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Date: 2024-10-31 Page is: DBtxt001.php txt00012013
BOOK by JANE GLEESON-WHITE
Six Capitals: Can Accountants Save the Planet?

The Revolution Capitalism Has to Have
Rethinking Capitalism for the 21st Century



Original article: http://www.smh.com.au/entertainment/books/review-six-capitals-by-jane-gleesonwhite-on-accounting-for-the-environment-20141213-1262xc.html
Peter Burgess COMMENTARY
I agree very much with the author Jane Gleeson-White that a singular focus on money, profit and financial capital has outlived its utility and needs to be augmented to take into consideration all the other capitals. The author talks about six capitals:
  • financial capital;
  • manufactured (or manmade) capital;
  • intellectual capital (including intellectual property such as patents);
  • human capital (skills and experience);
  • social and relationship capital; and
  • natural capital (environmental resources and processes).
My preference is to work with three 'top' capitals and subdivide these three as much as needed to address specific issues. In TrueValueMetrics (TVM) the 'top' segmentation of capital is:
  • Social Capital
  • Natural or Environmental Capital
  • Economic Capital
Financial capital; manufactured (or manmade) capital; and intellectual capital (including intellectual property such as patents) are all part of TVM's 'Economic Capital'

Human capital (skills and experience); and social and relationship capital are part of TVM's 'Social Capital'

Natural capital (environmental resources and processes) are TVM's 'Natural or Environmental Capital'.

In the dim and distant past I did a lot of work with multiple currencies which substantially complicates conventional accounting and reporting. Somewhat similar issues arise with the 'numbering' that is needed for practical and efficient accounting, reporting and management of a multi-capital system. The use of money or currency as a measure within the social capital segment and the environmental capital segment of the system is not a viable solution even though it has been used for decades, if not centuries. Something better is needed and the TVM initiative is a step in the right direction.

Specifically there needs to be a 'unit of value' associated with the multiple social capitals and activities as well as another 'unit of value' for environmental (natural) capital and activities. These are in addition to the money unit of value that is now used for economic activities.

How the 'value' of the unit of value associated with social capital relates to the 'value' associated with environmental capital and the 'value' of the money unit for economic capital needs to be a subject of substantial dialog
Peter Burgess
Six Capitals: The Revolution Capitalism Has to Have - or Can Accountants Save the Planet? by JANE GLEESON-WHITE

Book Review by Ross Gittins


DECEMBER 20 2014

Six Capitals by Jane Gleeson-White proposes measuring profit in a different way. 2014

Society ... Six Capitals: The Revolution Capitalism Has to Have - or Can Accountants Save the Planet?

Looking at the way politics is moving in Australia, America and many other countries, it's not hard to conclude the economy is being run for the benefit of big business. It's discouraging enough to evoke a horse laugh to the question in the subtitle of Jane Gleeson-White's book, Six Capitals: Can accountants save the planet?

Gleeson-White, author of the best-selling Double Entry, is the great populariser of accounting. If she can't get you interested in accountants, no one can. But how could the world's most mild-mannered profession bring about 'the revolution capitalism has to have'?

It's hardly a dead cert, but the idea has more going for it than you might imagine.

As Gleeson-White explains, there is growing recognition of the failure of our existing measures to account adequately for all the factors affecting our wellbeing. This is true of accounting at the levels of both the nation and the individual company.

We treat gross domestic product as a single quarterly measurement of changes in our wellbeing, which it isn't and was never intended to be. Economists know this in theory, but ignore it in practice.

GDP measures the change in our combined incomes, but in the process ignores all the human cost involved in the generation and spending of that income – the overwork, traffic congestion, stress and so forth – and also the costs to the natural environment.

The deficiencies in the way companies account for their activities, which Gleeson-White outlines, are less well-known. They measure the business' profit for the period simply by taking the value of its sales and deducting the market price of any expenses it incurred in producing that product.

The focus is exclusively on reporting to the company's shareholders (and the taxman) its financial profit or loss and thus the change in its financial capital. As Gleeson-White's title implies, this ignores five other sources of value that can be thought of as capitals: manufactured (or manmade) capital; intellectual capital (including intellectual property such as patents); human capital (skills and experience); social and relationship capital; and natural capital (environmental resources and processes).

