence that those exposures are priced in municipal bond markets.

Suggested Citation

  • Giglio, Stefano & Kuchler, Theresa & Stroebel, Johannes & Zeng, Xuran, 2023. "Biodiversity Risk," SocArXiv n7pbj_v1, Center for Open Science.
    • Handle: RePEc:osf:socarx:n7pbj_v1
    DOI: 10.31219/osf.io/n7pbj_v1
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    References listed on IDEAS

    as
    1. Robert F Engle & Stefano Giglio & Bryan Kelly & Heebum Lee & Johannes Stroebel, 2020. "Hedging Climate Change News," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1184-1216.
    2. Giglio, Stefano & Maggiori, Matteo & Ströbel, Johannes & Tan, Zhenhao & Utkus, Stephen & Xu, Xiao, 2023. "Four Facts about ESG Beliefs and Investor Portfolios," CEPR Discussion Papers 18052, C.E.P.R. Discussion Papers.
    3. Jun Kyung Auh & Jaewon Choi & Tatyana Deryugina & Tim Park, 2022. "Natural Disasters and Municipal Bonds," NBER Working Papers 30280, National Bureau of Economic Research, Inc.
    4. Georgij Alekseev & Stefano Giglio & Quinn Maingi & Julia Selgrad & Johannes Stroebel, 2022. "A Quantity-Based Approach to Constructing Climate Risk Hedge Portfolios," NBER Working Papers 30703, National Bureau of Economic Research, Inc.
    5. Maria E. de Boyrie & Ivelina Pavlova, 2020. "Analysing the link between environmental performance and sovereign credit risk," Applied Economics, Taylor & Francis Journals, vol. 52(54), pages 5949-5966, November.
    6. Bernstein, Asaf & Gustafson, Matthew T. & Lewis, Ryan, 2019. "Disaster on the horizon: The price effect of sea level rise," Journal of Financial Economics, Elsevier, vol. 134(2), pages 253-272.
    7. Markus Baldauf & Lorenzo Garlappi & Constantine Yannelis & José Scheinkman, 2020. "Does Climate Change Affect Real Estate Prices? Only If You Believe In It," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1256-1295.
    8. Patrick Bolton & Marcin Kacperczyk, 2021. "Global Pricing of Carbon-Transition Risk," NBER Working Papers 28510, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Massimiliano Caporin & Petre Caraiani & Oguzhan Cepni & Rangan Gupta, 2024. "Predicting the Conditional Distribution of US Stock Market Systemic Stress: The Role of Climate Risks," Working Papers 202407, University of Pretoria, Department of Economics.
    2. Ahmad, Muhammad Farooq & Karpuz, Ahmet, 2024. "Beyond climate change risk: Biodiversity and corporate cash holdings," Economics Letters, Elsevier, vol. 236(C).
    3. Hackmann, Angelina, 2024. "Bridging the biodiversity financing gap," SAFE White Paper Series 103, Leibniz Institute for Financial Research SAFE.
    4. Hutchinson, Mark C. & Lucey, Brian, 2024. "A bibliometric and systemic literature review of biodiversity finance," Finance Research Letters, Elsevier, vol. 64(C).
    5. Shen, Lihua & Zhou, Jianan, 2024. "The role of biodiversity and energy transition in shaping the next techno-economic era," Technological Forecasting and Social Change, Elsevier, vol. 208(C).
    6. Liang, Chao & Yang, Jinyu & Shen, Lihua & Dong, Dayong, 2024. "The role of biodiversity risk in stock price crashes," Finance Research Letters, Elsevier, vol. 67(PA).
    7. Fenichel, Eli P. & Dean, Monica F., 2024. "Blended academic insights for biodiversity and conservation finance," Ecological Economics, Elsevier, vol. 223(C).
    8. Guillaume Coqueret & Thomas Giroux & Olivier David Zerbib, 2025. "The biodiversity premium," Post-Print hal-04792327, HAL.
    9. Tobias Schimanski & Chiara Colesanti Senni & Glen Gostlow & Jingwei Ni & Tingyu Yu & Markus Leippold, 2023. "Exploring Nature: Datasets and Models for Analyzing Nature-Related Disclosures," Papers 2312.17337, arXiv.org.
    10. Ben Balmford & Evaluator 1 & Evaluator 2, 2024. "Evaluation Summary and Metrics: "Biodiversity Risk"," The Unjournal Evaluations 2024-150, The Unjournal.

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