Usually the first thing someone with my background thinks of
when the word “capital” is heard is financial resources available to
organizations. One doesn’t typically
first think of humane, natural, social and manufactured forms of capital. Is financial capital all that different from
the previous forms of capital? Let’s
break it down…
Merriam-Webster defines capital as “(1): a stock of accumulated goods especially at a specified time and
in contrast to income received during a specified period; also: the value of
these accumulated goods (2): accumulated goods devoted to the production of
other goods (3): accumulated possessions calculated to bring in income.”
Forum for the Future lays out the “Five Capitals Model – a
framework for sustainability.”
1) Natural Capital – “natural resources and processes needed by organizations to produce
their products and deliver their services.”
Businesses can maintain natural capital levels by only use materials that
are abundant. They can avoid waste by
reducing, reusing and recycling. Using
renewable resources instead of only fossil fuels reduces carbon footprints and
keeps our air and waterways cleaner.
2) Human Capital – “incorporates the health, knowledge, skills, intellectual outputs,
motivation and capacity for relationships of the individual.”
Some employers exploit or take advantage of their employees. A happy, healthy employee is a productive
employee. Placing precedence on human
rights and human values will pay itself back in dividends. Mentoring and training employees creates
loyalty and promotes sharing of knowledge.
Employee benefits are one of the biggest expenses on a company’s income
statement but there are many things that can be done that cost next to nothing
to supplement employee recognition programs.
3) Social Capital – “any value added to the activities and economic outputs of an
organization by human relationships, partnerships and co-operation.”
Businesses should provide
supportive working conditions for employees and families. By supporting the communities that the
organization serves can have a positive impact on society. Ethical and fair treatment of all
stakeholders is key to creating valuable and meaningful relationships.
4) Manufactured Capital – “material goods and infrastructure owned, leased or controlled by an
organization that contribute to production or service provision, but do not
become part of its output”
Efficient use of manufacture capital gives
businesses to innovate and forge ahead as a market leader. By looking at things such as zero-waste and
biomimicry, businesses can create a more sustainable manufacturing
process.
5) Financial Capital – “assets of an organization that exist in a form of currency that can be
owned or traded, including (but not limited to) shares, bonds and banknotes. “
Again, this is probably the first
thing most people think of when they hear the term “capital.” Let’s take this concept a little bit further
by thinking about more than just a single bottom line. What if we placed emphasis on different types
of numbers and looked at things such as how wealth is fairly distributed, assigning
costs to social and environmental values and understanding how wealth that is
created impacts local communities an organization serves.
This framework was designed to allow organizations to better
understand what sustainability looks like for its operations, products and
services. In contrast to our traditional measurements of
capital, the goal of the Five Capitals Model tool is to consider the impact of
the organization on each of the five capitals in an integrated manner so
trade-offs can be avoided.
With this framework businesses can move to an approach of
considering the triple bottom line approach.
This model just doesn't have to be about sustainable businesses. These concepts are just smart and a better
way to do business!
I always appreciate your insights and expertise, Emily. You have a talent for making difficult subjects easy to understand. The tangible examples of each form of capital was really helpful. I am interested to learn ways in which you have seen them used in the triple bottom line approach. I look forward to reading your next post on value to learn more!
ReplyDeleteHi Emily,
ReplyDeleteAs I was reading your blog post about capital, I was struck by the notion of manufacture capital. So, when we think about manufacture capital, we think about how we’re making a product and that made me think about how many products we’re making. Then, I started thinking about the image of all the cars in the fields (from a collaborate a few weeks backs) that will basically sit there and rot and corrode the soil and pollute the environment as they do so. I also thought about what Marsha told us that manufacturers used to sink overstock cars in the ocean. What the heck? Shouldn’t there also be another form of capital like overstock capital or something that can be tracked, measured and that companies that overproduce can be fined for? Contra-capital.
-Hillary
Way to always bring it back to animals...birds and the bees! It's so refreshing to get your perspective with your numbers background. It's helpful to talk about things in context with concrete examples. So often we end up talking about these issues at such a high level they begin to lose their true meaning.
ReplyDelete