Pavan Sukhdev describes how important sustainability in the sector economy is and how sustainability can be achieved. In particular, he explores on the term natural capital.
The term “capital” is an economic metaphor for “a thing of value”. It implies the existence of stocks of assets which have value and will, if used appropriately, generate or secure flows of benefits, such as income. The most popular economic definition of “income” was by Hicks (1946), who equated an individual’s ‘income’ in any given period to the amount of expenditure in that period which still left the individual’s capitalintact. A sense of ‘sustainability’ is captured here, as only sustainablespending (i.e. spending which leaves capital intact) is a measure of income.
Unfortunately, we live in a world in which many forms of capital face risks of depletion. Natural capitalis at risk from numerous directions as ‘Planetary Boundaries’ are rapidly approached and even breached, social capitalis being battered by increasing intolerance and polarization abetted by irresponsible politics, and human health, the mainstay of human capital, is increasingly damaged by pollution and indeed by our diets, which, delivered through an unsustainable food system, have become the main risk factor driving the global burden of disease.
We are also aware that these impacts on all these forms of capital are being driven by the economy’s main agent – the private sector – which accounts for two-thirds of global output and jobs. Despite that, today’s corporation is required by statute to quantify and report onlyits impacts on shareholder financial capital, and not its impacts or dependencies on any other forms of capital (human, natural, etc) belonging to various sections of society including
importantstakeholderssuch as employees, customers, suppliers, regulators, governments, citizens, the youth, etc. This makes very little sense from any perspective, be it that of transparency, or justice, or sustainability. We cannot manage what we do not measure, and without measuring sustainable corporate performance – i.e. performance that integrates natural, human and social capital externalities – how are we to succeed in achieving private sector sustainability? And if corporations are not sustainable, then how can the economy, of which they are the dominant part, ever become sustainable?
“Integrated Profit and Loss Reporting” or <IP&L> evolved as a corporate initiative in sustainability leadership, in response to the publication of the <IR> or Integrated Reporting Framework of the IIRC and the need to devise and use a wider-lens, ‘stakeholder’ view of corporate performance. This approach has been used (and in some instances, published) by many sustainability leaders around the world, such as Akzonobel (a European chemicals giant, in 2014), Amata (a forestry company in Brazil, in 2015), Yarra Valley Water (Melbourne’s water utility, in 2016), Sveaskog (Sweden’s largest forestry company, in 2018) and others. It is an approach and framework which draws from the Integrated Reporting Framework(“<IR>”, 2013) of the International Integrated Reporting Council (“IIRC”) and incorporates lessons for discovering & measuring natural capitalimpacts and dependencies from the Natural Capital Protocol (2016),a universal process guideline and framework prepared by the “Natural Capital Coalition” (‘Coalition’). The Natural Capital Coalition has grown from its origins as the “TEEB for Business Coalition” (2012) into a wide-ranging community of practice which targets a deeper understanding of corporate impacts and dependencies on natural capital. The consensus built by the Coalition has helped to support, replicate, and scale ‘best-of-breed’ work done by corporate leaders in sustainable business practice.
The four dimensions of the wealth (‘capital’) of third-parties (who could be individuals, or communities, or the public at large) most impacted by businesses are summarized in the table (below), with a few examples given of each asset class and type of ownership.
Table :Capital Classes & Ownership Categories: Examples from a Business Context