How the Shift from Monocapitalism to Multicapitalism Creates Value

5 min readFeb 21, 2019

This is the second of a two-part series on making the case for asset owner integrated reporting. The first part was about integrated reporting’s involvement in defining and measuring value.

By Keith Ambachtsheer, founder of KPA Advisory Services, and Bill Baue, Senior Director at Reporting 3.0.

Keith Ambachtsheer (left), Bill Baue (right)

Integrated Reporting (IR) is based on a simple premise: that value is created by using up to six types of capital (financial, manufactured, human, social, intellectual, and natural) to produce desirable goods and services. In other words, it is the integrative use of these capital resources that drives value creation — and destruction too. IR thus expands traditional thinking, with its predominant focus on financial capital (i.e., monocapitalist), by casting a wider net to assess how value is created across multiple capitals (i.e., multicapitalist).

In addition to expanding the scope horizontally along multicapitalist lines, IR also sets up a vertical connection bridging from micro (i.e., enterprise) to macro (i.e., systems) contexts. Asset owners experience this link as their investments in multiple micro-level investments increasingly span the globe, collectively aggregating up to the macro systems level.

The first “elephant” in asset owner board rooms identified in Part 1 of this series, captured this micro to macro bridging:

  1. Value-creating in asset owner organizations can take place at two levels: micro and macro. It is not a matter of choosing one over the other, but of integrating both perspectives into a seamless whole.

In an ideal world, micro-level enterprise value creation naturally aggregates up to macro-level system value creation. In the real world, things don’t necessarily work out that way. Monocapitalism’s blinders often focus on value creation solely horizontally, converting natural, social, and human capital into financial capital, without regard to how these micro conversion processes negatively impact social (e.g., income distribution) and natural (e.g., environmental) capitals at a macro level.

This blinders problem at the micro level cannot continue forever, with enterprises siphoning off ‘free’ macro capitals to maximize shareholder value. This depletes capital stocks and productive flows of these vital global resources below their carrying capacities, creating macro-level systemic risks. James Hawley (who co-conceived the notion of universal ownership) and Jon Lukomnik recognized this in their work, emphasizing the need to preserve systems-level value through collective action. According to Hawley and Lukomnik, this emerging practice seeks:

“to influence not just a specific company stock, or even a group of companies, but the environmental, social and/or financial systems and, as a result, the systemic risk of the capital markets…there are strong feedback loops between portfolio risk management and systemic risks…they are conjoined.”

This micro-macro link is embedded deep in the DNA of IR. It was seeded by the Global Reporting Initiative (GRI), which played a seminal role in the launch of IIRC, through its Sustainability Context Principle. The Principle conceived of micro-level organizational impacts as linked to capital sufficiency at the macro-systems level:

“Sustainability reporting draws significant meaning from the larger context of how performance at the organizational level affects economic, environmental, and social capital formation and depletion at a local, regional, or global level… Reporting organizations should consider their individual performance in the contexts of economic, environmental, and social sustainability, which will involve discussing the performance of the organization in the context of the limits and demands placed on economic, environmental, or social resources at a macro-level.”

Though seemingly divergent, GRI’s focus on sustainability and IIRC’s focus on value creation are actually opposite sides of the same door, with both intermediated through the multiple capitals, and both linking micro to macro. With their central concerns around “limits and demands” — i.e. the thresholds that delineate sustainability from unsustainability, “in the black” from “in the red”, both hold keys to opening this door in either direction. Sustainable value creation requires respecting the carrying capacities of the system-wide capitals.

This understanding was buried “beneath the hood” of IR, although the final paragraph of the IIRC’s Value Creation Background Paper does say:

“Ultimately value is to be interpreted by reference to thresholds and parameters established through stakeholder engagement and evidence about the carrying capacity and limits of resources on which stakeholders and companies rely for wellbeing and profit. Interconnections between corporate activity, society, and the environment and the purpose of the corporation should be understood in terms of what the corporation, society, and the environment can tolerate and still survive. The challenges will be to reach agreement at corporate, national, and international levels on what those thresholds and limits are, how the resources within those limits should be allocated, and what action is needed to keep activity within those limits so that value can continue to be created over time.”

This conceptualization wasn’t explicitly articulated in the 2013 IR Framework, so IIRC and Reporting 3.0 are working together to further establish and advance this deeper understanding of multicapitalism and macro system value creation. Ultimately, this understanding will define successful 21st Century business models, not only at the enterprise level but also at the asset owner portfolio level. This understanding is encompassed in the fourth “elephant” in the asset owner board room set out in Part 1 of this 2-Part blog:

4. Business model clarity and capital resource adequacy are also critical success drivers. Thus, they too must be clearly addressed in integrated reporting.

Finally, asset owner IR must reflect performance that bridges enterprise value creation with system value creation, thereby enabling accurate assessment of portfolio value creation. The fifth elephant is described as:

5. Performance reporting must be directly integrated with the stated internal and external value-creating ambitions of the organization.

This brings us right back to the foundational requirement that:

“organizations should consider their individual performance in the context of … the limits and demands placed on economic, environmental, or social resources at a macro-level.”

Multicapitalism, a concept coined by Martin Thomas and Mark McElroy in 2014, enables this more far-sighted, expansive, and distributive approach to performance reporting, recognizing the umbilical cord between enterprise value creation and robust system value across all the multiple capitals. We urge asset owners to take up IR as a means of enhancing enterprise value, portfolio value, and system value in an integrative, holistic manner.

This blog post was first published on the Conference Board ‘On Governance’ series here. On Governance is a series of guest blog posts from corporate governance thought leaders. The series is meant to serve as a way to spark discussion on some of the most important corporate governance issues.




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