The first really awesome biodiversity resource
Last year, I asked my readers to let me know if they have any good data on the relevance of biodiversity risks for investments. While I got lots of input from my readers, this input was usually company-specific and didn’t allow for a systematic analysis of biodiversity risks across companies. Furthermore, nobody could point me in the direction of studies that show that biodiversity risks are priced in markets. As I said back then, we are currently at the beginning of the journey. Now, it seems, we have taken a major step forward.
Stefano Giglio and his colleagues at NYU Stern have published a truly great paper that tries to quantify biodiversity risks for companies in different ways. One way they tried to quantify risks is by counting media articles that mention biodiversity issues. As the chart below shows, by now there is an article published almost every day now that discusses biodiversity issues.
Media mention of biodiversity issues
Source: Giglio et al. (2023)
They also survey practitioners and academics on their views of biodiversity risks and which industries are most at risk from the decline in biodiversity. Finally, and this is where things get really cool, they scan 10-K and other company reports for discussions of biodiversity, either as opportunities, risks or regulatory issues. This allows the authors to compare the risk from loss of diversity as perceived by investors and academics vs. the risk as discussed in company filings. Take a look at the chart below that plots these two dimensions against each other.
Perceived risks of sectors and holdings-based analysis of biodiversity risks
Source: Giglio et al. (2023)
There are clear mismatches in the perception vs. discussion of biodiversity risk. For example, surveys indicate that the food, beverage and tobacco industries have the greatest biodiversity risk (I would have said the same). But a fundamental analysis of risks discussed in company filings indicates that this sector isn’t all that exposed to biodiversity risks. Instead, retail companies, real estate and utility companies face higher risks from increased scrutiny and regulation of biodiversity. This seems to be a blind spot for investors right now.
Furthermore, the data these researchers collect allows them to check if share prices show any correlation with biodiversity risks. And here the evidence is still pretty weak. The correlation between share prices and the media reports on biodiversity risks is still only about 0.1. Hence, biodiversity risks are hardly priced in equity markets, if at all. But correlations may increase over time. After all, a decade ago, we hardly had any evidence that climate change risks were priced in equity markets. Today, the evidence is pretty strong that they are.
And thanks to the research of Stefano Giglio and his colleagues we can now track progress in biodiversity risk exposure. And you know what the best thing is about all that? The researchers have made their data available for free online. Their website biodiversityrisk.org is a must-have bookmark for every ESG investor. Check it out, it is truly awesome.
Scraping media mentions online? Media & biodiversity no less? Really? That sounds like some real bad science...
How about scraping media & climate collapse/ catastrophe / breakdown etc? (Just one week of the Guardian's articles would suffice).
You can find a humongous amount of articles starting 2000 that predicted an unbearable 2020s, Well, so much for those predictions...
Academics & bio diversity? Again, look at the climate example. There, thousands of academics know damn well that a paper looking into something climate 'related' will likely get funded (whatever field the academic is in - we now know for instance that climate change is increasing the number of home runs in US baseball). https://www.theguardian.com/environment/2023/apr/07/climate-crisis-more-home-runs-baseball-study
The above isn't about science, it's about beliefs & fears. And a very interesting study just came out (the field of climate anxiety is well covered by now):
Environmental knowledge is inversely associated with climate change anxiety
https://bit.ly/3BJMwAZ
'Hypothesis 1: Overall environmental knowledge is inversely associated with climate change anxiety.
Hypothesis 2: Climate-specific knowledge is inversely related to climate change anxiety.
Results of regression analyses (see Table 1) showed that overall environmental knowledge negatively predicted climate change anxiety (B = -0.09, p < 0.001), above and beyond the effects of demographics, environmental attitudes, and personality characteristics (see Fig. 1). Thus, Hypothesis 1 was supported: people who possess more (less) overall environmental knowledge experience less (more) climate change anxiety.
Moreover, scores of six out of the seven content domains were negatively associated with climate change anxiety in a separate analysis...The latter finding supports Hypothesis 2: people who possess more (less) climate-specific knowledge experience less (more) climate change anxiety.'
Finally, not unimportant: climate activism as therapy:
‘It could also be questioned whether climate change anxiety has only (and always) negative consequences or, under certain circumstances, may even lead to positive outcomes. For example, recent research has suggested that engaging in collective action to address climate change can buffer the effect of climate change anxiety on depressive symptoms (Schwartz et al. 2022).’