Final Report of the CSS Working Group "Biodiversity and Financial Markets"

3 May 2023, by CSS

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In July 2021, the Center for Sustainable Society Research (CSS) approved the establishment of the Working Group "Biodiversity and Financial Markets". Over its two year duration, the Working Group investigated the relationship between the reported biodiversity impacts made in companies’ nonfinancial disclosures, arising biodiversity risks and the perceived risk by equity and debt investors.

Background of the project

The research of the working group focused on the environmental part of environmental, social and governance (ESG) investing, as the “E” has recently often been limited to climate change related issues. To understand the current reshaping of financial markets with respect to the changes the planet faces due to ongoing and accelerating biodiversity loss serves the CSS aims to understand to understand ongoing social, political and economic reconfigurations of modern societies with respect to issues of sustainability and climate change.

The working group especially addressed biodiversity disclosure which firms report under the global reporting initiative (GRI) standards. To quantify companies’ biodiversity risks the research group focused on disclosed information. Additionally, the working group conducted an assessment on the extent companies disclose the environmental impact of their activities and arising biodiversity risks. The awareness of investors and creditors of these impacts and risks and how these perceptions are priced in the market has been examined. 

Were the objectives of the working group achieved or have the objectives changed during the funding period?

The Working Group, with the help of student assistants, analyzed a sample of about 2000 sustainability reports across 44 countries after assessing and pre-selecting from 14 000 reports via text analysis for manual content analysis. Thus, the objectives of the Working Group did not change during the funding period. The quality of reporting, however, showed great potential for development which affected further analysis of the reported contents and their effects on financial markets as well as on investors.

What is the significance of the results of the Working Group for research in this field?

The results of the Working Group have complemented existing research and extended our knowledge in several areas. The study of the Working Group empirically addressed sustainability reporting with focus on biodiversity and its impacts on financial markets. With its research the Working Group put more emphasis on those subjects that are not yet adequately addressed by the scientific community.

What is the significance of the results for the sustainable development of society?

Financial markets and private investors play an important role in financing social challenges. A scientific analysis of their behavior towards sustainability issues and the possibility to derive companies’ decisions from it, helps facing challenges more effectively and well founded. Information on impacts beyond climate are especially essential. Therefor it is important to evaluate the extent to which companies currently report and how investors use that information. Interestingly, companies are not increasing reporting in terms of quantity or quality.

What turned out to be particularly exciting findings?

The stagnation of reporting frequency and quality was a surprising research result. Particularly since the period of 2010-2020 has been proclaimed as the „decade of biodiversity” which would have suggested an increase in reporting.

You can find out more about the Working Group here.