The Case for Multicapitalism
By Bill Baue
Part 8 of a series on the r3.0 White Paper, From Monocapitalism to Multicapitalism — 21st Century System Value Creation.
We need to move beyond incrementalist ‘numeration’ indicators and add ‘denomination’ indicators tied to upper (ecological ceilings) and lower (social foundations) thresholds.
Allen White, Global Reporting Initiative Co-Founder, 2019
From a common-sense perspective, the case for Multicapitalism is self-evident: it is a comprehensive and holistic doctrine that mirrors the dynamics of complex self-regulating living systems. In other words, Multicapitalism aligns and integrates with material reality, as it is most accurately understood as of now. This distinguishes Multicapitalism from Monocapitalism, in that the latter is a partial and exclusionary economic doctrine, predicated on the assumption of perpetual growth that is found nowhere in nature — wine vats included.
Importantly, Multicapitalism also distinguishes itself from other partial doctrines, including Corporate Social Responsibility (CSR), Corporate “Sustainability” (i.e., as currently practiced), Environment, Social & Governance (ESG), Impact Investing, Impact Valuation, Circular Economy, Conscious Capitalism, Inclusive Capitalism, Stakeholder Capitalism, etc…, which are all incrementalist in nature (more on this distinction below.)
Regenerative Capitalism, as defined by John Fullerton of the Capital Institute in his 2015 paper by this name, is the economic doctrine most closely aligned with Multicapitalism, as it similarly seeks dynamic balance between capitals instead of prioritizing maximizing one capital at the expense of others. For example, to illustrate the Principle of “Views Wealth Holistically” (one of eight Principles of a Regenerative Economy), Fullerton states:
Once financial and material capital are sufficient to meet basic human needs, creating social capital within community and restoring natural capital in the world are valued above acquiring more financial capital.
The best way to better understand the case for Multicapitalism is to explore its conceptual foundations. In a 2015 journal article, concept originators Mark McElroy and Martin Thomas (a former Unilever finance executive) lay out the ontology of Multicapitalism as comprising:
(1) stocks and flows of vital capitals in the world;
(2) organizations and their impacts on the capitals;
(3) other parties (i.e. stakeholders) whose well-being depends on the capitals; and
(4) norms, standards or thresholds for what organizations’ impacts on the capitals must be, or not be, to be sufficient, sustainable and duly supportive of stakeholder well-being.
The first and third elements have already been discussed earlier, and the second element is self-explanatory: organizations make use of the multiple capitals in their business models, and thus have impacts upon them, both negative (degenerative) and positive (regenerative).
The fourth element is what truly distinguishes Multicapitalism, which acknowledges real-world limits and thus the need for normative measures to guide operation within those limits. Such limits tend to be invisible when systems are operating well within them; they start to make themselves known when we begin to transgress limits.
For example, it wasn’t until we began exhausting our forests that we conceived of the need to preserve them. The modern concept of “sustainability” can be traced back to 1713, when the Saxon mining minister Hans Carl von Carlowitz introduced the term (“Nachhaltende” in German) in his book Sylvicultura Oeconomica, which addressed Saxony’s over-harvesting of timber that devastated its silver mining and metallurgy industries.
Therefore, the highest level of art, science, industry, and institutions in this country will have to make every effort to achieve conservation and cultivation of wood for continuous and sustained utilization, because it is an indispensable matter, without which a country cannot continue in its esse.
Fast forward two-and-a-half centuries, and these localized limit-breaches began to make themselves known at the global level. At about the same time that humanity began to overshoot our Ecological Footprint (circa 1970 — see Figure 9 below), Donella Meadows and her colleagues (including her then-husband Dennis Meadows, Jørgen Randers, and William Behrens) published Limits to Growth, the first computer simulation (World3) of vital resource trajectories globally that raised alarm bells on depletion trends leading to carrying capacity “overshoot and collapse.” (see Figure 10)
Fast forward three decades, to 2002 when the Global Reporting Initiative enshrined limits in its Second Generation of Sustainability Reporting Guidelines. There, it introduced the Sustainability Context Principle, which holds that
sustainability reporting draws significant meaning from the larger context of how performance at the organisational level affects economic, environmental, and social capital formation and depletion at a local, regional, or global level… reporting organisations should consider their individual performance in the … context of the limits and demands placed on economic, environmental, or social resources at a macro-level.[emphasis added]
At about that same time, Dana Meadows was also starting to contemplate how to allocate these macro-level limits to micro-level organizations, along with Mark McElroy, Board Chair of the Sustainability Institute that she had established in the mid-1990s. After Dana’s untimely death in 2001, Dr. McElroy continued their line of inquiry, crystallized by the GRI Sustainability Context Principle, and after about a decade of development, he introduced the concept of Context-Based Sustainability as a framework enabling implementation of the Context Principle — specifically, measuring organizational performance in the context of the limits to growth.
