Research

The U.S. Endangered Species Act protects the habitats of threatened species by designating spatially explicit areas that restrict the operations of nearby firms. Using geographic designations under the Act, I show that these protections are associated with greater operating costs and lower profitability for firms with facilities only within a few kilometers of the area. However, I provide causal evidence that these facilities reduce bird populations—a proxy for local ecology—over a much wider area, with effects detected up to 18 km away. Protections do not undo the damage, as bird populations near designated habitat recover only partially. Costs rise with the concentration of polluting activity near protected habitat and coincide with greater regulatory scrutiny, increased employment, and reductions in the most toxic pollutants. In addition, voluntary disclosures and biodiversity ratings provide little information about this exposure, limiting the scope for market-based incentives to reduce ecological harm.

We study how US equities respond to abnormal temperature variability — a localized and transitory shock with significant firm-level consequences. Sorting US firms each month by realized exposure in their operating states, we find that low-exposure firms have contemporaneously greater returns than high-exposure firms, with a return differential of 4.8% annually. Firm-level evidence supports a cash-flow channel, as elevated variability reduces revenues and profits. Consistent with these operating consequences, household spending falls in affected consumer-facing sectors, and workers supply fewer hours. These shocks attract attention as they occur, yet their cash-flow implications are difficult for investors to infer. Analyst disagreement rises and earnings surprises are more negative among high-exposure firms.

This study examines whether the sovereign credit market incorporates expectations of coastal flooding and sea level rise (SLR). The results indicate that medium- and long-term credit default swap spreads increase for sovereigns with a substantial portion of their population vulnerable to ex-ante coastal flooding in response to news around climate summits. Predictability tests suggest that the market asynchronously incorporates changing vulnerabilities of regions into its risk assessment with such news, consistent with theories of inattention to information. A real-options model is used to consider debt financing trade-offs associated with sovereign inaction or investment into adaptation.