Working Paper: NBER ID: w31137
Authors: Stefano Giglio; Theresa Kuchler; Johannes Stroebel; Xuran Zeng
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, a large survey of financial professionals, regulators, and academics, and the holdings of biodiversity-related funds. 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 to be adequate.
Keywords: biodiversity; economic activity; asset values; financial markets
JEL Codes: G10; G11; G12; Q5; Q53; Q57
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| biodiversity risk (Q57) | equity prices (G12) |
| biodiversity risk exposure (Q57) | performance of equity portfolios (G11) |
| industry exposure to biodiversity risk (Q57) | performance of equity portfolios (G11) |
| regulatory changes (G18) | asset values (G32) |
| biodiversity risk index (Q57) | returns of biodiversity risk-sorted portfolios (G11) |