Navigating Ecological Risk: Firm‐Level Innovation Responses to Biodiversity Risks in the United States

ABSTRACT Biodiversity decline poses rising risks for firms, yet its effects on technological innovation remain underexplored. I thus investigate the influence of biodiversity risk on corporate innovation in the United States (US) from 2000 to 2023. I analyze firm‐level innovation along two dimensions: aggregate innovation, proxied by the cumulative number of patents granted, and green innovation, measured through environmentally oriented patents. To ensure robust estimation, a high‐dimensional Poisson pseudo‐maximum likelihood (PPML) framework is adopted. I reveal a consistent suppressive effect of biodiversity risk on overall and green innovation. The innovation response, however, exhibits significant sectoral heterogeneity: Utilities pursue broad modernization, real estate engages in compliance‐driven adjustments, and information technology firms tend toward strategic disengagement. I also identify three underlying mechanisms. Specifically, capital misallocation exacerbates the negative impact of biodiversity risk. Local market competition exerts a modest buffering effect, stimulating innovation in more competitive environments. Financial constraints unexpectedly lead firms toward targeted aggregate and green innovation under pressure from biodiversity. My research suggests that policies and institutions are needed to maintain stable innovation systems amid ecological and financial stress.