Ecology Economics: Sustainable Investment and Market Structures

This essay delves into the concept of sustainable investment, defining it as an investment approach that balances the needs of the present with those of future generations. It explores the crucial interplay between economic growth and environmental conservation, emphasizing the need for mechanisms to internalize the costs of environmental degradation. The essay examines the interconnectedness of environmental, economic, and social sustainability, highlighting the importance of equitable natural resource allocation and market structures in promoting sustainable investment. It further investigates the relationship between sustainable investment and economic growth, including the role of market structures in correcting imbalances caused by non-priced natural resources. The essay also references the Environmental Kuznets Curve, which suggests that environmental degradation initially increases with economic growth but eventually decreases as income rises. The essay concludes by advocating for a shift towards environmental maintenance and sustainable investment practices for long-term equitable development.

Economics 1
ECOLOGY ECONOMICS
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Economics 2
SUSTAINABLE INVESTMENT
Introduction
The concept of sustainable investment is derived from the ecological term, sustainable
development i.e. an investment that meets the needs of the current generation without
compromising the needs and ability of the future generation. It was first brought in to limelight
in early 1980s with an effort to find an alternative path for the environmental oriented
individuals who advocates for a zero pollution of the environment (Broman and Robèrt, 2017 p.
20). The global recognition of the linkage between environment and economic sustainable
development during the International Union for the Conservation of Nature (IUCN) conference
made sure that the term sustainable investment was clearly defined in order to maximize both
environment conservation and economic growth.
The concept of sustainable investment disguise of the green economy in that it
incorporates the needs for adopting sustainability parameters while at the same time taking in to
account the environmental risks associated with economic growth (Spash, 2017 p.19). As a
result, there is a trade-off that plays out between economic growth and environmental
conservation whereby for one to increase economic growth in terms of investment, the there
must be mechanisms that promotes environmental conservations. It therefore enforces
mechanisms that proficiently promote environmental policies that create conditions for the
economic agents to internalize the costs of the degradations caused to the environment (Broman
and Robèrt, 2017 p. 24).
To have a sustainable investment, state mechanisms are but not sufficient to correct the
market failure through private purchase or price mechanisms of the natural resources. To

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mitigate these failures, there must be economic signals that ensure that scarce resources are put
in to use with considerate to the dynamic intertemporal allocation mechanisms based on the cost-
benefit mechanisms that eliminates uncertainty and risks of loss (Broman and Robèrt, 2017 p.
27). As a result, this paper will explore crucial points that not only define the broader
understanding of the sustainable investment brought about by the economic development and
growth, but also to explore human developments that promotes exploitation of available resource
stock. In addition, this paper will explore the hypothesis that relates the sustainable investment
that contributes towards meeting basic human needs with consideration to economic growth and
market structures.
Environmental Sustainability
In order to achieve environmental sustainability, natural resources should retain the total
utility function for a long period so that actions taken in balancing environmental actions and
economic actions should balance in the equilibrium (Rossi et al., 2019 p. 110). This will
therefore promote positive economic growth rate while any action that disrupt the balance in the
environment should be circumvented but in case there is an occurrence, then they should be
limited to a less magnitude (Rezai and Stagl, 2016 ). Environmental actions should be factored in
when making decisions on a sustainable investment plan so as to promote equitable natural
resource allocation. A factor such as pollution to natural resource management helps to minimize
the impacts of the human activities that promotes profit maximization and further encourages
restoration of preservative natural resources. As a result, with sustainable environment,
investment will be attainable since natural resource social and monetary value has been captured
in the pricing thus promotes environmental sustainability.

