Biodiversity Risk and Corporate Default Probability

The study examines the impact of biodiversity risk on default probability. The study shows that biodiversity risk increases the likelihood of default. The impacts are significant for firms with lower access to credit and cash reserves. Firms with leverage jumps for operating needs present a significantly increased 5-year-ahead default risk. As firms reserve sufficient liquidity, leverage jumps decrease default risk. Local risk climate factors moderate the impact of biodiversity on default risk. Treated firms that are prone to transitional and physical risk factors experience a significantly increased default probability. There is a bright side for firms with higher attention from management boards and analysts to climate change exposure. Local climate action maintains a firm’s growth prospects through the mitigated effects of biodiversity risk on default probability. The findings offer timely contributions to corporate biodiversity finance, which is crucial to future studies. JEL codes : G0, G3, G4