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What happens when a national park or conservation area is created next to a business that emits toxic substances into the environment?

A new study, co-authored by University of Auckland researcher Dr. Marty Pham, shows that while companies near protected areas slash their toxic emissions, they do so by cutting jobs and production rather than cleaning up their act through investing in pollution reduction. The research is in SSRN.

The research paper, The real effects of protecting biodiversity, is the first of its kind to investigate how protected areas (designated places aimed at conserving biodiversity and ecosystems) influence the operations of nearby businesses.

"Our findings show a sharp decline in firms' toxic emissions, suggesting that these businesses react to heightened regulatory and public scrutiny and adjust their polluting activities accordingly," says Dr. Pham.

Using data from 1990 to 2021, the researchers examined 18,341 industrial facilities that generate toxic emissions across the United States, spanning industries including mining, manufacturing, forestry and agriculture.

To track the effect of conservation zones on companies, the researchers developed a novel "Corporate Biodiversity Exposure' (CBE) measure. This identifies facilities located near newly designated protected areas and quantifies the ecological, regulatory, and reputational implications that follow.

"Our findings reveal a significant association between higher CBE metrics and reduced on-site toxic chemical emissions into the air, ground, and water," says Pham. "This highlights the localized impact of protected areas."

The study also points out that being near protected areas is associated with significant declines in sales, productivity, and workforce size for affected establishments. However, there's no evidence of increased investment in abatement technologies.

Pham says this suggests firms respond to biodiversity conservation pressures by scaling down production, possibly through relocating or outsourcing their production, rather than adopting new environmental innovations.

These localized disruptions have broader financial consequences at the parent-company level, according to the study, which shows that reduced economic activity at affected establishments contributes to firm-wide declines in profitability and stock market valuation.

One likely contributor to these financial pressures, says Pham, is increased regulatory oversight.

"While protected areas don't directly impose land-use constraints on neighboring establishments, they trigger more frequent environmental inspections, strengthen compliance requirements and attract greater public scrutiny, increasing enforcement risks and operational costs."

With biodiversity in crisis worldwide, many countries are expanding protected natural areas, compelling businesses and investors to adapt their strategies.

This shift is particularly relevant to the United Nations' 30-by-30 target, which aims to protect 30% of the planet's land and oceans by 2030, reshaping the interface between conservation policy and corporate operations.

In Aotearoa New Zealand, around 30% of the total land area is protected in some way, and Pham says the study highlights the need for policymakers here and overseas to strike a balance between achieving ecological goals and managing their associated economic impacts.

"We need to promote effective conservation planning and transparency in corporate biodiversity disclosures."

While around 200 of New Zealand's largest companies and biggest emitters are required to provide climate-related disclosures, there are currently no specific mandatory biodiversity disclosure requirements, something Pham says is worth considering.

"Transparency is so valuable in this area; understanding how companies are operating and responding to biodiversity conservation measures helps governments create policies that support both the environment and businesses."

In light of their findings, Pham and his co-authors say companies should integrate biodiversity risk assessments into their operational and location decisions. They also say investors need to recognize the regulatory risks stemming from proximity to protected areas, given the significant cashflow implications highlighted by their analysis.