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

Zhang-Hangjian Chen, Jeroen Derwall, Xiang Gao and Kees Koedijk

No 20066, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper presents macro-, meso-, and firm-level measures of biodiversity risk specific to the Chinese capital market, and investigates how biodiversity risk relates to individual stock returns. Our measures indicate that biodiversity risk in China varies over time and across industries, and that aggregate attention to biodiversity issues has risen sharply over the past two decades. We then provide new evidence that corporate biodiversity risk exposure negatively relates to stock returns in the cross-section, significantly more so when aggregate attention to biodiversity issues rises and industry-level biodiversity risk increases. Furthermore, we obtain some evidence that weekly returns on a portfolio long (short) on stocks with low (high) biodiversity risk positively covary with contemporaneous shocks to aggregate biodiversity attention, although negatively with lagged shocks to attention. In addition, institutional ownership is lower when firms appear more vulnerable to biodiversity risk, even more so in years of rising attention to biodiversity.

Keywords: Biodiversity risk; Stock returns; Official news; Investor perception; Internal governance (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 Q5 Q53 Q57 (search for similar items in EconPapers)
Date: 2025-03
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