IDEAS home Printed from https://ideas.repec.org/a/wly/sustdv/v34y2026i2p2184-2206.html

Biodiversity Risk and the Cost of Equity Capital: Implications for Sustainable Development

Author

Listed:
  • Zhang‐Hangjian Chen

Abstract

This study explores the impact of corporate biodiversity risk on financing costs using data from 4932 Chinese listed firms from 2000 to 2023. Our results show that biodiversity risk significantly increases the cost of equity capital. Government attention raises the financing costs for high‐risk companies, while individual investors' attention reduces the cost of financing. Institutional investors and analysts show no significant effect. We enhance our identification by using a difference‐in‐difference estimation with the 2017 Green Shield Action. Heterogeneity tests find stronger effects among firms with low institutional investor ownership, weaker green profiles, and in less developed regions. We highlight the vital role of biodiversity risk management on corporate financing decisions and sustainable development.

Suggested Citation

  • Zhang‐Hangjian Chen, 2026. "Biodiversity Risk and the Cost of Equity Capital: Implications for Sustainable Development," Sustainable Development, John Wiley & Sons, Ltd., vol. 34(2), pages 2184-2206, April.
    • Handle: RePEc:wly:sustdv:v:34:y:2026:i:2:p:2184-2206
    DOI: 10.1002/sd.70449
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/sd.70449
    Download Restriction: no
    File URL: https://libkey.io/10.1002/sd.70449?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Ľuboš Pástor & M Blair Vorsatz & Jeffrey Pontiff, 0. "Mutual Fund Performance and Flows during the COVID-19 Crisis," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 10(4), pages 791-833.
    2. Joachim H. Spangenberg, 2007. "Integrated scenarios for assessing biodiversity risks," Sustainable Development, John Wiley & Sons, Ltd., vol. 15(6), pages 343-356.
    3. Tim Loughran & Bill McDonald & Hayong Yun, 2009. "A Wolf in Sheep’s Clothing: The Use of Ethics-Related Terms in 10-K Reports," Journal of Business Ethics, Springer, vol. 89(1), pages 39-49, May.
    4. Ran Duchin & Janet Gao & Qiping Xu, 2025. "Sustainability or Greenwashing: Evidence from the Asset Market for Industrial Pollution," Journal of Finance, American Finance Association, vol. 80(2), pages 699-754, April.
    5. Li Dong & Xin Zhang & Jinlong Chen, 2024. "Does Investor Sentiment Drive Corporate Green Innovation: Evidence from China," Sustainability, MDPI, vol. 16(8), pages 1-20, April.
    6. Yan Ma & Gen‐Fu Feng & Zhu‐jia Yin & Chun‐Ping Chang, 2025. "ESG disclosures, green innovation, and greenwashing: All for sustainable development?," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(2), pages 1797-1815, April.
    7. Sajise, Percy E., 2005. "Biodiversity Research for Sustainable Development: Can It Be Achieved?," Asian Journal of Agriculture and Development, Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA), vol. 2(01-2), pages 1-14, December.
    8. Wu, Zihao & Lin, Siliang & Chen, Tianhao & Luo, Chunyang & Xu, Hui, 2023. "Does effective corporate governance mitigate the negative effect of ESG controversies on firm value?," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1772-1793.
    9. Jili Liu & Muhammad Ishfaq Ahmad & Muneeb Ahmad & Giulia Nevi & Nicola Cucari, 2025. "Corporate Governance and Cost of Debt: Mediating Role of Environmental, Social, and Governance Disclosure," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(4), pages 5458-5469, August.
    10. Percy E. Sajise, 2005. "Biodiversity Research for Sustainable Development: Can It Be Achieved?," Asian Journal of Agriculture and Development, Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA), vol. 2(1&2), pages 1-14, December.
    11. He, Jia & Shen, Xixi, 2024. "Institutional investor cross-ownership networks and green innovation: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 96(PB).
    12. Hou, Kewei & van Dijk, Mathijs A. & Zhang, Yinglei, 2012. "The implied cost of capital: A new approach," Journal of Accounting and Economics, Elsevier, vol. 53(3), pages 504-526.
