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

by Jane Gleeson-White

A timely and fascinating account of the revolution going on in the world of finance from the acclaimed author of Double Entry . This is the story of a twenty-first-century revolution being led by the most unlikely of rebels: accountants. Only the second revolution in accounting since double-entry bookkeeping began, it is of seismic proportions, driven by the 2008 financial crash and our ongoing environmental crisis. The changes it will wreak are profound and far-reaching and not only will transform the way the world does business but also will alter the nature of capitalism. While the wealth of nations and corporations has been vital to the global economy, increasingly the world is coming to realize that such endless growth is limited by the earth's resources and comes at a huge price to the planet and to human well-being. It simply cannot be sustained. This revolution demands that we go beyond merely accounting for traditional financial and industrial capital and take account of the benefits and detriments to the natural world and society. It urges us to include four new categories of wealth: intellectual (such as intellectual property), human (skills, productivity, and health), social and relationship (shared norms and values), and natural (environment). Making them part of our financial statements and GDP figures may be the only way to address the many calamities we face. Just two years ago this revolution seemed idealistic and unlikely. Today it is quickly unfolding. In 2012, the sea-change year, two key initiatives took root: an international movement to transform how corporate accounting is calculated and the rise of incorporating the effects on the environment to the accounting of national and global economies. Six Capitals tells the story of this coming new age in capitalism, evaluating its promise and the disaster that lies ahead if it is not implemented.

Genres: Nonfiction, Economics, Business, Finance

304 pages, Hardcover

First published November 1, 2014

About the author

Jane Gleeson-White is a writer, editor and speaker, and is well known for her work on literature, economics and the natural world. She is the author of the bestselling, internationally acclaimed Double Entry: How the merchants of Venice shaped the modern world (2011) and its sequel Six Capitals: The revolution capitalism has to have (2015). Her first two books are about literature: Classics (2005) and Australian Classics (2007).

Jane is a regular commentator on economics and sustainability, including for the Sundance Film Festival, United Nations and European Union. She has written for the Wall Street Journal, The Guardian, Bloomberg, Wired, The Age, Sydney Morning Herald, The Australian, Meanjin, Overland, Wellbeing and Good Reading magazine. She is a former fiction editor of Overland literary journal and wrote a blog about books, bookishgirl.com.au, from 2010 to 2016. Jane has a PhD in creative writing, which included work on country in the novels of Alexis Wright and Kim Scott, and is currently working on a project about the emerging rights of nature movement in Australia.

Reviews

[John Montgomery · Rating 5 out of 5]

This is an important book because it shows that we can't create a more socially and environmentally responsible global economy unless we upgrade the prevailing double book entry accounting system, which only accounts for financial and industrial capital, into a system that takes account of the benefits and detriments of corporate action on society and the environment. The author suggests a new "six capitals" accounting system that measures intellectual, human, social and relationship and natural capital in addition to financial and industrial and summarizes various efforts currently underway around the world to develop such an accounting system.

The prevailing form of the corporation, which was designed to externalize as many as possible of the negative consequences of corporate behavior upon society and the environment, and prevailing GAAP accounting, which does not account for these externalized costs, combine to reinforce corporate behavior that maximizes profit for shareholders while negatively impacting society and the environment. In other words, the corporate form and its accompanying accounting system work to prevent corporations from acting as responsible global citizens that not only maximize profits for their shareholders but also provide a material positive impact on the environment.

The author offers a solution by suggesting changes to the legal and accounting matrix by authorizing corporations with a social and environmental conscience, such as the benefit corporation, and creating a comprehensive accounting system that measures the effect of corporation behavior on the six capitals. Without such changes to the legal and accounting matrix, however, corporate behavior will naturally default to profit maximization at the expense of society and the environment despite the well intentioned efforts of Conscious Capitalism and similar movements.

In addition to be being well-researched and substantive, this book is a great read. The story unfolded as the author wrote it and the prose is as fast-paced and breathless as the unfolding story. Jane Gleeson-White is an excellent writer to be able to bring the dry topic of accounting to life. I couldn't put this book down and bet that you won't be able to either.

[Rabib · Rating 4 out of 5]

Read this if you want to learn about how accountants might be able to help "save the planet". As a non-accountant, reading this helped me appreciate the more intellectual side of accounting.

But if you're just interested in the answer to the question posed in the subtitle, the obvious answer is "no". The author lays it out plainly:

But there is a logical inconsistency at the heart of the six capitals model which will prevent it alone from saving the planet: it seeks to account for nonfinancial value but can see it only in terms of financial value. This is because the entity it seeks to govern, the corporation as we know it, is legally bound to make decisions in favor of financial capital. The six capitals model is predicated upon a corporation which privileges this single store of value, even though it is in fact the only metaphoric wealth in the array of six "capitals." The other five capitals pertain to—or in the case of manufactured capital are derived from—living systems; they are the only literal wealth the planet can yield. Although these cutting-edge accountants have conceived a new-paradigm accounting scheme to measure the new invisible wealth generated by the information age and the sustainability information required for our era of environmental distress, they are nevertheless applying it to an old-paradigm corporation, one rooted in the industrial era, when financial measures captured most of the value that counted and profit ruled supreme. That this is the case is suggested by the efforts to rethink the corporation of Pavan Sukhdev, Allen White, and Marjorie Kelly, and more radically by the advent of benefit corporations. In the hands of the industrial-age corporation, the six capitals model becomes a style of thinking and reporting that helps, say, a multinational giant to better manage its sole purpose of extracting the dying reserves of the earth's water to transform it into sugared drinks which very likely contribute to the diabetes epidemic and which are distributed in countless plastic bottles and aluminium cans that litter the planet with the single end of enhancing its shareholders' financial capital. This is inconsistent, to say the least, with the values of nature and society—these vital ecosystems whose intricate workings are ultimately as mysterious to us as life itself—many of which cannot be translated into numerical or monetary forms despite ideas like ecosystem offsetting and attempts by Trucost, Bloomberg and others to price them, not now and not ever.

