Biodiversity risk disclosures and stock price crash risk

This study investigates whether biodiversity risk disclosures reduce stock price crash risk, leveraging the early adopter announcements of the Taskforce on Nature-related Financial Disclosures (TNFD) in January 2024. Using a difference-in-differences framework, we find that TNFD adoption significantly reduces crash risk. The effect is pronounced in firms with high biodiversity exposure, strong governance, and high retail investor presence, consistent with risk-materiality, agency problem, and behavioral channels, respectively. We further show that TNFD provides incremental crash-risk reduction for firms that had previously adopted the framework of the Taskforce on Climate-related Financial Disclosures (TCFD), with benefits strongest among early TCFD adopters. Overall, our findings highlight the value of nature-related disclosures in enhancing transparency and mitigating downside risk, offering timely insights for regulators and investors as biodiversity reporting frameworks continue to evolve. • TNFD adoption in Japan significantly reduces stock price crash risk. • The beneficial effect of TNFD adoption is more pronounced among firms with high biodiversity exposure, strong corporate governance, and high retail investor presence. • Biodiversity-related disclosure offers incremental value in firms already practicing climate-related disclosure.