From Monocapitalism to Multicapitalism: The Forewords

In December 2020, r3.0 published its first White Paper — From Monocapitalism to Multicapitalism: 21st Century System Value Creation — written by our Senior Director Bill Baue. Last month, we kicked off our series of Medium articles on this White Paper with a broad-ranging review of the paper by Lois Guthrie. Now, we move to the Paper itself, summarizing it here in our Medium feed with a series of posts excerpting key selections.

We start out with the Forewords — four of them altogether, authored by:

  • International Integrated Reporting Council (IIRC) CEO Charles Tilley;

Charles Tilley | CEO | International Integrated Reporting Council

The issues challenging the world today are stark and wide ranging. The International Integrated Reporting Framework identifies six key drivers of value that a business uses and effects to create, preserve or destroy value, which we call capitals. In mapping these capitals to the global megatrends prevalent in the world today, it is clear that these issues are bigger than any one business. But business and investors are recognizing the increasing role they must play in addressing the issues that are vital to the long-term sustainability of society and our planet.

Given the current climate crisis, natural capital is an obvious place to start. The urgency that comes with the risk posed to us all by climate change is clear and action is needed now, by every business, government, investor and individual, to tackle it.

The economic implications of the Covid-19 pandemic will have wide-ranging and lasting implications for the management of financial capital. The response by governments around the world is likely to affect this and future generations.

Covid-19 is also pushing the global inequality gap further in the wrong direction, as human capital considerations become increasingly vital for businesses to take into account in the way they think, plan and report.

In recent years, the G20 has shone a spotlight on a growing infrastructure gap, with the mobilization of private resources needed around the world to ensure physical and digital access to economic opportunities, demonstrating the need for many organizations to reassess their approach to reporting manufactured capital, taking into account not just the assets they own, but access to public infrastructure that they use and affect.

The Sustainable Development Goals (SDGs) paint a clear picture of the need for a comprehensive approach to social and relationship capital, so that together as a society we can achieve “a better and more sustainable future for all”.

And finally, with automation and digitalization prompting new risks and opportunities about the future of the workforce and the way we interact with the businesses we use; stakeholders are going to be looking for further clarity about an organization’s intellectual capital and its approach to knowledge-based intangibles.

The capitals touch on the megatrends in society today and how we respond to them now will affect our future. It is obvious that we cannot continue with a primary focus on financial capital, we must shift towards a multi-capital outlook.

The awakening to these issues, and the role businesses must play in tackling them, has been both widespread and positive over recent years. Over 2,500 businesses in more than 70 countries have started using the <IR> Framework’s multi-capital model.

However, the changes we need to see are both to the way companies report and the way they behave, develop their strategy and its implementation through their business model.

We need to have some challenging conversations about how we ensure this happens universally around the world — to really drive changes to the way our markets operate.

The ideas that r3.0 have put forward in this White Paper fall in to the ‘challenging’ bucket — the best thought leadership often is. For some, it will be an uncomfortable read about the changes r3.0 perceive as necessary to embed multi-capitalism. Indeed, the IIRC will not, as a broad coalition, be advocating for all of the ideas put forward. However, it is important that we have these discussions and understand the history, realities and future needs of multi-capitalism.

We commend r3.0 for the insight and foresight set out in this White Paper.

Charles Tilley OBE
CEO | International Integrated Reporting Council (IIRC)

Richard Howitt | Former CEO | International Integrated Reporting Council

When I first encountered the concept of ‘human capital’, some years ago, I recoiled. How could human beings be reduced to being described, in just the same way as units of the economy?

But I came to learn, that in a world of multi-capitals, it is financial capital which is considered to be just one unit of the world — a world in which all of its resources are valued.

It was also essential in this world of finite resources, depleting fast, that we are able to measure business impact on the capitals, in order to save them for future generations.

The phrase ‘do no harm’, simply cannot apply in the complex world of business. Attributed to the Greek physician Hippocrates, it is actually hypocritical for any corporate to ignore his or her responsibility to analyse and manage the company’s use of external resources — capitals — on which every business and every person depends.

The apparent indifference of some in business to this responsibility, has fostered the anti-capitalist movement: Occupy Wall Street, the ‘gilets jaune’ and Extinction Rebellion.

These movements have a legitimate role in free societies, but have not spawned any convincing alternative to capitalism, which does not itself risk impinging our broader freedoms.

Capitalism needs to be transformed, not overthrown.

That is the importance of the concept of ‘Multicapitalism’, on which this paper is the culmination of a two-year project.

This White Paper is the most comprehensive study of the theoretical underpinnings of Multicapitalism, a lucid description of its methodologies, and an illustration of how the concept has been applied in companies and — in the case of New Zealand — a whole economy.

It certainly builds on visionary thinking from E.F. Schumacher to John Elkington, from Adam Smith in history to Kate Raworth in the modern day.

