Does Biodiversity Conservation Pay Off? An Empirical Analysis of Japanese Firms

Abstract

This study investigates the bidirectional relationship between biodiversity conservation, an increasingly important dimension of corporate social responsibility (CSR), and corporate financial performance (CFP). Specifically, it compares the manufacturing sector, which has substantial environmental impact and close ties to ecosystems, and the nonmanufacturing sector. The analysis draws on 1079 firm-year observations of Japanese companies from 2017 to 2022, employing the ratio of biodiversity-related expenditures to total environmental costs as the independent variable. CFP is measured by return on assets (ROA) and the price-to-book ratio (PBR). The results show that the effects on ROA significantly differ between manufacturing and nonmanufacturing sectors, with more positive impacts in manufacturing. In contrast, no clear sectoral differences are identified for the PBR. The reverse analysis suggests that, in the nonmanufacturing sector, firms with a higher PBR tend to allocate less to biodiversity conservation, whereas in manufacturing firms, both ROA and the PBR indicate positive effects, although statistical significance was not established. These findings indicate that biodiversity conservation in the manufacturing sector can be regarded as a strategic investment that contributes to profitability, and that its effects differ across industries. The study further suggests that investors and policymakers should consider industry-specific characteristics when evaluating corporate initiatives and designing institutional frameworks.