Biodiversity loss has long concerned scientists and conservationists. But new research shows it has now started to become a material financial risk for listed companies and their investors. Several studies published in the past year have found that biodiversity-related risks are beginning to affect company valuations and their financing costs. Companies with the largest negative impact on biodiversity are identified to be operating in industries such as food, material and energy. Among the sectors with the smallest footprints are telecommunications, software and semiconductors.
One study, published by the Swiss Finance Institute, showed that the risk premium investors demand from stocks of companies with larger biodiversity footprints has risen in the past two years.
Based on an analysis of share returns for more than 2,000 firms from 32 countries, the researchers found that stocks experienced an additional monthly rise in risk premium of 23 basis points, or an annualised increase of 2.8 per cent, for a one-standard deviation increase in the value of their corporate biodiversity footprint.
Tellingly, the increase in the premium occurred around the time of the Kunming biodiversity summit in October 2021, which was the initial part of the COP15. While the final agreement on the Global Biodiversity Framework (GBF) was reached later in Montreal in December 2022, the Kunming meeting is considered to have laid the groundwork and contributed to increasing both investor awareness about the loss of biodiversity and the prospect of future intervention by authorities.
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