The project had its roots during the period when I had the honour of leading the International Integrated Reporting Council and reflects the commitment to the ‘Sustainability Context’ principle that sets the conceptual foundations of Sustainability and Integrated Reporting. The research has been expertly undertaken by the incredible network of people and ideas generated by the think-tank r3.0 and its own vision of a transformation journey, and written by the inestimable Bill Baue.

At this project’s launch in 2018, I argued that, just as we have now come to accept the idea of planetary boundaries which we are over-shooting, that there is a boundary to social acceptance of the current economic model, which is jeopardised by rights violations, rising inequality, persistent poverty and exclusion. This was a variant of the idea of a social foundation, which many argue is already deeply breached, to argue that the well-known ‘social licence to operate’ is endangered not simply for companies, but for the entire economic system.

This White Paper presents Multicapitalism as the new paradigm for business and economic decision-making: to inspire, to educate, to provide key thought-leadership on how reform of capitalism can be achieved and applied.

It does so by challenging us all to move from incremental to transformational thinking, to understand that it is possible not simply to conserve but to regenerate the capitals, to embrace the truth that individual and collective action is only meaningful, if it can be linked to the system and to system change.

The White Paper provides a pathway to how Multicapitalism can become the norm and a call to action, to invite each of us to tread the path.

It answers anti-capitalist notions, by adopting the ethics of co-dependence, mutuality, respect for human rights and for the entire ecosystem.

It shows thinking which has been supported by the recommendations of two United Nations bodies, in the context of application of the Sustainable Development Goals.

In a debate which is about thresholds, perhaps the publication of From Monocapitalism to Multicapitalism will itself come to be seen as a new threshold in the evolution of business thinking, in the years to come.

I am sure readers will have encountered some or many of these terms in debates over past years.

I believe this White Paper will help you think again, make connections between the ideas, and — most important — make the connection to your own work.

Congratulations to everyone involved in this project and please enjoy reading what follows.

Richard Howitt
Former CEO | International Integrated Reporting Council (2016–2019)
Steering Board Member | r3.0

Delphine Gibassier | Director | Multi-Capital Integrated Performance Research Centre | Audencia Business School

I have decided to see life as a glass half full, rather than half empty. While there is much to do to bring business organizations into the “doughnut” that Kate Raworth quantified in 2017, I follow weak signals that demonstrate how companies are progressively but rapidly integrated sustainability science into their work. This year, Microsoft hired a Sustainability Science Global Lead (in a team that “coordinates overall science-based, measurable, and scalable sustainability investments and outcomes across the company”), and according to the Datamaran database, 20 companies have already embraced the “planetary boundaries” concept. L’Oréal, in their 2030 plan, worked with the Stockholm Resilience Centre to develop targets compatible with the planetary boundaries. While clearly, this is not a majority (not even close to the 10% tipping point that we sometimes hear about), these are signals that the thought leadership that is described in this report is becoming — and will be — the mainstream thinking of tomorrow.

Neoclassical economics is based on linear assumptions and created the term “externalities”. It is in complete opposition to the complexity of living systems, and, despite developments in economic thinking recently by thought leaders such as Kate Raworth, Esther Duflot and Mariana Mazzucato, mainstream economics is still engrained into much of our business schools and financial institutions. It is completely ill-adapted to complex systems thinking and the necessity to take into account feedback loops, cocktails effects, and tipping points. As author Bill Baue points out, consequently, financial growth has been closely correlated with ecological degeneration, but also, to rampant inequalities.

The current situation leads to a paradox, where “irrational exuberance”, as a core feature of humanity’s current operations system (as discussed in an early section of the paper), leads to an exponential borrowing from other capitals through outsourcing and externalizing negative effects. The current pandemic of Covid 19 has accentuated the paradox by leading to even more poverty, while protecting the “ever more” rich among us. Today “incomes beyond satiation are associated with lower life evaluations,” the paper points out. This leads to the need to move from Monocapitalism to Multicapitalism.

I commend the historical work performed in this report to bring to life the thinking around carrying capacities and thresholds. Multicapitalism to many might seems too radical, could I say “too new”? However, today, it is the only possible thinking to maintain earth and humanity in harmony. It is defined as “maintaining the carrying capacities of all vital capitals respecting normative thresholds”, seeking dynamic balance between capitals rather than prioritizing the maximization of one (financial) at the expense of others.

To enable this Multicapitalism to come to life, Baue builds a network of thought leading organizations that you will all now have no excuse not to follow. Even better, he gives you examples of organizations that have been able to develop this thinking in practice. There is one simple formula for this: the Sustainability Quotient. As early as 2006, Ben & Jerry piloted a science-based assessment of their corporate GHG emissions.

So no, it is not impossible, not too radical, not too new for us, in business schools, in organizations, in institutions, and in governments to step forward and do better, by using this Multicapitalism thinking in our day-to-day work. Many examples of organizations and countries have been cited as exemplary to follow in this report, and many more are to come. Rob Gray and Jan Bebbington, as early as 1993, said about accounting for sustainable development “a sustainable organization is one which leaves the biosphere at the end of the accounting period no worse off than it was at the beginning of the accounting period” — this multi-capitalism report will guide you through to become “a sustainable organization”, that is, a leader in tomorrow’s world.

