The real effects of protecting biodiversity

Centre for Endowment Asset Management (CEAM)
Centre for Endowment Asset Management (CEAM)

Overview

Biodiversity loss is accelerating, prompting governments worldwide to expand legally protected areas as a core conservation strategy. ‘The Real Effects of Protecting Biodiversity’ investigates how these biodiversity protections shape corporate environmental behaviour, operational decisions and financial performance. The study introduces a novel, spatially explicit metric of corporate biodiversity exposure, Corporate Biodiversity Exposure (CBE), that measures how many newly designated protected areas surround a firm’s production site. Using establishment-level pollution data, geospatial boundaries of protected areas and firm-level financials from 1990 to 2021, the research uncovers the real economic consequences of biodiversity policy.

An interview with Amir Akbari.

Authors

Amir Akbari

DeGroote School of Business, McMaster University, Canada

Lilian Ng

Schulich School of Business, York University, Canada

Many Duy (Marty) Pham

University of Auckland, New Zealand

Jing Yu

University of Sydney, Australia

Project aims

The project aims to quantify how conservation policies, specifically protected area designations, affect firms operating nearby. While the ecological benefits of protected areas are well documented, their economic spillovers on corporate activity are poorly understood.

This research addresses 3 central questions:

1

Impact of biodiversity protections on environmental performance

Assess whether protected area designations influence the environmental performance of nearby firms.

2

Corporate operational adaptation to conservation policies

Examine how firms adjust their operations when exposed to increased biodiversity-related regulatory scrutiny.

3

Financial consequences for firms and investors

Determine whether these localised regulatory and operational disruptions translate into measurable financial impacts for parent companies and investors.

By linking establishment locations to conservation boundaries, the authors provide the first systematic evidence of how spatial proximity to protected areas creates material regulatory, operational and financial risks.

Key insights

1

Protected areas significantly reduce toxic emissions

The study finds a robust negative relationship between CBE and on-site toxic releases. Moving from the 25th to 75th percentile of biodiversity exposure corresponds to roughly a 6% decline in toxic emissions. These reductions are driven by firms facing heightened regulatory scrutiny when operating near newly protected ecosystems.

Event-study analyses confirm the causal interpretation: emissions fall sharply after a new nearby protected area is designated, while no pre-trend differences exist between treated and control sites.

2

Emissions fall because firms scale down activity, not because they innovate

Rather than investing in cleaner technologies, affected firms reduce output. The research shows:

  • lower sales
  • reduced labour productivity
  • workforce contraction

Pollution prevention data reveal no significant increase in abatement investments or technological upgrades. Firms tend to shrink operations rather than modernise, suggesting regulatory pressure suppresses industrial activity in sensitive ecological zones.

3

Heightened regulatory oversight is a key mechanism

Proximity to protected areas increases regulatory inspections, signalling intensified monitoring. While inspections rise quickly, enforcement actions and penalties play a longer-term role in sustaining emission reductions. Regulatory presence, not fines alone, acts as a deterrent, constraining firms’ ability to maintain high-emission operations.

4

Local operational shocks spill over to parent-company financials

The study aggregates establishment-level exposure to assess parent-company outcomes, revealing that biodiversity protection influences firm-wide profitability and valuation, including:

  • Tobin’s Q falls, indicating lower market valuation
  • return on assets (ROA) declines
  • total factor productivity decreases

A one-standard-deviation increase in biodiversity exposure produces a measurable negative effect on firm value, demonstrating that conservation-related regulatory risk is financially material.

5

Effects are strongest for major polluters and firms with higher regulatory exposure

Heavy polluters experience larger emission cuts. Firms with existing government exposure or operations subject to strict oversight show more pronounced reactions to protected-area expansion. Financially constrained firms, however, show weaker responses, reflecting limited flexibility to adjust operations.

Why this matters for investors

The findings have direct implications for investors navigating a rapidly evolving biodiversity-risk landscape.

Biodiversity risk is financially material

Protected areas reshape local economic activity and erode profitability and market valuation. This risk is not hypothetical, it is already priced into corporate outcomes.

Spatial finance is critical

A firm’s physical footprint relative to conservation zones affects regulatory exposure, operational disruption and asset value. Investors must integrate geospatial biodiversity metrics into due diligence processes.

Regulation is expanding globally

With the Kunming-Montreal Global Biodiversity Framework targeting protection of 30% of land and oceans by 2030, regulatory exposure will intensify. Companies with assets in or near ecologically sensitive regions may face escalating compliance burdens.

Operational risks compound long-term transition risks

Unlike climate risks, which often unfold gradually, biodiversity protections generate immediate, location-specific constraints on production and land use.

This research demonstrates that protecting biodiversity has powerful real effects on firms: reduced pollution, smaller operational footprints and lower financial performance for exposed companies. For investors, biodiversity is now a strategic financial consideration, not just an environmental one.

Conclusion

This project shows that expanding protected areas has immediate and financially material effects on nearby firms. By introducing a spatially precise measure of corporate biodiversity exposure, the research reveals that protections reduce toxic emissions but largely by constraining production rather than driving innovation. These operational shocks translate into weaker profitability and lower market valuation. As conservation regulations expand globally, investors must account for spatial biodiversity risk, recognising that a company’s physical footprint increasingly shapes regulatory exposure, operational resilience and long-term financial outcomes.

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