Six Capitals, or Can Accountants Save the Planet?
Rethinking Capitalism for the Twenty-First Century

Reviewed by Stanley Goldstein


Editor’s Note: On May 5 and 6, 2016, the NYSSCPA and FAE, in partnership with the New York Hedge Fund Roundtable, hosted a breakfast meeting on sustainability reporting at the Society offices at 14 Wall Street. On May 4 and 6, 2016, they will present their first annual conference on sustainability. Author Jane Gleeson-White, IIRC Chairman Mervyn King, and AICPA President and CEO Barry Melancon will be featured speakers at the event.

Jane Gleeson-White’s previous book, Double Entry (covered by this reviewer in The CPA Journal, April 2013, p. 12), is the beautifully written history of accounting from its beginnings in Venice in 1494 to its contributions to our current prosperous economic system. Double Entry ended with a plea to accountants to become the heroes of sustainability and save the planet— because only we can do it. Six Capitals, her current work on sustainability, tells us how.

The author’s thesis is that we need action to save our planet—now. Gleeson emphasizes integrated reporting as an essential component of our new thinking: A demand that we count six types of capital—not merely financial, manufactured, and intellectual but also human, social/relationship, and natural—when assessing the output of an enterprise. According to the author, who hails from Australia, CPAs are the heroes of this story and will be far into the future.

Integrated Reporting

Integrated reporting—disclosing all the information the investing public deserves to see—is the key to what the author defines as “a concise communication of value over time.” The integration process calls for the inclusion of nonfinancial information and externalities, which will affect the fortunes of the enterprise in years to come. Integrated reporting is becoming institutionalized, and has been recently mandated in France and South Africa.

For example, Puma, the German sporting goods manufacturer, reported that it had used up $198 million worth of natural resources (its profit was $255 million). Infosys, an Indian technology consulting firm, valued its “human-capital externality” at $1.4 billion. Much of the theoretical underpinning of the complex system of integrated reporting stems from Robert G. Eccles and Michael P. Krzus’s 2010 book, One Report: Integrated Reporting for a Sustainable Strategy.

In 2013, the International Integrated Reporting Council (IIRC) published a framework for a new way of business thinking and reporting. In a story told by Mervyn King, a South African jurist, the creation of the IIRC began with a invitation to tea from Michael Peat (great-grandson of the founder of Peat Marwick & Mitchell, now KPMG), followed by a call from Charles, Prince of Wales, who hosted the meeting that gave birth to this powerful organization.

The Sustainability Accounting Standards Board (SASB) was launched in the United States in 2011. Although SASB has no official role in the accounting profession, its voice is heard due in part to Bloomberg LP’s substantial role in supporting its mission. According to Bloomberg’s Andrew Park and Curtis Ravenel, as long as these externalities are unpriced, they are effectively invisible to financial markets, and so cannot inform investment decisions.

Six Capitals

Gleeson’s six capitals are: 1) financial, 2) natural, 3) manufactured, 4) human, 5) social/relationship, and 6) intellectual.

Natural capital is heavily emphasized because, as Park and Ravenel say, “if you don’t measure it, you ignore it.” If an oil driller produces 1 million barrels per day that are worth $10 each, and its costs for labor, parts, and depreciation come to $9 million, the driller (under GAAP) shows a profit of $1 million. But if in order to extract the oil the driller uses one million gallons of water (natural capital that afterwards becomes unusable), which is worth $1 per gallon in the open market, then that venture is merely breaking even, once the cost of natural capital has not been accounted for.

On the other hand, if, for example, IBM spends $50 million per year sponsoring education programs for inner city youths, it has improved its relationship capital, which also affects its brand. This positive gain does not enter into an accountant’s presentation of profit and loss.

The challenge Gleeson-White lays down is for accountants to measure these things—because, if we do, accountants will be independent, trusted heroes who can financially measure the six capitals.

Accountants should be interested in human capital because we invest so much money and effort into improving our profession and its members, starting with first-year recruits. Perhaps these expenses should be amortized in the United States. Yes, this is complicated, but we can do it.

The Role of Corporations

As Gleeson-White builds on the work of those who first suggested “one report” (also the title of the first major work in this field), integrating all aspects of the outputs of an enterprise and the many stakeholders of that enterprise (i.e., community, local government, local charities), she returns to accountants as the only professionals capable of measuring these outputs in financial terms.

The author is powerfully biased against corporations, which she deems as corrupt, greedy, selfish, and capable of evil deeds, but she sees accounting firms as saviors. (Forget for the moment that Deloitte is a huge, corporate enterprise.) Since no one else is taking the initiative to save the planet, this makes another case for accountants to lead the charge.

Robert Eccles was the first to write about the one report in One Report: Integrated Reporting for a Sustainable Strategy (Wiley, 2010). Eccles called for a report combining a balance sheet, statement of operations, statement of cash flows, and an environmental assessment, thus setting the stage for quantifying the “externalities” that must be included in order to tell the whole story of an enterprise. These externalities include the depletion of natural resources and harm to workers, as well as positive acts like training employees and supporting communities. This is intense transparency. Eccles’s book resonated around the world and affected the business communities and accounting professions in Great Britain, South Africa, Germany and The Netherlands. Eccles wished for the law to proliferate to many countries. His work was directly influenced by that of journalist Mervyn King, whose work culminated in the formation of the IIRC and today impacts the activities and reporting methods of businesses around the world.

Carrying the Torch

Nothing written since Eccles’s book seems to push the cause of integrated reporting forward as much as Six Capitals, because Gleeson-White advises monetizing all costs and all additions to the assets of an enterprise. It cuts both ways—which brings us back to “Why accountants?”

Who else is capable of doing this? I believe the author’s voice will be heard, clearer and louder around the world, and the message of her book will attract followers at the May 5 and 6, 2016 conference sponsored by the New York Hedge Fund Roundtable and the NYSSCPA.

Accountants are catching on to the value of Gleeson-White’s message, thanks in part to her first book. In that same April 2013 issue of the Journal in which I reviewed Gleeson-White’s Double-Entry, publisher, Joanne Barry wrote about the challenges facing integrated reporting and the possibilities for CPAs to get involved as standards are still being developed (“The Future of Sustainability Reporting Needs CPAs,” page 7). We are at the fulcrum of the action, and Gleeson-White deserves a bit of the credit.

When Prince Charles held the plenary session put together by Mervyn King that gave birth to the IIRC, all of the Big Four was seated at the table. Many second-tier firms are doing work in the field of integrated reporting, and see this as a growth area.

According to the author of Six Capitals, accountants are now and will long be the heroes of this story. We measure the impacts, results, and financial outcomes in every area of sustainability. More important, however, is that Gleeson-White charges us with the responsibility to take the lead in making sustainability and integrated reporting intrinsic to the business process. To me, the message of the April 2013 CPA Journal issue on sustainability was that the field represents good business for accountants, who can do the work better than anyone else—so let’s welcome the opportunity.


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