Delphine Gibassier
Director | Multi-Capital Integrated Performance Research Centre, Audencia Business School
Steering Board Member | r3.0

Author’s Foreword

It’s been a long time comin’
It’s goin’ to be a long time gone
And it appears to be a long night
Before the dawn

David Crosby 1969

This paper has been a long time coming. This fact itself tells an integral part of the story that this paper conveys.

The seeds got planted at the 2017 r3.0 Conference at KPMG’s glassy headquarters in Amsterdam, where then-Markets Director Sarah Grey and then-Managing Director Neil Stevenson of the International Integrated Reporting Council (IIRC) each keynoted different sessions. IIRC had integrated the multiple capitals into its International Integrated Reporting Framework in 2013, the same year r3.0 launched with an embrace of the carrying capacities of the capitals concept that r3.0 Advocation Partner Mark McElroy had established a half-decade earlier.

Over the next year, whenever he found himself at gatherings with IIRC folk, r3.0 Steering Board Member Brendan LeBlanc of EY (and an IIRC Ambassador) socialized the idea of a collaboration between r3.0 and IIRC around Multicapitalism, the concept McElroy conceived with his colleague Martin Thomas (a former Unilever finance executive) as a logical extension of the carrying capacities of the capitals notion. In Spring 2018 in Boston, LeBlanc set up a meeting between me and then-IIRC CEO Richard Howitt, who commenced the meeting saying: “You don’t need to convince me, Bill: I’m already sold!”

Howitt announced the partnership and Multicapitalism White Paper project in his keynote at the 2018 r3.0 Conference at KPMG in Amsterdam (again), accompanied by an article by Howitt and r3.0 Managing Director Ralph Thurm on Thomson Reuters. Now, we just needed to raise a modest amount of funding to support the project.

This is where the timeline expands. It took a full half-year for r3.0 to secure the first third of the budget: a lunch at Pershing Square across from Grand Central Station in New York City with Institute of Management Accountants (IMA) Board Member Brad Monterio led to support from IMA CEO Jeff Thomson. We thank Brad, Jeff, and IMA for their generous support! The remaining two-thirds of the budget proved impossible for IIRC to raise externally, so when Howitt again spoke at the r3.0 Conference about the project in 2019, he committed internal IIRC funds to support it.

This aspect of the storyline is significant. Images of the Stockholm Resilience Centre’s Planetary Boundaries and Kate Raworth’s Doughnut Economics (examples of carrying capacity thresholds in ecological and social systems) routinely showed up in presentations and reports by leaders and funders in the field, but apparently, they were reluctant to put their money where their mouth is. Either Multicapitalism was a really stupid idea, unworthy of support, or it was too good an idea — perhaps because it reveals shortcomings of existing practices in the field — or maybe there was some other unseen problem. I’ll let you judge what’s true after reading this White Paper.

Now, after holding space for writing the paper for an entire year, we at r3.0 had “filled up our dance card” with other funded commitments for the coming year, so we had to squeeze work on this paper into the cracks. I finished a first draft at the turn of the year, and a final draft half-way through the year, when I sent it over to IIRC. Two months ago, IIRC came back to us with their feedback:

It’s a very important — and very provocative — paper.

So provocative, in fact, that IIRC determined it could not release the paper under its name. We at r3.0 are thankful that IIRC recognized that asking us for revisions that would make the paper politically palatable to IIRC’s more conservative base would risk hollowing out the core message, so they stepped away instead. This demonstrated integrity.

It also demonstrates the very conundrum at the core of this inquiry, addressed late in the paper (consider this incentive to get there): the gulf between political possibilities on the one hand, and thermodynamic realities and ethical imperatives on the other hand.

You could say that the fields of corporate sustainability and sustainable investing, integrated reporting, ESG (environmental, social and governance considerations), impact management, etc… all “live in the political world” (with a head-nod to Bob Dylan), as they all pursue incremental progress as the boundary of what’s politically possible. But is incremental progress sufficient, given the challenges we face in the Anthropocene?

No, we believe not. We prefer to “live in the material world” (with head-nods to Madonna and George Harrison) governed by thermodynamic realities and ethical imperatives as guides to human solutions. You could say that existing initiatives are heading toward Multicapitalism but they can’t make it there so long as their ambition is politically bounded by the demands of Monocapitalism. Achieving Multicapitalism requires embracing a normative vision that’s aligned with the demands of the material world, as we best understand them — political feasibility is, at best, a secondary strategic consideration.

With this epic struggle between the political and material worlds, it is perhaps unsurprising that we as a society remain in the “long night” of this Foreword’s epigraph. Our hope is that this White Paper starts to shed dawning light.

Bill Baue
Senior Director | r3.0



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