Biodiversity risk and firms’ green investment: Evidence from China

Amid growing global concerns over biodiversity risk and its financial implications, understanding how firms strategically respond to biodiversity risk has become a critical issue in sustainable finance. This study seeks to answer the research question: Does rising biodiversity risk stimulate or deter firms’ green investment? This is one of the first papers to examine firms’ green investment decisions during biodiversity risk exposure, using Chinese listed firms’ data from 2011 to 2023. Employing a fixed-effect model, we find that firms exposed to biodiversity risk increase their green investment by approximately 60.640%, compared to firms not exposed to such risk. Furthermore, moderating effect analysis indicates that managerial shareholdings and corporate ESG performance can enhance the positive effect of biodiversity risk on firms’ green investment. Additionally, heterogeneity analysis reveals that this positive effect is more pronounced in SOEs and pollution-intensive industries. Overall, we provide empirical support for the strategic growth option theory, suggesting that firms follow a preemptive strategy during ecological risk exposure.