    13. Sudheer Chava, 2014. "Environmental Externalities and Cost of Capital," Management Science, INFORMS, vol. 60(9), pages 2223-2247, September.
    14. Assunta Di Vaio & Elisa Van Engelenhoven & Anum Zaffar & Luigi Lepore & Francesco Paolone, 2025. "Driving SDG15: The Role of HEIs in Biodiversity Conservation Through Digitalization and Reporting," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(5), pages 6985-7004, October.
    15. Yin, Libo & Zhu, Xiaoye & Li, Jingtian, 2025. "Does exposure to biodiversity risk drive firms’ digital transformation?," Finance Research Letters, Elsevier, vol. 82(C).
    16. Pi, Tianlei & Jiao, Linke & Zhou, Yuhan & Shi, Jin, 2025. "Can biodiversity risk improve firm ESG performance? Empirical evidence from China," Finance Research Letters, Elsevier, vol. 76(C).
    17. Kanwal Iqbal Khan & Ayesha Shehzad, 2025. "Investing in Nature: A Bibliometric Analysis of Biodiversity Finance and Its Contribution to SDGs 14 and 15," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(4), pages 5436-5457, August.
    18. Joachim H. Spangenberg, 2007. "Integrated scenarios for assessing biodiversity risks," Sustainable Development, John Wiley & Sons, Ltd., vol. 15(6), pages 1-1.
    19. Coles, Jeffrey L. & Loewenstein, Uri & Suay, Jose, 1995. "On Equilibrium Pricing under Parameter Uncertainty," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(3), pages 347-364, September.
    20. Assunta Di Vaio & Giuseppe Dell'Amura & Meghna Chhabra & Antonio Garofalo, 2024. "Circular economy and waste production models for sustainable development goals 12 and 14: Evidence from cruise sustainability reporting," Sustainable Development, John Wiley & Sons, Ltd., vol. 32(6), pages 6686-6702, December.
    21. Smirti Kutaula & Alvina Gillani & Diana Gregory-Smith & Boris Bartikowski, 2024. "Ethical Consumerism in Emerging Markets: Opportunities and Challenges," Journal of Business Ethics, Springer, vol. 191(4), pages 651-673, May.
    22. Olivier Boiral, 2016. "Accounting for the Unaccountable: Biodiversity Reporting and Impression Management," Journal of Business Ethics, Springer, vol. 135(4), pages 751-768, June.
    23. Hoberg, Gerard & Lewis, Craig, 2017. "Do fraudulent firms produce abnormal disclosure?," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 58-85.
    24. Jiang, Guohua & Lee, Charles M.C. & Yue, Heng, 2010. "Tunneling through intercorporate loans: The China experience," Journal of Financial Economics, Elsevier, vol. 98(1), pages 1-20, October.
    25. Zeng, Huixiang & Ren, Lei & Chen, Xiaohong & Zhou, Qiong & Zhang, Tao & Cheng, Xu, 2024. "Punishment or deterrence? Environmental justice construction and corporate equity financing––Evidence from environmental courts," Journal of Corporate Finance, Elsevier, vol. 86(C).
    26. Xia, Fan & Xu, Jintao, 2020. "Green total factor productivity: A re-examination of quality of growth for provinces in China," China Economic Review, Elsevier, vol. 62(C).
    27. Hao Liu & Xue Tang & LiYuan Liu & Hui Lai, 2024. "Foreign Institutional Investors and Corporate Green Innovation: Evidence from an Emerging Economy," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 60(9), pages 2096-2109, July.
    28. Bolton, Patrick & Kacperczyk, Marcin, 2021. "Do investors care about carbon risk?," Journal of Financial Economics, Elsevier, vol. 142(2), pages 517-549.
    29. Liu, Heng & Luo, Jin-hui, 2022. "Legacy of ideology: The enduring effect of CEOs’ socialist ideological imprint on private firms’ employee-related CSR," Journal of Business Research, Elsevier, vol. 147(C), pages 491-504.
    30. Zhong, Yuan & Lai, Huisu & Zhang, Liang & Guo, Lixiang & Lai, Xiaobing, 2025. "Does public data openness accelerate new quality productive forces? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 85(C), pages 1409-1427.
    31. Choi, Sujung & Choi, Woon Youl, 2019. "Effects of limited attention on investors' trading behavior: Evidence from online ranking data," Pacific-Basin Finance Journal, Elsevier, vol. 56(C), pages 273-289.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yan, Jingjing & Guo, Yaoqi & Wen, Fenghua, 2025. "Carbon risk and the cost of equity capital: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 99(C).
