From hedge to risk: Nonlinear effects of climate policy uncertainty on corporate biodiversity exposure

Abstract

While climate policy uncertainty has been widely studied in relation to corporate environmental practices, its impact on biodiversity exposure remains underexplored. This study addresses this gap by constructing quantitative indices of policy uncertainty and biodiversity exposure using spatial data from Chinese A-share listed firms and nature reserves from 2003 to 2023. We document an inverted U-shaped relationship: at moderate levels of uncertainty, firms tend to increase biodiversity engagement to hedge against potential regulatory risks; at higher levels, however, firms reduce ecological investments, leading to greater biodiversity exposure. Notably, strong internal governance and rigorous external regulation significantly mitigate the rise in biodiversity exposure under high uncertainty by fostering more stable and consistent environmental management. These moderating effects highlight the crucial role of governance and regulatory oversight in shaping corporate response to ecological risks. Our findings provide new empirical evidence on the behavioral dynamics of firms facing ecological risks and offer policy-relevant insights for improving environmental governance in uncertain regulatory environments.