Toxic Footprints Near Havens: Pricing Biodiversity Loss using Firm Pollution

This study examines whether biodiversity loss by chemical contamination is priced in the US equity market. I find that emissions from industrial facilities increase chemical concentrations of persistent toxic chemicals and decrease long-term vertebrate population growth in a two to three mile radius of a plant. I identify an undervaluation of this biodiversity loss, as firms emitting pollutants near biodiverse areas experience a monthly underpricing of 41 basis points compared to peers operating in less biodiverse regions. To understand this pattern, I find that firms polluting near biodiversity havens tend to underreport their biodiversity footprint. I also determine that when attention to biodiversity is high, the market equally reacts to firms with differing footprints—suggesting difficulties in distinguishing the firms that have a greater impact on the environment.