Does Biodiversity Risk Matter to Capital Markets? New Evidence from China

Does Biodiversity Risk Matter to Capital Markets? New Evidence from China

by Zhang-HangJian Chen (Anhui University), Jeroen Derwall (Maastricht University, ECCE; Utrecht University - School of Economics), Xiang Gao (Shanghai Business School), Kees Koedijk (Utrecht University).

This paper presents novel macro-, meso-, and firm-level measures of biodiversity risk exposure specific to the Chinese capital market, and investigates how these levels of biodiversity risk relate to individual stock returns. We find that biodiversity risk varies over time and across industries, and that aggregate attention to biodiversity issues has risen sharply over the past two decades. Using cross-sectional models of stock returns, we then provide new evidence that corporate biodiversity risk exposure negatively relates to stock returns, significantly more so when aggregate attention to biodiversity issues rises and industry-level biodiversity risk increases.