A Closer Look at the Biodiversity Premium

Guillaume Coqueret, Thomas Giroux

2023 | Academic | Biodiversity, Risk & Performance

We run portfolio sorting exercises based on firm-specific measures of biodiversity loss in US equity markets. Using a dataset from Iceberg DataLab, we come to four conclusions. First, we confirm that the risk premium for biodiversity over the past decade is close to zero. Second, we show that all dimensions of biodiversity are not equal, the ones closely related to climate change attracting more market attention. Third, we discriminate between premia based on realized returns and expected returns and find that for the latter, premia have been significantly negative in the recent years, meaning that biodiversity is expected to materialise as a systemic risk factor in a near future. Lastly, we seek to explain the dynamic of the risk premium with exogenous variables and conclude that attention to biodiversity, along with consumer sentiment and oil prices are significant drivers of this premium.