New Schulich Research Highlights Biodiversity Protection as an Emerging Financial Risk
As biodiversity conservation policies expand worldwide, new research from Schulich finds that protecting ecosystems can create meaningful financial risk for both companies and the investors exposed to them.
Published in the Review of Finance, the study is among the earliest to systematically assess how biodiversity protection affects corporate operations, profitability, and market valuation. The research was co-authored by Lilian Ng, Professor of Finance and the Scotiabank Chair in International Finance at Schulich, alongside Amir Akbari (DeGroote School of Business, McMaster University), Man Duy (Marty) Pham (University of Auckland), and Jing Yu (University of Sydney).
Titled The Real Effects of Protecting Biodiversity, the paper examines how firms respond when protected natural areas are designated near their operating facilities. With nearly 200 countries committed to the global “30 by 30” goal to protect 30 percent of land and waters by 2030, the findings offer timely guidance for institutional investors and risk professionals.
The study finds that firms located near newly protected areas significantly reduce toxic emissions. However, these reductions are driven largely by reduced production, lower output, and workforce contraction — not by investments in cleaner technologies or operational innovation.
“From an investor perspective, the key takeaway is that biodiversity regulation can directly affect cash flows and firm value,” says Professor Ng. “Companies respond to heightened biodiversity-related oversight largely by scaling back activity, which can translate into lower profitability and weaker valuations.”
The researchers also find that disruptions at individual facilities can extend into broader firm-wide impacts. Firms with greater exposure to newly protected areas experience declines in profitability and market value, reflecting higher compliance burdens, increased regulatory scrutiny, and operational constraints.
“Biodiversity exposure is a geographically specific, regulatory risk that markets are only beginning to recognize,” adds Ng. “Our findings suggest investors should pay close attention to where firms operate, not just what they produce, when assessing long-term financial risk.”
To help quantify this risk, the study introduces a geospatial, location-based measure of Corporate Biodiversity Exposure, capturing how close firms’ operating sites are to newly protected ecosystems. The authors note that this approach aligns with growing efforts to integrate nature-related financial risk into investment analysis and disclosure practices.
Overall, the findings position biodiversity conservation as a distinct, spatially targeted regulatory risk — and highlight the importance of incorporating biodiversity-related exposure into valuation models, portfolio construction, and capital allocation decisions.
