Biodiversity Risk and Supply Chain Finance: A Trust Erosion Perspective

ABSTRACT Biodiversity loss has emerged as a material financial risk alongside its ecological consequences. While public financial markets increasingly price biodiversity risk, little is known about its impact on private, relationship‐based funding, particularly supply chain finance (SCF). Using a text‐based risk measure and Chinese manufacturing firms from 2008 to 2023, we examine how biodiversity risk shapes SCF. We find that biodiversity risk is associated with a significant contraction in SCF. Mechanism analysis suggests this operates through financial distress, information asymmetry, and supply chain disruption. The negative association is amplified by climate risk and regional ecological constraints but mitigated by strong environmental governance. The contraction is asymmetric, concentrated on upstream suppliers, and accompanied by a shift from low‐cost, relationship‐based credit toward more expensive, instrument‐based alternatives. These findings identify biodiversity risk as a boundary condition for the substitution hypothesis and inform disclosure frameworks for nature‐related financial risks.