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Economic Sustainability
This is the ability of the economy to delineate its economic production imprecisely i.e.
where economic costs can be inferred from every decision made but in a prudent manner with
respect to other variables that includes prices, human capital, and market structure. However,
economic sustainable results in investment sustainability since with increased capital to invest in
a new project; there is an increased environmental degradation that must be accompanied by
increased natural resource price labeling (Thampapillai and Ruth, 2019). As a result, with firms
maximizing its profit without considering the environmental impacts, the need to incorporate
social and environmental sustainability in order to promote sustainable investment should be
promoted.
Economic sustainability includes product subsidies and tax holiday for the green
environment developers thus leading to a rational and environmental friendly investment.
Economy is all about safeguarding available resources thus explains the usefulness of the scarce
resources in today’s value as to future generation. Economic value of natural resources is
explained using value added, asset prices, saving factors, and patent rights. As a result, economic
sustainability will promote sustainable investment when human resource allocation is rationally
portioned to create a long term sustainable value through optimal use and recovery of recycling
of natural resource goods (Spash 2017 p. 15). It therefore shows that conservation of natural
resources in today’s environment will be an indicator for future generation thus leading to
sustainable investment.

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Social Sustainability
Social sustainability promotes the concept of intra-generational justice i.e. future
generations are regarded to have greater quality of life as the current generation. As a result,
environmental conservation will help to promote human rights and health equity through public
participation that promotes economic growth and development (Schaltegger et al., 2019). As a
result, if social sustainability is not given much attention, just like environmental and economic
sustainability, then sustainable investment may collapse thus leading to imbalance economic
growth (Thampapillai and Ruth, 2019). The government should protect the interest of future
generation against the effect of irrational investors through imposing tough rules that conserve
environment. These includes the legislation of a certain limit of penalty that in case a person
does not adhere to some environmental regulations when carrying out business, they should pay
or be penalized. This is called the Pigou discount which gives tax relief to those who promote
economic conservation but penalizes those who degrade the environment (Chan et al., 2017
p.119).
Sustainable Investment and Economic Growth
Sustainable investment has been treated as a communistic, postulated argument that is
used by antagonistic ecological and environmentalists to denounce the relationship between
sustainable investment and economic growth (Campbell and Heck, 2017 p. 52). Commonly
referred to as socially responsible investment, sustainable investment is the process of
incorporating environmental, social, governance, known as ESG factors in the investment
decision making processes (Chan et al., 2017 p. 120). As a result, individuals who promote

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sustainable investment chose so to help generate measurable social and environmental impacts
that promote economic returns. As a result, these impacts spill-over to various economic sectors
from climate change industries, renewal energy, to health and community developments. As a
result, along with the changing global era, investments are also transforming in different forms to
be economically, environmentally, and socially sustainable thus promotes economic growth.
According to Cahen-Fourot and Lavoie (2016 p. 164), sustainable investment makes
emphasis on sustainability process that promotes economic growth and development through
enhanced environmental, social, and governance factors. For instance, relationship between
economic growth and indicators of air qualities shows that economic empowerment does not
promote environmental pollution in the long run. However, the connection between sustainable
investment and economic growth depends on the level of income that the private and government
receive as a result of economic return (Saunila et al., 2018 p. 636).
According to Stern (2018 p. 52), there is a U-shaped relationship between the private and
public income and the environmental quality. It therefore confirms the Environmental Kuznets’
Curve (EKC) that presents a relationship between the environmental factors and income per
capita where it states that during the early stages of economic growth, there is an increase in
environmental degradation and pollution. However, beyond a certain stage of per capita income,
there trend reverses i.e. a high income leads to an improvement in environmental management
(Bissoon 2018 p. 71). It can therefore be interpreted that environmentally, the level of water
pollution increases rapidly as income approaches middle-income, with a long run decrease in the
degradation. The relationship between income and pollution provides an avenue to link the
sustainable investment and economic growth with enhanced and cleaner environmental friendly
technologies (Cahen-Fourot and Lavoie, 2016 p. 167).

