Firm-level biodiversity risk

: measurement and explanation

Abstract

This paper introduces a novel firm-level measure of both physical and transition risks related to biological diversity: the Biodiversity-Risk Score. Using textual analysis, the score quantifies the proportion of a company’s earnings conference call devoted to biodiversity risk. Following the same methodology, further metrics regarding risk and sentiment around biological diversity are constructed. First, the Biodiversity-Risk Score is validated through its ability to accurately identify biodiversity discussions in the earnings calls transcripts, its correlation with the aforementioned sentiment and risk metrics, and its logical variation over time and across industries. Further validations using external benchmarks prove that the score correctly measures corporate biodiversity risk. This paper also presents firm-level determinants of biodiversity and biodiversity risk exposure. Firm size, sales growth, asset tangibility and profitability present on average a positive relationship with biodiversity exposure, whereas it is negative for the Book-to-Market ratio. Based on the preceding considerations, this paper critically analyses the Biodiversity-Risk Score and outlines prospective areas of research.

Date of Award	23 Oct 2024
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Thorsten Martin (Supervisor)