In this study, we investigate the impact of biodiversity loss on the performance of small and medium-sized enterprises (SMEs) in the United Kingdom and Ireland. Leveraging firms’ financial information and postcodes from Moodys Bureau van Dijk and the Biodiversity Intactness Index a geospatial dataset developed by the Natural History Museum we geo-locate SMEs, quantify biodiversity loss in the area where firms operate, and assess their exposure to biodiversity-related risks over time. We then employ a fixed effects regression model to estimate the effect of biodiversity loss on firm performance. Our findings indicate that a one standard deviation decline in biodiversity leads to a statistically significant reduction in firm operating income by 0.59 percentage points. This impact is economically meaningful when benchmarked against the samples average operating income. Moreover, SMEs located in more ecologically degraded areas are found to be more exposed to biodiversity-related risks. We also provide evidence of the materiality of dependency risk, while transition risk appears to be non-material within the UK context. The results remain robust across various econometric specifications and when controlling for climate risk factors.
