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  3. 2026
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  5. Nature and Biodiversity Finance
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Nature and Biodiversity Finance

Paper Session

Monday, Jan. 5, 2026 1:00 PM - 3:00 PM (EST)

Loews Philadelphia Hotel, Commonwealth Hall C
Hosted By: American Finance Association
  • Caroline Flammer, Columbia University

Can Municipalities Weather the Weather?

Michael Dambra
,
University of Buffalo
Matthew Gustafson
,
Pennsylvania State University

Abstract

Abnormal heat reduces municipal revenues, with effects isolated to the current fiscal year. The reduction in municipal revenues concentrates in tax-based revenues, and for those municipalities that rely on fewer revenue sources. Municipalities offset about 32% of this shock with lower current capital spending and the remainder with other current year spending cuts. Temperature shocks have little effect on future spending and raise net debt only when they accumulate over several years. These findings challenge conventional notions of governmental inflexibility and suggest that local governments actively manage spending to offset the financial impact of weather-induced financial risks.

Nature-Related Risks in Syndicated Lending

Aras Canipek
,
Columbia University
Santanu Kundu
,
Aarhus University
Jiri Tresl
,
Paris School of Business
Lukas Zimmermann
,
University of Mannheim

Abstract

Firms dependent on ecosystem services incur 0.32% higher loan spreads for every
1% increase in nature dependency. To support a causal interpretation, we exploit the
2019 amendment to the Endangered Species Act (ESA), which relaxed protections for
threatened species and their habitats. Following this regulatory change, loan spreads
declined for firms whose nature dependency stems from ecosystem services linked to protected
areas and key biodiversity areas. We find no association between loan spreads and
firms’ impact on nature. Our results suggest that nature–related risks are internalized by
financial markets, although the effect is modest. We also highlight the role of refinancing
risk in how banks price nature dependency of borrowers.

From Fine to Feathers: Enforcement Stringency, Protectionism, and Biodiversity

Panyu Li
,
Peking University
Yuchen Xu
,
University of New South Wales
Luping Yu
,
University of Macau

Abstract

This study underscores the critical role of policy enforcement stringency in biodiversity conservation. Using birdwatching records to construct sensitive measures of bird species richness, we employ a staggered difference-in-differences approach with China’s Environmental Protection Bureaus (EPBs) reform from 2000 to 2019. Our results reveal significant increases of 23.7% in bird species and 61.9% in bird abundance following the reform. By reducing local protectionism, the reform led to stricter environmental enforcement of local firms, as evidenced by more enforcement cases and higher fines. Firms also strengthened environmental compliance in response to the reform by investing in green patents to mitigate pollution. These results suggest the substantial yet hidden cost to ecosystems of weak policy enforcement, especially because central protectionism limits the reform’s impact, as state-owned enterprises (SOEs) remain less strictly regulated. The study emphasizes the importance of stringent environmental enforcement in achieving biodiversity conservation goals and highlights the need for further reforms to address the privileged status of SOEs. By integrating biodiversity into economic and finance frameworks, the research contributes to understanding the real impact of environmental enforcement on biodiversity and firm behavior, advocating for policies that balance economic growth with environmental sustainability. This research underscores the importance of administrative independence in environmental governance and the need for equitable enforcement across all firm types to achieve long-term conservation goals.

Discussant(s)
Parinitha Sastry
,
University of Pennsylvania
Zoey Yiyuan Zhou
,
Columbia University
Eva Steiner
,
Pennsylvania State University
JEL Classifications
  • G3 - Corporate Finance and Governance