Silent Skies: The Biodiversity Consequence of Meeting Earnings Benchmarks

Biodiversity loss is now widely recognized as an environmental crisis of our times. Besides ecological harm, biodiversity loss carries substantial potential economic costs. In an earlier study we document elevated levels of toxic chemicals around plants operated by firms that have likely boosted earnings to meet earnings benchmarks (MEB). It appears that these firms release more toxic chemicals because they cut pollution abatement to save costs in those years.

In this study, we first show that the increased pollution leads to biodiversity loss. Drawing on a novel dataset of millions of birdwatching records, collected across the U.S. from 2002 to 2018, we document a significant decline of 2.4 percent in bird abundance (population size) and a significant decline of 0.5 percent in richness (number of unique species) near manufacturing plants that release toxic chemicals during MEB quarters.

We then document answers to three related issues. First, from a temporal perspective, we find that the impact on birds begins at least as early as the second month in the MEB quarter and is only partially reversed even 8 quarters later. Second, from a spatial perspective, the birds move to distant locations as they do not resurface in areas within a 10-kilometer radius of the plants Finally, we find cross-sectional variation in the impact of different emission types and across different bird species. The biodiversity loss varies with toxicity of emissions and bird traits, such as resident varieties are affected more than migratory ones and small birds more than large ones. Which confirms that the diversity loss is likely due to the chemical releases from these plants.

We provide the first large-scale evidence of biodiversity loss due to the activity of US public firms. The immediacy, magnitude, and persistence of biodiversity loss is remarkable given that the cause is a relatively innocuous effort to meet financial targets. If minor corporate activities are associated with so much discernable harm, the biodiversity harm from more substantial corporate events could be greater still. Our results strengthen the case for firm-level disclosure of biodiversity impact.