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HomePaperPricing the Priceless: The Financial Cost of Biodiversity Conservation

Pricing the Priceless: The Financial Cost of Biodiversity Conservation

1 February 2024
Authors: Fukang Chen (School of Finance, Renmin University of China), Minhao Chen (School of Finance, Renmin University of China), Lin William Cong (Cornell SC Johnson College of Business (Johnson) and NBER), Haoyu Gao (School of Finance, Renmin University of China) and Jacopo Ponticelli (Kellogg School of Management, Northwestern University, NBER and CEPR)
Presenter: Haoyu Gao (School of Finance, Renmin University of China)
Abstract:

Biodiversity loss as a global concern requires dramatic shifts in conservation efforts that carry substantial costs. We offer an initial investigation into how the financial market prices such conservation costs, exploiting the “Green Shield Action” (GSA) — a regulatory change aimed at preserving biodiversity in national nature reserves in China — as an exogenous shock to local public financing. We document that GSA, while improving biodiversity, augments the yields of municipal corporate bonds by around 25 basis points. The effects are more pronounced for bonds with shorter maturities and for local governments in weak fiscal positions. The increased cost of public capital can be largely attributed to transition pressure resulting from pre-existing economic activities within reserves and the growth in local public spending on biodiversity following the reform. Investors show little consideration towards endeavors counteracting biodiversity loss beyond financial payoffs. Our findings also provide insights concerning investor education and policy interventions for addressing the financing gap for biodiversity conservation.

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