Greening for Nature? Corporate Financing Responses to Biodiversity Shocks

Does biodiversity regulatory exposure shape firms’ financing decisions? We examine this question by exploiting staggered Critical Habitat designations under the U.S. Endangered Species Act as unexpected shocks to firms’ biodiversity regulatory exposure. Recent designations increase the probability of a green vis-à-vis conventional bond issue, with the strongest response among firms in the least nature-dependent sectors and those without prior exposure. This surprise-salience pattern suggests that the financing response is stronger when biodiversity exposure is less anticipated. For exposed issuers, we find a significant greenium, which is attributable to a higher cost of conventional debt rather than cheaper green debt. Exposed green bond issuers are also more likely to make biodiversity commitments after issuance, but these commitments are short-lived and are not accompanied by quantified targets or measurable impact reductions. Consistent with this pattern, using hand-collected green bond documentation, we find that a larger share of exposed issuers revise their frameworks to include biodiversity, but this is not followed by greater allocation of proceeds to biodiversity projects. Overall, our findings suggest that firms’ preference for green debt reflects both relative financing costs and a visible expression of environmental commitment.