Dr. McElroy introduced the Sustainability Quotient as a general specification for applying sustainability limits and thresholds. According to the Quotient, Sustainability (S) equals Actual Impacts (A) over Normative Impacts (N) on the Carrying Capacities of Capitals. (see Figure 11)
In essence, the Sustainability Quotient encapsulates the world as-it-is (actual impacts in the numerator) compared to the world as-it-should-be (normative impacts in the denominator). The goal is for the world to be as it should be — namely, sustainable. The Sustainability Quotient enables us to discern if performance is as it should be (i.e. sustainable) — or not, in which case corrective measures are in order.
The United Nations Research Institute on Social Development (UNRISD) recently codified the Sustainability Quotient into a Three-Tiered Typology for its 4-year project on Sustainable Development Performance Indicators, as follows:
UNRISD Three-Tiered Typology of Sustainable Development Performance Indicators
Tier One: Incrementalist Numeration
Numeration indicators focus on actual impacts, which include absolute indicators as well as “intensity” indicators that describe performance relative to a non-normative counterpart (such as unit of production), and are therefore incrementalist by definition.
Tier Two: Contextualized Denomination
Denomination indicators contextualize actual impacts against normative impacts. Also known as “Context-Based” indicators, denominator indicators take into account sustainability thresholds in ecological, social, and economic systems, as well as allocations of those thresholds to organizations and other sub-system entities such as sectors, portfolios, or bioregional habitats.
Tier Three: Activating Transformation
Transformation indicators add transcontextual elements of implementation practices and policies (as well as more ephemeral emergence) to normative indicators in order to instantiate sufficient change within complex adaptive systems.
Box 1: Baue, UNRISD, 2019
This Typology applies more broadly than just to indicators; it also enables distinction between doctrines and frameworks that remain in the incrementalist (Tier One) realm, thus (by definition) advancing partial solutions, and those that identify the threshold delineating sustainable from unsustainable impacts (Tier Two). In this sense, all of the doctrines mentioned above (CSR, ESG, etc…) are Tier One (which are important in providing impact-level information for the numerator in the Sustainability Quotient), while Multicapitalism is Tier Two, as it takes a normative approach to operating within the carrying capacities of the capitals. Multicapitalism is also Tier Three, as it represents a significant transformation from the existing doctrine of Monocapitalism.
Global Reporting Initiative Co-Founder Allen White keynoted the UNRISD Conference where this Three-Tiered Typology was first introduced, and summarized the significance of the developments thus, starting off by quoting former Unilever CEO Paul Polman:
“Running publicly traded companies myopically for shareholders doesn’t make damn sense. Why should the citizens of this world keep companies around whose sole purpose is the enrichment of a few people?… why do [companies] destroy the ability to live on this wonderful planet for future generations, why do you treat people in a value chain the way you don’t want to treat yourself or your own children, why do you use scarce resources which we don’t have enough of, why do we refuse to take externalities into account into your business models and not take the responsibilities for the consequences, air pollution alone killing eight million people a year, it’s a crime against humanity…”
Are the prevailing business models built on the domination of shareholder primacy, profit maximization, and limitless growth intrinsically antithetical to the sustainability agenda that most enlightened corporations claim to support? Rigorous, systems-based sustainability measurement is not an option, but a necessity, if companies are to dramatically elevate their contribution to reversing the multiple crises facing the planet. The challenge before us, then, is not simply to refine the metrics we already use, but instead to rethink the scope and assumptions underlying prevailing practices.
