Using Six Conceptualizations of Capital to Help Achieve the SDGs

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To describe how far the world is from achieving the Sustainable Development Goals (SDGs), the UN and other organizations often frame the challenge in terms of finances, describing the gap as a $5 trillion to $7 trillion problem.

While viewing the issue in terms of money may make it broadly accessible, it comes with a cost: It primes people to prioritize financial considerations above other values, including equity and sustainability, when they are developing solutions. It encourages a cost-benefit mindset that privileges productive efficiency—such as minimizing expenses—over distributive efficiency, which focuses on ensuring that resources are allocated to their most valuable use. And it encourages organizations to ignore important drivers of value creation—people, relationships, knowledge, and processes—which then suffer underinvestment as a result, leading to new costs, lost productivity, and decreased capacity for creative problem-solving.

Even if we cannot come up with a perfect description of the barriers to achieving the SDGs, it's within our reach to create a clearer understanding of all the resources we can pour into solutions. We must go beyond the business-as-usual definition of capital as money, buildings, land, and equipment—the assets that appear on a balance sheet. We must broaden our understanding to include social, natural, and intellectual resources to have a better chance of building a better world.

Such a multi-capital framework connects an organization’s values, strategy, business model, and metrics to capabilities development, community well-being indicators, and the SDGs. The result? Teams can account for and plan for the individual and systemic impacts of their work. Using such a multi-capital framework helped an arts and culture collaborative, the Balboa Park Cultural Partnership, grow its annual revenue from $125,000 to $5 million over 15 years. At SEED SPOT, a nonprofit that supports social entrepreneurs, a multi-capitalism approach resulted in 274 percent growth in reaching innovative business people, 72.4 percent of whom are women, people of color, and other underrepresented groups. ABN AMRO, a bank in the Netherlands, implemented multi-capital planning and accounting in 2014, leading to healthier employees, happier customers, clarity about negative externalities (such as violations of anti-corruption or labor rights laws) the bank might produce, recognition as a sustainability expert, and alignment of the bank's strategy with the SDGs.

To use multi-capitalism, start "thinking in capitals." Ask questions like: What intangible resources does your organization develop and deploy? Who are your stakeholders and how do you develop and nurture relationships with them (social capital)? What are the key competencies your people need to create value for stakeholders (human capital)? How do you intentionally create cultural capital to ensure equity, inclusion, and transparency? After finding the answers to questions like these, you'll integrate the answers to form a cohesive strategy. To help guide the process, here are the six main types of capital you should look for:

1. Financial and Manufactured Capital

These are the "traditional" assets that show up on the balance sheet. These include currency, credit, financial instruments, owner’s equity, buildings, infrastructure, durable goods, and equipment. Beyond generating profits, financial and manufactured capital can support new business opportunities that advance the SDGs, such as the Climate Policy Initiative that generated $2.1 billion in sustainable investments.

2. Human Capital

Though the term has been heavily criticized, human capital in our understanding represents people’s knowledge, skills, competencies, imagination, and attributes that create personal, social, and economic well-being. It is an attempt to confront the fact that an organization's people are often marginalized as costs rather than invested in as drivers of mission fulfillment and profitability. Recognizing this, firms like FHI360, a global human development organization, have intentionally developed human capital and capabilities through training and technical assistance programming. This enables outcomes such as ensuring the availability of qualified health workers and improving water supply, sanitation, and waste management. This case study walks through the development of an integrated human capital management strategy.

3. Intellectual Capital

This represents the knowledge, ideas, expertise, information, and experience that enable a firm to reliably innovate, develop, and monetize the production of knowledge. For example, the Indiana CPA Society (INCPAS) researches issues affecting certified public accountants (CPAs), such as the need to increase diversity, equity, and inclusion in their ranks. INCPAS also created an online community to enable its members to share information, collaborate more effectively with regulators, and stay ahead of changes in their industry. These efforts enhance INCPAS's reputation as a trusted business resource, enabling it to exceed its 2019 goals for membership and retention. A starting point to identify and track your company’s knowledge resources is the Nordic Industrial Fund’s toolkit.

4. Social Capital

Relationships, networks, and community building develop social cohesion through trust, and all firms rely on cooperative relationships among employees, customers, vendors, and other stakeholders. Attending thoughtfully to these bonds leads to better economic outcomes for a firm. Village Capital, a world leader in impact investing, builds social capital by developing a network of investors and entrepreneurs through its peer-selected investment process that equalizes power dynamics and trains investors on implicit bias. This in turn generates financial capital through fintech accelerators that increase savings rates and financial security for low- and moderate-income wage earners and seniors.  Tools like the Social and Human Capital Protocol can help with recognizing social capital risks and opportunities.

5. Natural Capital

This describes the renewable and non-renewable resources that benefit people, including plants, animals, air, water, soil, and minerals, as well as often-overlooked processes like pollination, carbon sequestration, and nutrient cycling. Accounting for natural capital can reduce costs, increase efficiency, help manage risks, enhance a firm's reputation, and spur the development of new products, services, and markets. FHI360 has embraced natural capital by developing sustainable solutions for agricultural production, climate change, and biodiversity conservation. The natural capital protocol helps assess a firm’s impacts and dependencies on nature and business opportunities for solving environmental problems.

6. Structural Capital

This describes the infrastructure that enables an organization to function in a repeatable, scalable way. Examples include hierarchies, networks, self-managed teams, and governance, as well as processes like communication, leadership, and convening. Structural resources are important because they channel all the other types of capital by providing the spaces and experiences in which projects are created. Hello Alice, a machine learning technology that matches business owners with personalized opportunities, represents structural capital in that it makes resources more accessible to a greater number of entrepreneurs across the globe. To get help with developing structural capital, organizations should explore the "Understanding Organizational Structures" toolkit from the Society for Human Resource Management (SHRM) and evidence-based practices for effective organizational redesign.

Connecting the Capitals

Each type of capital is important on its own. But when multiple capitals work together across several levels (individual, organization, and community) and industries, they exceed the sum of their parts and produce the most impact. Interwoven, multiple capitals can build resilience for disaster recovery, climate change, and economic justice.

By cataloging all of its capitals, an organization lays the groundwork for combining them. It offers the opportunity to strategically select capitals to bolster that will then strengthen the others—a “spiraling up” that was seen in the HomeTown Competitiveness community economic development initiative in rural Nebraska, which used social capital to attract participation in an eight-month leadership program. The program's outcomes included increased knowledge and skills of participants (human and intellectual capital); new shared norms of community involvement (cultural capital); broader participation and diversification in civic affairs (social capital); and a network of entrepreneurs, businesses, and cross-sector partnerships (social and structural capital) that attracted new financial investments and manufacturing infrastructure to the region.

Two resources for developing multiple capitals strategy and indicators are the Community Capitals toolkit and this asset-based community development guide. Social accounting methods like Integrated Reporting offer frameworks for a holistic understanding of capitals and how they can be developed to advance the SDGs. Using them is more important than ever. New global crises and longstanding challenges are pressuring societies around the globe. With less than a decade left to achieve the SDGs, enterprises must stop solely prioritizing financial considerations when wrestling with social issues. By identifying all of the capitals they command and developing business models and strategies that combine and leverage them, they can magnify their positive impact before it's too late.

Read more stories by Elizabeth Castillo & Duane Rollins.