The 'multicapital' scorecard measures the triple bottom line
This excerpt is adapted from Martin P. Thomas and Mark W. McElroy's book "The MultiCapital Scorecard: Rethinking Organizational Performance" (Chelsea Green Publishing, 2016) and is reprinted with permission from the publisher.
Many of us have grown up and earned our living in a western world shaped by capitalism. That has traditionally meant the generation of economic capital, mainly for the benefit of shareholders or other providers of financial capital. There are powerful driving forces that underlie such a purpose and it's important to acknowledge the contribution that economic capitalism has made to the industrial revolution, social structures and the development of many of the technologies on which the world has come to depend.
We therefore believe the world needs to attend to the quality and sufficiency of all its vital capitals, not just its economic capitals. This is what we call multicapitalism. It is a doctrine that measures and manages impacts organizations are having on multiple capitals and therefore their own triple bottom lines: their social, environmental and economic performance.
Although many noteworthy institutions accept the validity of the need to preserve multiple capitals, we have yet to see any principles or practices that enable organizations to enact multicapitalism in a meaningful way. Hence the evaluative process called the multicapital scorecard, which also happens to be the title of our book.
The principles underpinning our approach to multicapitalism are those of context-based sustainability. They owe their heritage to one of us, Mark McElroy and Jo van Engelen, as set forth in the book, "Corporate Sustainability Management," in 2012. That book dealt with nonfinancial performance drawing on stakeholder engagement. "The MultiCapital Scorecard" takes that concept some steps further and deals with performance impacting all capitals, including financial capital. It applies identical principles to engagement with all vital stakeholders.
"Corporate Sustainability Management" provided pioneering examples of context-based sustainability in practice. Those examples illustrated how groundbreaking projects set thresholds for sustainable performance for social and environmental impacts in their appropriate contexts. In "The MultiCapital Scorecard," we have adopted the practices set out by McElroy and Van Engelen, while extending them to embrace financial and economic capitals as well.
The result is a "multiple capitals" approach to management that, for the first time, offers organizations of all sorts a triple bottom line performance measurement model that can indicate how far an organization is from performing sustainably. It can be used to measure progress toward sustainability, too. We do not pretend that this approach can provide a perfect measurement initially, but we do believe it offers a meaningful learning framework.
While the learning proceeds, the multicapital scorecard provides the best method available for measuring performances impacting all capitals — financial, social, natural and more — using identical evaluation principles for them all. Performance is reported against context-based sustainability norms, science-based and otherwise. Consequently, organizations of all sorts adopting the multicapital scorecard are able to see for the first time the extent to which their impacts on all vital capitals are sustainable, set target thresholds and monitor progress toward meeting them.
Indeed, measuring shortfalls and surpluses against sustainability thresholds across multiple capitals is an entirely new concept, and it offers an entirely new way to manage performance. The very act of providing routine scorecard results will initiate paradigm shifts in most of the organizations that adopt it. As they use their historic performance data to improve future performance, the old paradigm of maximizing impact on a single capital will gradually give way to recognizing the need to manage impacts on multiple capitals.
Since the objectives of many stakeholder groups are in conflict with each other at any given organization, there will be many cases where directors, governors, owners and managers will have to decide on allocating scarce resources between competing demands. No simple formula can exist for deciding such allocations. But it is always the case that local context and stakeholder engagement are required inputs to any such responsible decision-making process. Our multicapitalism process provides both in an even-handed manner. Strategic decision makers are therefore presented for the very first time with context-based information about the extent to which their organizations are either fulfilling their duties and obligations or failing to do so.
Some might argue that in an essentially unsustainable world, it is folly to attempt to assess how an individual organization can reach sustainability on its own.
All the evidence we have seen suggests that most organizations are currently operating in an unsustainable manner. Consequently, it might be seen as a source of embarrassment to report unsustainability to stakeholders. However, we believe the world needs to know the truth (however unpalatable that may be) rather than persisting in willful ignorance of reality. And the call for corporations and other organizations to be responsible and transparent is growing louder. Rating agencies are now rising to this challenge, too and so must organizations themselves.
Some might argue that in an essentially unsustainable world, it is folly to attempt to assess how an individual organization can reach sustainability on its own. But the application of "fair shares" of available multicapital resources or of the burdens to produce them can provide us with very meaningful reference points to move toward the required collective objective of sustainable futures. Indeed, the basic analysis needed to establish the thresholds of sustainable performance should be a fundamental precursor to any improvement process.
Others might criticize our multicapital performance measurements for their imprecision or subjectivity. To these critics, we ask the question: "Is it better to be precisely wrong or approximately right?" We believe the world needs us all to ask the right questions and for organizations to provide the best information available. Awaiting perfection is a counsel of despair.
Indeed, humanity has a moral duty to safeguard the quality and sufficiency of all vital capitals, the disregard of which is irresponsible. Hiding unethical practice behind a façade of spuriously objective accuracy, while propagating an endless stream of negative externalities, is inexcusable. This is what we call "precisely wrong."