The multiple capitals model
The multiple capitals model
by James Bonner, independent sustainability contact
As initially introduced in a previous blog post in this series (Natural capital as a material issue) the concept of multiple ‘capitals’ is an approach to sustainable development theory that extends the notion of capital, in a traditional economics sense, to broader sustainability issues. While the conventional economic definition of capital – essentially the manufactured goods which produce, or facilitate the production of, other goods and services – serves to account for the durable goods which are a means of production for businesses, it ignores the vital inputs garnered from the natural environment and society. The fundamental essence of the concept of capital is that it is a stock or asset that provides a flow of goods and services for the benefit of human wellbeing. However, it is quite clear that the narrow traditional economic definition does not adequately cover all of the sources that businesses gain benefits from and that there are sources of capital beyond simply the manufactured assets of an organisation which facilitate production and economic output.
It is increasingly recognised that capitals such as natural resources, human knowledge and social cohesion are vital stocks/assets which business and the economy in general draw upon for their products and services. As such, a number of models considering multiple capitals have been developed and supported by various bodies in the past few years – the World Bank, the OECD, and DEFRA – aiming to recognise and distinguish these wider stocks and assets. The IIRC are one such significant body who are incorporating the concept of a multiple capital model into their work, and have, through their Discussion Paper ‘Towards Integrated Reporting: Communicating Value in the 21st century’ and subsequent consultation with stakeholders, begun investigating both how the capital model might be applied to corporate reporting, and the boundaries/types of capital it might include.
Indeed, at this stage, the IIRC have proposed 6 categories of capital, each of which interact and interconnect with one another- and consequently are the fundamental resources that organisations rely upon to function and deliver their products and services. The following extract from the IIRC’s discussion paper highlights these different capitals- financial, manufactured, human, intellectual, natural and social- offers a definition of each, and describes how they might manifest themselves in the context of a business or organisation:
The primary purpose of an integrated report is to explain to financial capital providers how an organization creates value over time. The best way to do so is through a combination of quantitative and qualitative information, which is where the six capitals come in.
The capitals are stocks of value that are affected or transformed by the activities and outputs of an organization. The Framework categorises them as financial, manufactured, intellectual, human, social and relationship, and natural. Across these six categories, all the forms of capital an organization uses or affects should be considered.
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