The Nexus Between Biodiversity and Sovereign Credit Ratings: Global Environmental and Economic Interdependencies from a Sustainability Perspective

Abstract

This study explores the nuanced relationship between biodiversity and sovereign credit ratings, underscoring the link between environmental sustainability and economic resilience. As credit rating methodologies increasingly incorporate Environmental, Social, and Governance (ESG) dimensions alongside traditional macroeconomic indicators, biodiversity has emerged as a vital factor influencing sovereign creditworthiness. Drawing on a panel dataset of 62 countries-representing 91% of the global GDP and 81% of the world's greenhouse gas emissions-from 2001 to 2021, the research utilizes advanced econometric techniques, including the panel Generalized Method of Moments (GMM) and panel quantile regression. The GMM analysis indicates that higher biodiversity levels are generally associated with a decline in credit ratings. However, the quantile regression provides a more differentiated view, revealing that biodiversity's impact varies by a country's existing credit standing. Specifically, nations with lower credit ratings tend to benefit from richer biodiversity, while countries with higher credit ratings show a modest negative association-reflecting structural and institutional differences. Robustness checks confirm these results, highlighting the relevance of biodiversity indicators such as the Red List Index in credit evaluations. The findings support the integration of biodiversity into sovereign risk assessments to enhance the alignment of financial systems with long-term ecological and economic sustainability goals.