Gleeson-White's good news is that accountants have recognised these measurement deficiencies and started work on correcting them. In 2012 the United Nations endorsed a new international standard for countries' national accounts requiring environmental measures to be integrated with the conventional economic measures.

But although our own [Australian] Bureau of Statistics is at the forefront of the extensive conceptual and measurement efforts needed to bring such integrated accounts into being, it will be a long time, if ever, before we see such a thing as 'green GDP'.

Her news on company accounts is more hopeful. Efforts to make business reporting more comprehensive are progressing on many fronts. Their unifying feature is a desire to extend corporate accountability beyond shareholders to a wider range of stakeholders by adding to the present concentration on financial value much reporting of 'non-financial value'.

Progress ranges from groups promoting the 'triple bottom line' – profit, people and planet – and the 'balanced scorecard' to the efforts of the International Integrated Reporting Council to create 'a globally accepted framework for accounting for sustainability'.

Then there's America's Sustainability Accounting Standards Board, informally linked to the US government's Securities and Exchange Commission, which is developing non-financial reporting standards for 89 industries.

As Gleeson-White acknowledges, these developments aren't without difficulties or detractors. Just how do companies put monetary values on environmental and social 'assets'? Many activists object to the natural environment being subsumed by business as some form of 'capital' and worry (as I do) about the risk of a $10 million new building being regarded as a fair substitute for $10 million-worth of species destruction.

A common objection is that broadening a corporation's concerns beyond the pursuit of profit and shareholder value is simply contrary to company law. But by mid-2014, 26 US states had passed legislation permitting companies to register as 'B corporations' with explicit social and environmental objectives, with a further 14 states working on it.

This is impressive evidence of real change afoot. And people underestimate the influence of the world's bean-counters because they don't realise the almost mystical power of measurement over our lives.

Humans are a measuring animal. We use measurement to motivate, direct and correct our activities, from the watches that control our daily movements, to speedometers, odometers and exam marks. Even wine advertisements now quote a wine's rating along with its price.

We live in the age of 'metrics', with business people convinced that 'what gets measured, gets managed'.

So broaden financial reports to include measures of social and environmental issues and just watch how it changes the behavior of business people. Gleeson-White makes a good case for the success of her unlikely revolutionaries.



Allen & Unwin, $32.99

Six Capitals, or Can Accountants Save the Planet?: Rethinking Capitalism for the Twenty-First Century

Jane Gleeson-White

A timely and fascinating account of the revolution going on in the world of finance from the acclaimed author of Double Entry . This is the story of a twenty-first-century revolution being led by the most unlikely of rebels: accountants.

Only the second revolution in accounting since double-entry bookkeeping began, it is of seismic proportions, driven by the 2008 financial crash and our ongoing environmental crisis. The changes it will wreak are profound and far-reaching and not only will transform the way the world does business but also will alter the nature of capitalism.

While the wealth of nations and corporations has been vital to the global economy, increasingly the world is coming to realize that such endless growth is limited by the earth's resources and comes at a huge price to the planet and to human well-being. It simply cannot be sustained.

This revolution demands that we go beyond merely accounting for traditional financial and industrial capital and take account of the benefits and detriments to the natural world and society. It urges us to include four new categories of wealth: intellectual (such as intellectual property), human (skills, productivity, and health), social and relationship (shared norms and values), and natural (environment).

Making them part of our financial statements and GDP figures may be the only way to address the many calamities we face. Just two years ago this revolution seemed idealistic and unlikely. Today it is quickly unfolding.

In 2012, the sea-change year, two key initiatives took root: an international movement to transform how corporate accounting is calculated and the rise of incorporating the effects on the environment to the accounting of national and global economies.

Six Capitals tells the story of this coming new age in capitalism, evaluating its promise and the disaster that lies ahead if it is not implemented



The text being discussed is available at
http://www.smh.com.au/entertainment/books/review-six-capitals-by-jane-gleesonwhite-on-accounting-for-the-environment-20141213-1262xc.html
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