We need to fundamentally change how we recognise the true value of business.
Today only 20% of the market capitalisation of companies can be explained by financial assets like cash or real estate. This leaves 80% of total market value accounted for by intangible assets, such as intellectual property, customer relationships, natural capital assets, workforce skills and engagement.
Much of this intangible value can be categorised as social and human capital. The draft Social & Human Capital Protocol defines social capital as “societies’ relationships, shared values and institutions”, and human capital as “people’s competencies and capabilities, knowledge and wellbeing”.
This evolution in valuation has put people at the core of a successful business. They are employees, customers, suppliers, distributors, retailers and neighbours. Their growth and wellbeing are crucial to the bottom line.
There is little consensus, however, nor any tools or standards, on how companies should measure and assess social and human capital. Because they are intangible assets, not recognised in financial accounts, corporate decision-making does not properly integrate the social and human capital on which they depend.
The Social & Human Capital Coalition (SHCC) is a global multi-stakeholder collaboration that brings together leading initiatives and organisations to help companies recognise, measure and value the importance of people and communities.
The new coalition is founded on the principle that companies which truly value people will be more successful. It will help companies to integrate the importance of healthy, happy people with “planet” and “profit” as key drivers of effective decision-making and sustainable growth.
Through the coalition, we aim to mainstream the measurement and valuation of social and human capital. Developing a credible, comparable and broadly accepted approach is essential to supporting internal decision-making, demonstrating performance and helping better corporate reporting to tip the balance towards more socially sustainable practices.
The coalition cannot solve these problems in isolation. Instead, we need an integrated approach. This is why the Social & Human Capital Coalition is working closely with the Natural Capital Coalition, implementing an aligned approach to non-financial capital measurement and valuation.
The World Business Council for Sustainable Development (WBCSD) works with both organisations and many others to accelerate the transition to a world where business is measured by its true cost, true profit and true value. Our Redefining Value programme helps companies to measure and manage risk, gain competitive advantage and seize new opportunities by understanding environmental, social and governance (ESG) information.
We do this by building collaboration and developing tools, guidance, case studies, engagement and education opportunities to help companies incorporate ESG performance into mainstream business and finance systems. Our goal is to improve decision-making and external disclosure, eventually transforming the financial system to reward the most sustainable companies.
It is the fiduciary duty of all business leaders to ensure that their company is well placed for long-term value creation. This can only be achieved by anticipating social and environmental risk, by capturing opportunities and by more effectively measuring and communicating the intangible capital (people, communities and nature) on which the market valuation of their company relies.
The Social & Human Capital Coalition, and WBCSD’s Redefining Value programme, form essential elements of this journey.
You can find out more or express your support by joining the Social & Human Capital Coalition.
Peter Bakker is president and CEO of the World Business Council for Sustainable Development, which is leading the development of the SHCC. He is also chairman of War Child, Netherlands, and vice president of the International Integrated Reporting Council.