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Measurements of the environmental costs and benefits is a major step in formulating
policies to help mitigate environmental, social, and governance obstacles brought about by the
increase demand for economic growth. In macroeconomic analysis, failure to estimate net
national product to incorporate environmental resource amounts to ascribing the depreciation to
zero thus leading to biased technological choices (Rezai et al., 2018 p. 170). It therefore shows
that it will always be appropriate to consider incorporating environmental depreciation thus
lowering profit maximization oriented economies but promotes ecological conservation. For
instance, in economy like Costa Rica, it is estimated that about 10 percent of the GDP increase is
due to depreciation of its forest conservation. These observations have severe economic
consequences since it will only promote profit maximization with low environmental
conservation factors (Cahen-Fourot and Lavoie, 2016 p. 168). To mitigate these problems of
non environmental conservation, there should be changes of measurements, production, and
lifestyle to help provide sufficient preservation of environment to the future generation.
Sustainable investment incorporates investment in an environmental maintenance
economy which at the same time may lead to a decline in income growth by approximately one
percent in the short run in order to conserve environment. However, in the long run, there will be
rapid and global equitable development brought about by the environmental conservation
mechanisms. This is because a policy that facilitates economic growth, and lead to adequate
natural resource pricing provides a basis for enhancing environmental conservation. According
to Broman and Robèrt (2017 p.30), establishment of a pricing mechanism for natural resources
that reflects true value will always promote sustainable investment since maximization of profit
will be incorporating the true monetary value of these resources. However, if investors and
policy makers fail to price natural resources at their economic cost, there will be increased

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degradation in the present usage time thus undermine future generation ability to utilize the
resources in a sustainable manner (Kornafel and Telega, 2018 p. 255).
Role of Market Structure in Promoting Sustainable Investment
Market plays a major role in correcting the disequilibrium mechanisms create about by
non-priced natural resources. As a result, to understand social adaptation of the scarcity, Homer-
Dixon (1995), argued that ingenuity is created when a society is able to provide ideas that is
supply oriented than demand oriented in order to promote resource allocation. Initially, it has
been argued that nature is endowed with abundance resources thus has no value because it is
supplied in abundance (Busby, 2018 p.471). However, due to human intervention in
environment, there has been an increased environmental degradation thus leading to decline in
supply side. As a result, there have been government regulations to help in cost sharing in order
to stabilize the market.
According to Charter et al. (2017 p. 60), the strong sustainable investment model of non-
substitutability between the natural resources and man-made capital as the sustainability of
natural capital stock at a given level in order to maintain it at an ecologically determined level. It
therefore allows for the natural capital to be used beyond its critical level when the opportunity
cost of not utilizing it is too large thus providing an opportunity to compare and contrast the
investment return rate.
Given that regulating ecosystem services is an obstacle to the government, there has been
need to create market values that assumes the pricing of the utilities derived from the
environment in terms of natural resource gains (Hernández-Blanco and Costanza, 2018 p. 260).
This is because ecosystem affects both the firms’ objectives in terms of profit maximization and

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the wellbeing of individual in terms of return derived. However, these are just but financial
incentives that participants in the ecosystem receive from its utilization. It is worth noticing that
those who reduce ecosystem services hardly bear full costs but passes the same costs to
consumers, neither those who supply these services does not get reward for the benefits they
provide to the public (Cahen-Fourot and Lavoie, 2016 p. 166). With non –existent market
structure for the ecosystem, whenever government allow people to act in their own private
interests leads to low provision of ecosystem services than at the optimal stage when there is
market mechanisms. As a result, availability of market structure provides the public and private
citizens an opportunity for rewards thus encouraging resource management through provision of
monetary incentives (Roquetti et al., 2016 p. 33).
The need to regulate price in the market for the natural resources is very essential in
sustainable investment since if left in the hands of monopolists, there will be no social benefits to
the community but only profit maximization (Fenichel and Hashida, 2019 p. 122). As a result,
we may not deny that market institutions make understand the essential importance of the
services that ecosystem provides to the economy. However, the need to dictate the supply side
phenomenon of an economy that includes human health, labor market, and welfare promotion is
very important in promoting ecological services that generates significant economic growth
factors (Thampapillai and Ruth, 2019).
Ecological Cost Benefit Analysis
Ecological Cost benefit analysis is the quantitative analysis that helps to evaluate the
pertinence of an action that results in improving the sustainable investments for the near future
generation. As a result, we are going to look at the long run calculation that aims to improve the

