This study examines whether and how board co-option – the proportion of directors appointed after the incumbent CEO assumes office – affects corporate biodiversity risk. While prior research links co-opted boards to weaker environmental performance, evidence on biodiversity risk, a distinct and financially material environmental concern, remains scarce. We aim to fill this gap by analyzing the governance mechanisms through which board co-option shapes firms' exposure to biodiversity-related risks.
Using a large panel of publicly listed firms, we empirically investigate the relationship between board co-option and firm-level biodiversity risk. To address endogeneity and selection concerns, we employ multiple identification strategies, including propensity score matching, entropy balancing and Heckman two-stage models. We further conduct cross-sectional analyses to examine the moderating roles of CEO characteristics, internal controls, external monitoring, industry biodiversity exposure and litigation risk.
We document a robust positive association between board co-option and biodiversity risk. A one-standard-deviation increase in board co-option leads to a statistically and economically significant increase in biodiversity risk. The effect is stronger in firms with weak internal and external monitoring, in biodiversity-intensive industries and in low-litigation environments. Board co-option also neutralizes otherwise mitigating CEO characteristics, indicating that governance structure dominates individual managerial traits in shaping biodiversity outcomes.
This study provides the first systematic evidence linking board co-option to biodiversity risk. By integrating entrenchment and stakeholder agency theory, it extends the corporate governance and sustainability literature and identifies board appointment dynamics as an important determinant of nature-related risk.