To meet this challenge, next-generation measurement points to advancement beyond absolute metrics, so-called “numerators” such as kilograms and liters, wages and workplace injuries, diversity and human rights — to those that capture performance relative to scientific, economic, and social boundaries, benchmarks, and norms. Absent such “denomination,” we will continue to move blindly forward, hoping that the collective impact of thousands of enterprises all “doing better” will avoid violation of the upper and lower boundaries. Overshooting upper limits and undershooting minimum standards and norms is antithetical to building a just and livable world. In other words, continuing to design measurement in what might be called a “context vacuum” is a fool’s errand.
Beyond such contextualization, we must attend to the full range of capitals — natural, social, human, intellectual, finance and built — that collectively constitute the stocks and flows of resources integral to building a thriving world. Preservation and enrichment of all these capitals is the litmus test of an enterprise’s commitment to a truly sustainable strategy. Strategies that undermine or drain one form of capital for enrichment of another — e.g., reducing R&D and worker benefits for purposes of bolstering short-term profits, dividends, and stock buybacks — runs counter to a robust, long term multi-capital strategy.
Context and multi-capitalism are critical to this endeavor, as are generally accepted mechanisms for allocating responsibility for adherence to boundary conditions that define ecological ceilings and social floors.
 Allen White, “From Silos to Systems: The Next Generation of Sustainability Measurement and Reporting,” Keynote Address, Measuring and Reporting Sustainability Performance: Are Corporations and SSE Organizations Meeting the SDG Challenge, United Nations Research in Social Development (UNRISD), Geneva, Switzerland, 3 June 2019. http://www.unrisd.org/80256B42004CCC77/(httpInfoFiles)/B70382A13E0AE0BDC125841F003C46AC/$file/SDPI---Allen-White-Keynote-Speech.pdf; Bill Baue, Live Tweet, https://twitter.com/bbaue/status/1135459380420337665
 John Fullerton, Regenerative Capitalism: How Universal Principles and Patterns Will Shape Our New Economy, Capital Institute, April 2015. https://capitalinstitute.org/wp-content/uploads/2015/04/2015-Regenerative-Capitalism-4-20-15-final.pdf (p 54)
Disclosure: At the time of writing this White Paper, Bill Baue is also co-authoring a book with John Fullerton.
 Mark McElroy & Martin Thomas, “The MultiCapital Scorecard,” Sustainability Accounting, Management and Policy Journal, Volume 6, Number 3, 2015, pp 425–438. https://www.emerald.com/insight/publication/issn/2040-8021/vol/6/iss/3; op cit McElroy 2008; McElroy & van Engelen 2012.
 Hans Carl von Carlowitz, Sylvicultura Oeconomica, Johann Friedrich Brauns (Leipzig), 1713. “Esse” means “essential nature” — or more concisely, “essence.”
 Meadows et al, 1972, op cit.
 Global Footprint Network
 Meadows et al, 1972, op cit. “…a population growing in a limited environment can approach the ultimate carrying capacity of that environment in several possible ways. It can adjust smoothly to an equilibrium below the environmental limit by means of a gradual decrease in growth rate… [upper left graphic] Or it can overshoot the limit and in the process, decrease the ultimate carrying capacity by consuming some necessary nonrenewable resource… [lower left graphic]” pp 91–91.
“The behavior mode of the system shown in figure 35 [right graphic] is clearly that of overshoot and collapse… The basic behavior mode of the world system is exponential growth of population and capital, followed by collapse.” pp 125, 142.
 Global Reporting Initiative (GRI), Sustainability Reporting Guidelines, 2002. https://www.r3-0.org/wp-content/uploads/2020/03/GRIguidelines.pdf
 McElroy & van Engelen, 2012, op cit.
 Mark McElroy, Social Footprints: Measuring the social sustainability performance of organizations, Dissertation, University of Groningen, 2008. https://www.rug.nl/research/portal/files/13147569/DISSERTATION-2.pdf
 Bill Baue, Compared to What? A Three-Tiered Typology of Sustainable Development Performance Indicators: From Incremental to Contextual to Transformational, United Nations Research Institute for Social Development, 7 October 2019. http://www.unrisd.org/baue
 White, 2019, op cit.
Earlier parts of this series:
Do We Know What Progress Really Is?
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From Monocapitalism to Multicapitalism: The Forewords
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Executive Summary: From Monocapitalism to Multicapitalism — 21st Century System Value Creation
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