From ESG to Biodiversity: Decoupling and Its Asymmetries as a Source of Biodiversity Risk

Abstract

While environmental, social and governance (ESG) research has extensively documented the risks stemming from disclosure and performance gaps, the growing demand for biodiversity reporting raises concerns that analogous inconsistencies may amplify corporations' exposure to biodiversity risk. Using a sample of 917 firm‐year observations from 2015 to 2023, this study examines whether biodiversity decoupling, the divergence between biodiversity disclosure and performance, is associated with corporations' exposure to biodiversity risk. Drawing on the legitimacy theory, we find that higher levels of biodiversity decoupling are associated with increased biodiversity risk. However, when distinguishing between the types of decoupling, we observe no significant association for positive decoupling, whereas negative decoupling is associated with lower biodiversity risk, suggesting that disclosure‐performance gaps operate differently in the context of biodiversity. We further show that environmental audit moderates the relationship between biodiversity decoupling and biodiversity risk by attenuating the association of positive biodiversity decoupling and the risk‐reduction association of negative biodiversity decoupling. Overall, our findings offer timely insights for corporations seeking to manage legitimacy pressures, for investors aiming to understand the drivers of biodiversity risk and for policymakers wishing to develop more robust biodiversity reporting standards.