The Measurement and Pricing of Biodiversity Risk - Zacharias Sautner - ASWQ V3I2 - March 2025

This research explores whether investors care about biodiversity by analyzing how biodiversity-related risks are priced in financial markets. The study introduces the Corporate Biodiversity Footprint (CBF), a metric developed by Iceberg Data Lab that quantifies the negative effects of a company's activities on biodiversity. The paper finds that, while no risk premium was evident before 2021, after the Kunming Declaration and other biodiversity-related events, investors began to demand higher returns from companies with larger CBFs, indicating that biodiversity risks are now priced in markets. This shift is likely driven by anticipated regulations and increased awareness. Firms with larger biodiversity impacts, especially in sectors like agriculture, retail, and forestry, are more exposed to transition risks. The study shows that biodiversity is not just an environmental issue but an emerging financial one, suggesting companies can lower capital costs by reducing their biodiversity footprint.