Environmental sustainability from the perspective of assets diversification: A comparative empirical analysis for developed and developing countries

Abstract

Assets have an important role in sustainability discussions. The substitutability aspects of assets deal with weak and strong sustainability criteria. Weak sustainability enables substitutability between natural and man-made assets while strong sustainability requires the maintenance of natural resources and individual assets. In this respect, this study conducts a comparative empirical analysis of 126 developed and developing countries over the period 1995 to 2018 to investigate the significance of diverse assets such as natural capital, produced capital, human capital, and financial capital on environmental sustainability. Ecological footprint and biological capacity are used as detailed environmental sustainability indicators. The results based on the Fixed Effects Model and Generalized Method of Moments suggest that natural capital has a great potential for the environment and produced capital is environmentally unsustainable while human and financial capital have heterogeneous effects on the environment in developed and developing countries. The study also employs adjusted net saving (as an environmental sustainability indicator) and income group analysis for robustness checks. The findings of the study suggest that the protection of renewable natural capital, including its ability to regenerate is a core aspect of sustainability and the diversification of assets can reduce pressure on natural capital. Cooperative climate policies can enhance the benefits of investing in a diverse portfolio of assets and can help in achieving environmental sustainability.