Pricing the Priceless: The Financial Cost of Biodiversity Conservation

Biodiversity loss requires drastic shifts in conservation efforts with substantial costs. We investigate how the financial market prices such conservation costs, exploiting the “Green Shield Action,” a major regulatory initiative launched in China in 2017 to enforce biodiversity preservation rules in national nature reserves. While improving biodiversity, the initiative led to significant increases in bond yields for municipalities with national nature reserves. These effects are driven by expected increases in transition costs resulting from shutting down illegal economic activities within reserves and local public spending on biodiversity following the initiative. Investors show little non-financial consideration towards endeavors counteracting biodiversity loss.