The MultiCapital Scorecard: How Multiple Capital Accounting May Save the Planet

If you were given the job of re-designing the global economic system so that it not only provides for humanity’s needs but also ensures that we maintain the planet’s ability to sustain human civilization, where would you start? How could you implement your plan so that it creates a more sustainable economy as rapidly as the Marshall Plan re-built Western Europe after World War II?

You might start by focusing on the tens of millions of corporations, which are the most powerful actors in our global economic system. Most corporations operate under the doctrine of shareholder primacy in which the corporation exists solely to maximize stockholder welfare and in which it is morally acceptable to externalize as many of the negative costs of corporate behavior as possible, such as CO2 emissions, on society and the environment in order to maximize profits for stockholders.

Shareholder primacy disassociates corporations from their social and environmental context so that they are vulnerable to acting anti-socially. Our current legal and accounting systems reinforce this behavior. Most jurisdictions by law or custom follow Delaware’s corporate law in which the sole legitimate purpose of the corporation is to maximize stockholder welfare. Double entry bookkeeping, which focuses solely on measuring profits and fiscal capital, is the global corporate standard and reinforces a myopic focus on profits that results in a mono-capitalist system and ignores the effect of behavior on natural and social capitals.

The easiest way to change a system is to change its sponsoring thought. What if we changed the sponsoring thought behind the corporation so that it had the dual purposes of optimizing stockholder welfare and providing a material positive impact on society and the environment? We’ve started doing that with the benefit corporation, which has been adopted by 33 US states and Italy.

What if we also changed the sponsoring thought behind our accounting system so that it not only measures fiscal capital but also measures the impact of business on social and natural capitals? What if our accounting system could recognize the need to attend to the quality and sufficiency of all of a corporation’s vital capitals, not just economic capital? What if every corporation had an accounting methodology that allowed it to understand its unique impacts on various capitals in order to better create value sustainably? What if our accounting system could measure whether or not a business is actually sustainable?

The MultiCapital Scorecard: Rethinking Organizational Performance by Martin P. Thomas and Mark W. McElroy answers all of these questions and more by providing the first integrated accounting methodology that enables a corporation to measure its social, environmental and economic performance. This book provides the foundational enabling accounting technology that will allow capitalism to evolve from mono-capitalism to multi-capitalism in which corporations will no longer operate disassociated from their social and environmental context and thus be less vulnerable to actions that destroy enterprise value.

The MultiCapital Scorecard makes context-based sustainability possible by empowering corporations to establish thresholds for sustainable performance for social and environmental impacts in their appropriate contexts as well as economic impacts. Thus, The MultiCapital Scorecard offers a triple bottom line performance management model that can indicate how far a corporation is from performing sustainably and allows a corporation to see if the impact of its behavior on all of its vital capitals is sustainable, set target thresholds and monitor progress towards meeting them.

The MultiCapital Scorecard is short, well written and easy to read in one-sitting. The multi-capital approach to accounting leverages hundreds of years of experience of accounting for fiscal capital so that the resulting system is easy to understand and easy to implement. It has been successfully used by Ben & Jerry’s and Cabot Creamery, who have been particularly generous in sharing the wisdom of their experience, and can be immediately implemented by any corporation. For an overview of the system, watch this video.

The MultiCapital Scorecard is the most important book on accounting in decades. If I were assigned the job of re-designing the global economic system, this book would be the blueprint to bring accounting into the 21st century. This book should be required reading for every CEO, CFO, director, Chief Sustainability Officer, corporate lawyer, accountant and sustainability consultant, and taught in every MBA program.

The MultiCapital Scorecard has particular relevance to benefit corporations, which are required by law to create public benefit by providing a material positive impact on society and the environment, or in Delaware’s case, by operating in a responsible and sustainable manner. Social and environmental impact assessment tools, such as B Lab’s Certified B Corporation assessment, provide a measure of social and environmental impact but are not context-based and leave businesses accounting for their performance with traditional fiscal accounting and nothing more.

The MultiCapital Scorecard gives benefit corporations an additional tool to demonstrate their commitment to operating sustainably and provides an additional liability safeguard for directors to show how they are creating public benefit and operating their companies responsibly and sustainably.

This book has the power to change the world because it not only suggests how accounting can evolve to help create more sustainable corporations but also provides a methodology to do so. If every corporation implemented the multi-capital accounting system contained in The MultiCapital Scorecard today, we could halt global warming by 2030 and begin to design a regenerative economy that could actually reverse it.

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