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ecological events that consumers are always faced with in the decision making. For an instance,
assuming that an investment is costing C at time zero but produces improved product ε in the
ecological time frame, T. from the description, it shows that the proposed economic reform must
evaluate the margin cost benefit in terms of social interest and benefits for the actions taken with
considerate move to conserve the ecology. However, the result will therefore not prejudice the
characteristics of optimal ecological policies in the long run in order to promote equity. It is
therefore prudence to analysis economic evaluation of such events but with considerate
understanding for the generation T, with a private discount rate.
Letting VTy be the generation T’s willingness to pay for a unit improvement in the
environmental conservation, the social value of the increased unit, known as the private good, t,
will be optimized at . In the long run, we will have which is the investment
profitable discount but it holds only if
The above equation shows that the future generation has zero willingness to pay for the
increased unit for the maintenance of ecology at quality VT0. Thus, the movement between
VTy and VT0 is regarded to hold only if the relative price is consistent with the introduction of
VT0 in the environmental conservation. From the above cost benefit analysis, it is clear that for an
economy to have a sustainable investment the price of goods must increase by a unit that will be
used to cover for the ecological maintenances or else there will be an increased ecological
degradation in the near future (Baumgärtner et al., 2017 p. 53).
According to Chan et al. (2017 p.121), social benefits of a sustainable investment are
related to the improved quality of goods and services offered. However, if the community does

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not recognize the need to incorporate the importance of natural resources monetary values, then
social benefits including healthy living with no environmental degradation will not be achieved.
These benefits are realized at different levels which also take in to consideration the social costs
for improving the quality of the products given a certain level of price (Ippolito, 2017 p. 10).
Social costs are the sum of the private cost and the external cost that reflects the private cost in
ecology. For instance, water and air is generally polluted as a result of private need for car
producers and car users who passes the same cost to the external no-users. As a result consumers
bear these costs which generally lead to an increased price of the car and fuel without their
benefit (Thampapillai and Ruth, 2019).
Consumer’s willingness to pay (WTP) increases the offered value as an increased unit
value for the green products which necessitate the increased need for the green products with
improved quality. As a result, consumer will always have the last say on how to govern their
WTP with respect to their instinct thus suggesting that there is need for environmental awareness
in promoting economic growth (Biswas and Roy, 2016 p.213). Willingness to pay will always
necessitate the need to increase the price of the products since green products will have an added
unit price that in turn leads to environmental conservation. According to Rezai et al. (2018 p.
169), resources allocation is very essential in investment thus, the concept of the net present
sustainable values is a strategic mechanism that expounds on the value for resource allocation
rather than just capital accumulation. Despite its helpful in cost benefit analysis, Net Present
Value for ecosystem products is complex in nature since it does not result in assigning accurate
values for the natural resources (Fontana and Sawyer, 2016 p. 191). In addition, the use of NPV
is money oriented thus it is difficult to assess the value of natural resources since many natural
resources often increase in both social and monetary value over a period of time.

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Conclusion
Environmental, economic, and social sustainability are major components in promoting
sustainable investment. With environmental friendly components, the investment will take a
positive shape that at long last helps to increase the return rate given that the natural resources
will be in plenty for use. At the same time, technical macroeconomic solutions should be put in
place that helps to promote sustainable investment by the government. For instance given tax
relief to the investors who conserve environment will be added advantages. This will help to
empower the communities to consider ecological elements as essential human benefit.
The use of Environmental Kuznets’ Curve (EKC) in a sustainable investment model
analysis has helped to put more emphasis on economic growth and development which enhances
both the social and governance factors. Investment is a major component of the income thus an
increase in income will lead to an increased investment and saving. However, with increased
investment, non concerned investors are generally looking at ways to improve the profit
maximization analysis without taking in to consideration the costs that d to the consumers in
terms of environment conservation. As result, thus paper recommends that the government
should put legislations that penalize environmental pollutants since it is one of the best
macroeconomic policies to minimize the environmental degradation.
This paper also recommends that there should be mechanisms that help to price the
natural resources in terms of their monetary value to reflect the true value in the market. This is
because in profit maximization mechanism, there will be need to increase the output with
minimal capital but without pricing the natural resources that account for a larger part of the
capital in terms of resources and human capital, there will not be enough resources for the future