From ecology to equity: how nature dependence shapes firms’ cost of capital

Purpose This study aims to investigate the relationship between firms' nature dependence level and cost of capital (cost of equity, cost of debt and weighted average cost of capital). We also tested how firm-level earnings volatility and macro-level climate vulnerability moderate the relationship between firms' nature dependence and the cost of capital. Design/methodology/approach This study is based on panel data of 57,297 firm-year observations from 87 countries covering the period 2015–2023. Fixed-effects (FE) regression models are employed to estimate the effect of nature dependence on financing costs and to test the proposed moderating channels. The study also uses alternative measures of nature dependence and addresses potential endogeneity concerns through a two-stage least squares (2SLS) instrumental-variables approach. Findings The results show that firms with greater dependence on the natural environment face significantly higher financing costs, aligning with risk-based asset pricing theory and the natural resource-based view. Furthermore, the effect is stronger for firms with high earnings volatility, suggesting that nature-related risks intensify existing firm-level uncertainty. At the macro level, the impact of nature dependence on financing costs is weaker in countries with high climate vulnerability, where broader climate risks may already be priced by financial markets. In less climate-exposed countries, nature dependence emerges as a clearer and more influential risk signal for investors. Originality/value This is the first study that examines the relationship between nature dependence and different measures of firms' cost of capital. By identifying the moderating roles of earnings volatility and climate vulnerability, this paper offers new insights with important implications for corporate risk management, investment decisions and financial regulation.