Greenwashing in biodiversity reporting: The role of financial risk exposure and conservation policy stringency

The accelerating biodiversity crisis poses systemic risks to financial markets, increasing the need for accurate assessment of firms’ biodiversity-related financial risks (BRFRs). Yet the complexity of ecosystem dynamics and the lack of standardized metrics create fertile conditions for greenwashing, which can systematically distort risk evaluation and pricing. This paper applies state-of-the-art natural language processing techniques to quantify biodiversity-related greenwashing in sustainability reports and examine its relationship with different sources of institutional pressure. Focusing on Fortune Global 500 firms from 2017–2023, we distinguish two forms of greenwashing: “cheap talk” (reliance on vague commitments) and “positive talk” (overemphasis on optimistic disclosures). We find that cheap talk is positively associated with firms’ exposure to BRFR, whereas positive talk is positively associated with the stringency of biodiversity protection policies in firms’ home countries. Both practices intensified around the Kunming–Montreal conservation policy milestones (2021–2022), with cheap talk increasing first alongside heightened investor scrutiny, and positive talk strengthening later as biodiversity expectations became more broadly institutionalized. These findings have important implications for financial actors, as greenwashing can distort assessments of BRFR, potentially leading to capital misallocation and abrupt repricing shocks. This emphasizes the need for more rigorous biodiversity reporting standards.