# Biodiversity risks and corporate innovation: Evidence from China

## TL;DR

This paper shows that biodiversity risks encourage Chinese companies to innovate more, especially in meaningful ways.

## Contribution

The study reveals how biodiversity risks influence corporate innovation through operating costs and analyst attention in China.

## Key findings

- Biodiversity risk is significantly and positively related to corporate innovation.
- The innovation promotion is more evident in firms with high investor sentiment and in liberalized capital markets.
- Biodiversity risk mainly drives substantive innovation.

## Abstract

Whether firms adopt positive behaviors in response to biodiversity risk is a matter of public concern. In this paper, we investigate the impact of biodiversity risk exposure on corporate innovation. Based on a sample of Chinese A-share listed firms from 2007–2022, we find that biodiversity risk is significantly and positively related to corporate innovation. This promotion can be attributed to higher operating costs and enhanced analyst attention. Meanwhile, the positive impact of biodiversity risk on corporate innovation is more pronounced in firms with high investor sentiment, non-high-tech industries, and more liberalized capital markets. Additionally, the promotion of innovation by biodiversity risk is manifested more in substantive innovation. This study enriches the research on the consequences of biodiversity risk and the factors influencing firm innovation, expanding the boundaries of how environmental risk affects corporate decision-making.