The MultiCapital Scorecard – Martin Thomas & Mark McElroy – review by Paul Druckman

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One of the most profound features of our age, dominated as it is by technology-enabled international transfers of financial, human and intellectual capital, is the interconnectedness of the global economy. A further feature is that this new era has brought into sharp focus a fundamental truth about the nature of value: that it is multi-faceted, complex, and comprised of factors that hitherto have not been measured, let alone managed, as key drivers of an organization’s strategy. There is no doubt that policymakers, capital markets and society are playing ‘catch-up’ with this reality.

Amidst the disruption, the demands of regulators and stakeholders are increasing for more transparency, deeper engagement and an understanding of the broader social and environmental impact of business – on the external environment and, crucially, on their own strategy and business model. If the market does not find practical ways to meet these demands, we will see an ever increasing polarization between the interests of business and society. Businesses are, and always have been, an integral part of society.

‘Multi-capitalism’ is a profound manifestation of early 21st century economic governance trends. But our capital markets, accounting and governance systems are rooted in a one-dimensional history, so businesses need new tools to help them adapt – and quickly. Respecting all the capitals used by an organization to create value, and communicating how business models are changing so that wealth is not only created, but distributed to achieve broad-based prosperity, is the principal challenge of our age. It is a challenge that must be met in order to restore public trust in capitalism.

The debate is not academic. A new mindset, focused on a framework of multiple capitals, will help to narrow the chasm of inequality that threatens social cohesion and progress, as well as placing a responsibility on all economic actors to put a value on their use of natural capital and execute a sustainable, forward-looking strategy accordingly. It is why adoption of an integrated reporting model is so vital for the future success of the global economy and society.

It is also why I am delighted to welcome the publication of The MultiCapital Scorecard by Martin Thomas and Mark McElroy, which I believe is an important milestone on this journey. It is evidently the outcome of decades of thinking and work with businesses to develop a practical approach that looks to be both scalable and backed by evidence. It is what the market needs, bringing innovation to management thinking and decision-making.

The MultiCapital Scorecard acknowledges that challenges exist within the current accounting system, for example in the valuation of intangible assets, but it helps companies to overcome this challenge. It looks to be a pragmatic model, allowing flexibility in terms of monetization of intangible factors, and it gives parity to the full range of capitals used by organizations to create value, which is consistent with integrated reporting. This thinking, and that of the International Integrated Reporting Council (IIRC) which I have had the privilege to lead as CEO for the last five years, are the product of a generation’s worth of thought leadership and innovative practice from pioneers in business, many of whom are referenced and acknowledged in the book. The result is a broad and strong coalition of support for ‘new’ capitals to be brought into the mainstream governance and reporting.

I hope very much that The MultiCapital Scorecard will catalyze further innovation in the measurement and management of information that itself will be part of the journey towards a more inclusive capitalist system.