Biodiversity and Earnings News: When Nature Meets Numbers

Biodiversity loss is increasingly recognized as a material financial risk, yet its governance implications for capital markets remain underexplored. We examine whether corporate biodiversity exposure (CBE), defined as the extent to which a firm’s polluting facilities are located near conservation-priority areas, impairs the market’s interpretation of earnings news. We argue that CBE generates location-based interpretive frictions that weaken the information content of earnings announcements. Consistent with this prediction, firms with higher CBE exhibit significantly weaker earnings response coefficients, indicating reduced earnings informativeness. Exploiting the staggered expansion of protected areas, a stacked difference-in-differences design establishes causality. The magnitude of this effect varies systematically with governance institutions: it is amplified in institutional settings that heighten ecological and regulatory uncertainty, such as states with weaker species protection, lower biodiversity ratings, non-attainment air quality designations, limited biodiversity-related media coverage, or low population density. In contrast, it is mitigated at the firm level where stronger information environments, supported by biodiversity disclosure, institutional ownership, analyst coverage, media attention, or NGO activism, reduce interpretation costs. Overall, our findings reveal a distinct informational channel through which biodiversity exposure constrains price discovery and underscore the role of governance and disclosure in managing nature-related financial risks.