The Five Capitals Model was
developed to understand the different types of capital a firm would use to
deliver its products and services. The goal is to enhance these capital stocks
rather than degrade or deplete them. In order to understand how each form of
capital potentially interacts with another, I have laid out the basic
description of each type. There are times when one form of capital clearly has influence
on another or times when one reflects the capability of another. I hope to
share some insight on the implications of each type of capital on the firm and
on our greater economy.
1.
Natural Capital - These
are the raw materials and resources like energy, matter and processes that are
needed by all businesses in order to produce their products and services. This
includes:
- Sinks
- Absorbing, neutralizing or recycling waste like forests and oceans
- Resources
- renewable & non-renewable like timber and fossil fuels
- Processes - Enables life to continue in balance like climate regulation or carbon cycle
Natural Capital is not easily
replicable, rather it works for companies in a more ‘automatic’ way. If a
company had to pay to replicate natural capital services or ecosystem services
in financial capital it would most likely take millions or billions of dollars.
Only recently have companies started paying money for services related to
natural capital and It’s usually done indirectly. For example, paying an
environmental fee in California when renting exhaust emitting equipment. This
fee then goes into paying government environmental taxes which enters a
specific area of government funded environmentally supportive programs. Natural
capital provides a relatively irreplaceable set of services and because of this,
I place Natural Capital as the number one most valuable form of capital. It
provides a basis to which all other forms of capital can be built, explored and
maximized.
2. Social
capital - Considered
to be any “value added to the activities and economic outputs of an
organization by human relationships, partnerships and co-operation.” This plays
out both internally and externally:
- Internally
- “takes the form of shared values, trust, communication and shared
cultural norms. Which enable people to work cohesively.
- Externally - “social structures help create a climate of consent or a license to operate in which trade and the wider function s of society are possible.”
Its unclear to me where loyalty
fits in - whether its Human capital or Social capital. Perhaps its a result of
both a high level of human capital and social capital. Loyalty would best be
exemplified in metrics like employee retention which in turn would reflect the
level of human and social capital of a company. I feel like loyalty is usually
a result of people being satisfied, acknowledged and included for one’s
contribution to the greater whole.
Having high levels of social
capital, both internally and externally, can be an extremely powerful asset. If
you have a high level of internal trust within your organization it means less
turnover and higher productivity. Turn over takes time and thus, financial
capital and it also irritates the cohesiveness of a high functioning team. When
a group of internal stakeholders can form a high functioning team that produces
superior outputs, the company can excel in their social capital. Externally,
social capital is just as important because as they say in Hollywood, “its not
what you know, its who you know”. Our relationships are the bulk of most
business transactions, if two parties are not able to agree and share the same
values then they usually cannot work together. It is because of these
reasons that I believe that social capital is the second most valuable source
of capital for any business.
3.
Financial capital - Defined
as “Assets of an organization that exist in a form of capital that can be owned
or traded.” Some examples would be; ‘shares, bonds, banknotes and coin.’ It is
essentially a reflection of all the other four types of capital and for this
reason I classified it as the third most valuable form of capital. Financial
capital is the standard ‘universal’ way which we measure value. Money is a
symbol, it represents labor and output, which are seen as incredibly valuable
forms of capital to have an a firms disposal.
4. Human
Capital - This basically “Incorporates
the health, knowledge, skills, intellectual outputs, motivation and capacity
for relationships of the individual.” For me, human capital means having people
involved in your organization that are assets in and of themselves. Either
their capacity, commitment or consistency allows you to form a trusting
relationship in which you can rely on them for intelligent output. These
include good managers, skilled laborers and administrators alike. Having a high
human capital value as a company, essentially means you have ‘good people’
working for you.
5.
Manufactured Capital - This
includes “material goods and infrastructure owned, leased or controlled by an
organization that contribute to production or service provision but do not
become a part of its output.” I see it as the traditional sense of
‘physical assets’ such as buildings, infrastructure, transportation networks,
waste disposal, communications, technology, tools, machines, IT and
engineering.
Manufactured Capital is all
about a business's physical capability to produce something. Do they have the
machinery to produce? It can be powerful because it can bring reality to an
idea and produce an output that can provide a financial return for the company.
One could see it as relatively useless without a workforce but if the skilled
labor were contracted or rented out then it becomes a lower risk investment.
There is also the sale of the manufactured capital which is like having
physical collateral if you needed to transform capital into more traditional
types like financial capital.
Whether its physical,
symbolic, energetic, intellectual, social or natural, the value of this world
is tied to capital exchanges. We have created ways to express the value of
capital and learned to exchange that value for capital equivalents. For me, sustainable
capital weighs values and constraints across all five forms and makes decisions
based on an underlying purpose to serve the needs of planet and people
simultaneously.