Investopedia: DEFINITION of 'Green Economics'

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Green Economics
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DEFINITION of 'Green Economics'

Green economics is a methodology of economics that supports the harmonious interaction between humans and nature and attempts to meet the needs of both simultaneously. The green economic theories encompass a wide range of ideas all dealing with the interconnected relationship between people and the environment. Green economists assert that the basis for all economic decisions should be in some way tied to the ecosystem, and that natural capital and ecological services have economic value.
BREAKING DOWN 'Green Economics'

The term 'Green Economics' is a broad one (it's a term that's been co-opted by groups ranging from 'green anarchists' to feminists), but it encompasses any theory that views the economy as a component of the environment in which it is based. Green economists generally take a broad and holistic approach to understanding and modeling economies, paying as much attention to the natural resources that fuel the economy as they do the way the economy itself functions.

Broadly speaking, supporters of this branch of economics are concerned with the health of the natural environment and believe that actions should be taken to protect nature and encourage the positive co-existence of both humans and nature. The way that these economists advocate for the environment is by making an argument that the environment plays a pivotal role in the economy, and that the health of any good economy is essentially determined by the health of the environment it is an essential part of.

In many ways, green economics is closely related to ecological economics in the way that it views natural resources as having measurable economic value and in how they focus on sustainability and justice. But when it comes to the application of these ideas, advocates of green economics are more politically focused. Green economists advocate for a full cost accounting system in which the entities (government, industry, individuals, etc.) who do harm to or neglect natural assets are held liable for the damage they do.

There are a few different definitions of a Green Economy or 'Green Economics.' In 2012, the International Chamber of Commerce (ICC) stated in their Guidebook To The Green Economy that a green economy is one "in which economic growth and environmental responsibility work together in a mutually reinforcing fashion while supporting progress and social development." Some of the ways that green economics has made its way into the mainstream has been by way of consumer-facing labels indicating a product or a business' degree of sustainability.
Green Investing
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Often conflated with socially responsible investing (SRI), green investments are essentially investment activities that focus on companies or projects that are committed to the conservation of natural resources, the production and discovery of alternative energy sources, the implementation of clean air and water projects, and/or other environmentally conscious business practices. Green investments may fit under the umbrella of SRI, but are fundamentally much more specific.

Pure play green investments are those that derive all or most of their revenues and profits from green activities. Green investments can also be made in companies that have other lines of business but are focusing on green-based initiatives or product lines.
BREAKING DOWN 'Green Investing'

The term "green," despite becoming a nearly ubiquitous term, can be somewhat vague. When people talk about "green investments" they're speaking generally of investing in activities that, in a popular context, can be considered good for the environment in a direct or indirect manner. This style of investing is an offshoot of socially conscious investing, but neither type of investing implies investments that are safer than a market index such as the S&P 500. In fact, investing in "green" companies can be riskier than other equity strategies, as many companies in this arena are in the development stage, with low revenues and high earnings valuations. However, if investors find protecting the environment by encouraging eco-friendly businesses to be important to them, green investing can be an attractive way to put their money to work.
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