Experience Stern | Faculty & Research

Overview: In “Biodiversity Risk,” NYU Stern Professors Theresa Kuchler and Johannes Stroebel, PhD student Xuran Zeng, and Stefano Giglio (Yale) develop multiple measures of biodiversity risk and work toward answering how biodiversity loss affects economic activity and asset prices.

Why study this now: Damages caused by the loss of ecosystem services (e.g. the supply of raw materials like food and fuel) alone have been estimated as high as $20 trillion per year. Other risks associated with biodiversity loss include those associated with increasing environmental protections, which can have large effects on economic activity and asset values. Yet, despite its importance, biodiversity risk has received limited research attention, due in part to challenges measuring this variable.

The authors take an innovative approach to surmount this barrier, developing several measures of biodiversity risk and businesses’ exposure to it, along with capturing investors’ and others’ views about these risks.

What the authors found: The authors develop multiple measures of biodiversity risk and related business exposures—using surveys, news coverage, and analysis of 10-K statements—revealing multiple key findings:

• Financial practitioners, academics and regulators believe that biodiversity risks have at least moderate impacts on businesses in the United States
• Sectors with high exposure to biodiversity risk include energy and utilities, while software and semiconductor businesses face less risk
• Biodiversity risk exposure has been at least partially priced into equities in the past decade
• Biodiversity and climate risks can affect each other but are independent phenomena and should be treated separately in research and practice

Key insight: Overall, the authors present a novel approach to studying and quantifying biodiversity loss and associated risks, including impacts on specific business sectors. They are sharing their measures with other researchers at www.biodiversityrisk.org. Researchers can use the new measures of biodiversity risk to form and test hypotheses related to biodiversity-loss impacts in multiple domains including economics, business, and human welfare, while investors can use the findings to better understand how biodiversity risk affects current and future business performance and, consequently, take better-informed positions on industries and specific equities.

This article was adapted from a research brief that originally appeared on the Kellogg School of Management website.