    2. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2022. "Dissecting green returns," Journal of Financial Economics, Elsevier, vol. 146(2), pages 403-424.
    3. Chang, Hao-Wen & Chi, Pei-Yu & Lin, Chin-Ho, 2025. "Superiority of ESG-oriented portfolios in Taiwan stock market: Quantile-on-quantile with GARCH approach," The North American Journal of Economics and Finance, Elsevier, vol. 80(C).
    4. Andrea Jacob & Martin Nerlinger, 2021. "Investors’ Delight? Climate Risk in Stock Valuation during COVID-19 and Beyond," Sustainability, MDPI, vol. 13(21), pages 1-17, November.
    5. Zhu, Shunlin & Liu, Liping, 2025. "Green institutional investors and corporate green innovation: Evidence from Chinese listed companies," International Review of Economics & Finance, Elsevier, vol. 103(C).
    6. Ferriani, Fabrizio, 2023. "Issuing bonds during the Covid-19 pandemic: Was there an ESG premium?," International Review of Financial Analysis, Elsevier, vol. 88(C).
    7. Wu, Zhenshu & Pownall, Rachel & Shih, Yi-Cheng & Zhang, Chendi, 2025. "State ownership and the value of sustainability: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 102(C).
    8. Zhang, Qing & Hu, Zongyi & Zhang, Zehua & Zhao, Ran, 2025. "Carbon emission and idiosyncratic risk: Role of environmental regulation and disclosure," International Review of Financial Analysis, Elsevier, vol. 105(C).
    9. Luo, Di, 2022. "ESG, liquidity, and stock returns," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 78(C).
    10. Nguyen, Justin Hung & Truong, Cameron & Zhang, Bohui, 2025. "The price of carbon risk: Evidence from the Kyoto Protocol ratification," Journal of Environmental Economics and Management, Elsevier, vol. 130(C).
    11. Cao, Yuqiang & Liu, Yunxin & Lu, Meiting & Shan, Yaowen & Zu, Yanglan, 2025. "Generosity under environmental pressure: Climate change exposure and corporate philanthropy," International Review of Financial Analysis, Elsevier, vol. 104(PA).
    12. Wang, Yueyang, 2025. "The silent cost of biodiversity loss: Unveiling its impact on institutional ownership," International Review of Financial Analysis, Elsevier, vol. 103(C).
    13. Bardos, Katsiaryna Salavei & Mishra, Dev R. & Somé, Hyacinthe Y., 2025. "Firm-level climate sentiments, climate politics and implied cost of equity capital," Journal of Corporate Finance, Elsevier, vol. 94(C).
    14. Cyrine Khiari & Imen Khanchel & Hatem Rjiba & Josephat Daniel Lotto & Nazim Hussain, 2025. "Climate Change Risk and Financial Market Response: An International Evidence From Performance Forecasts by Financial Analysts," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 44(8), pages 2315-2330, December.
    15. Xie, Xuejing & Gong, Yukai & Cheng, Le, 2025. "Managerial myopia and carbon emission: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 90(C).
    16. Weimer-Jehle, Wolfgang & Buchgeister, Jens & Hauser, Wolfgang & Kosow, Hannah & Naegler, Tobias & Poganietz, Witold-Roger & Pregger, Thomas & Prehofer, Sigrid & von Recklinghausen, Andreas & Schippl, , 2016. "Context scenarios and their usage for the construction of socio-technical energy scenarios," Energy, Elsevier, vol. 111(C), pages 956-970.
    17. Terry Shevlin, 2013. "Some personal observations on the debate on the link between financial reporting quality and the cost of equity capital," Australian Journal of Management, Australian School of Business, vol. 38(3), pages 447-473, December.
    18. Gillan, Stuart L. & Koch, Andrew & Starks, Laura T., 2021. "Firms and social responsibility: A review of ESG and CSR research in corporate finance," Journal of Corporate Finance, Elsevier, vol. 66(C).
    19. Choi, Dong Beom & Jeong, Seongjun, 2025. "CSR scores versus actual impacts: Banks’ main street lending during the great recession," Journal of Banking & Finance, Elsevier, vol. 172(C).
    20. Lioui, Abraham & Tarelli, Andrea, 2022. "Chasing the ESG factor," Journal of Banking & Finance, Elsevier, vol. 139(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:sustdv:v:34:y:2026:i:2:p:2184-2206. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1099-1719 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.