Biodiversity Risk and Corporate Credit Ratings

We examine the relation between firm‐level biodiversity risk and corporate credit ratings. We find that firms exposed to biodiversity risk receive significantly lower credit ratings, by approximately 0.9 notches relative to unexposed firms in the same industry. This relation remains robust after accounting for local economic conditions, alternative dimensions of climate‐related risk, firms’ broader environmental and social performance, and firm‐level regulatory intensity, as well as across a range of additional robustness and identification tests. Mediation analyses provide evidence consistent with cash flow uncertainty serving as a partial mediating channel. We also find suggestive evidence that the negative relation between biodiversity risk and credit ratings is more pronounced among firms operating in resource‐based industries, which is weakly consistent with a supply chain disruption mechanism. Overall, our findings highlight biodiversity risk as an economically relevant dimension of corporate creditworthiness.