The silent cost of biodiversity loss: Unveiling its impact on institutional ownership

Abstract

Biodiversity loss poses significant challenges to global ecosystems, economies, and corporate practices. As institutional investors increasingly integrate Environmental, Social, and Governance (ESG) factors into their investment decisions, understanding the influence of biodiversity risk on institutional ownership becomes critical. This study investigates the impact of biodiversity risk on institutional ownership using a sample of U.S. companies from 2009 to 2023. Employing textual analysis of firms’ 10-K filings to measure biodiversity risk, the findings reveal a significant negative association between biodiversity risk and institutional ownership. Companies facing higher biodiversity risks tend to experience a reduction in institutional ownership, likely due to concerns over increased financial and reputational risks. Heterogeneity analyses demonstrate that biodiversity risk significantly reduces the proportion of institutional investors in large companies, companies with higher profitability, companies with strong innovation capabilities, and high-growth companies. These results underscore the importance of incorporating biodiversity considerations into corporate risk management practices. The study offers practical implications for corporate managers and investors, emphasizing the need for proactive management of biodiversity-related risks. Keywords: Biodiversity Risk; Institutional Ownership; Firm-level Biodiversity Risk;