[Noah Skocilich · Rating 5 out of 5]

Just finished this wonderful book. It was satisfyingly informative from the beginning, but in about the final third the author dropped her pretension of agnosticism and spread her human wings in a most beautiful way.

An almost ecstatic crescendo that you didn’t see coming at all, but that you all of the sudden realize had seen you all the while.

I answer the question posed by the title then, no they most certainly cannot. Nor should we suffer any illusions that such superficial tinkering around the edges of capitalism could come make anywhere near the amount of material change needed to avert total ecocide.

What is needed, the author says, is a deeply rooted change in our orientation to value and to nature.

And, bringing it full circle, the author speculates that perhaps some recent innovations in accounting and also in some related new-fangled legal and financial precedents have opened up some material vehicles for the needed new consciousness of nature to express itself in.

Specifically, three financial-legal innovations:

Integrated financial reporting that describes financial and non-financial capital

Corporations legally chartered to do social good

And, the rights of nature enshrined in Law.

Mind you, none of these on their own mean anything when utilized in the Industrial Age fashion of seeing nature as the expendable dominion of humans, but, utilized by humans sensitized in a more traditional way to nature, the author speculates that these three (essentially linguistic) innovations can form the concrete emergence in the world of our saving grace.

The prose about the rights of nature is positively glowing, and for those sections alone I am at this moment inclined to agree.

[James Millikan · Rating 4 out of 5]

In this intriguing book, Jane Gleeson-White makes a case for a radical restructuring of financial accounting practices. Long gone are the days, the author argues, in which the essence of a business can be encapsulated in the balance sheet or the income statement alone. Citing practical concerns (how can you really price "intangible assets" or so-called "goodwill"?) as well as ethical and environmental concerns (yes, familiar economic concepts like externalities and public goods, but also anthropological factors like social cohesion), the book identifies six guiding stars to chart a sustainable path forward: financial, manufactured, intellectual, human, social and relationship, and natural capital.

Gleeson-White's book is written with both the novice and the expert in mind; market failures and the finer points of accounting are lucidly explained without sacrificing nuance, making the book both scholarly and eminently readable. If the prospect of unfettered capitalism worries you, if you find the proposed technocratic solutions to global warming inadequate, or if you question the suitability of a 14th century Venetian technology (double-entry bookkeeping) in assessing the true costs of 21st century business activity, you will find much in this text to ponder. Recommended.

[Stephen · Rating 5 out of 5]

Gleeson-White's first book, Double Entry, is the only account I've found anywhere which begins to explore the impact accounting has had on Western Civilization. It's no accident that merchants and bankers in Northern Italy began reducing into two dimensions (time and money) so many different kinds of business, each of which processed, inventoried and sold so many different kinds of materials, resources and products. In this work she dives even deeper into the problems of externalities -- dimensions of modern life that are excluded from business and national accounts -- that limit our wellbeing and ultimately threaten the stability of the World as we know it, including but not limited to Climate Change. In this book, Jane outlines the history and present of several international movements that could possibly enable businesses and countries to report in a more balanced way the impact their business process has on nature, on human beings, and our communities.

[Jaishree Singh · Rating 5 out of 5]

This is an important book for those interested in solving our world's largest problems. :) I loved it.

[Caitlin · Rating 5 out of 5]

Most amazing book I've ever read <3

[Ellen · Rating 4 out of 5]

Informative, but eventually a bit repetitive...probably could have made this argument more concisely

[Stephanie · Rating 4 out of 5]

I would have tagged this book as environment. It has some good and interesting ideas, but it was a little long winded for me. Significantly less interesting than Double Entry.

[Paris Chadwick]

This was super interesting but I'm not going to rate it because it doesn't spark joy the same way a non school book does

[Murray · Rating 4 out of 5]

Externalities have long interested me as a transport planner. These are those things that people cause but don't pay for. When driving, it includes things like noise pollution, air particle pollution, congestion. For industry, it could include waste dumped into a river or the air. In the argument of Raj Patel's The Value of Nothing (which I haven't read, but am keen to) if we paid for all the externalities created through the production of a Big Mac, it would cost $200.

[Note that it's also possible to have positive as well as negative externalities. This is where - as we often see in studies on walking and cycling - your activity provides a benefit to society (less medical costs, less sick leave, more motivated workforce).]

But how can we account for and pay for these things?

Jane Gleeson-White's Six Capitals doesn't exactly take this as her starting point, but it's a question that a number of economists and environmentalists have been asking for a number of years.

But before I go further, I just need to say what an interesting and (relatively) easy read this book was - especially for someone with no particular financial literacy.

Jane takes us on this journey, along with a brief history of accounting (I still need to either read her earlier book or get my accountant-friend, Oddur to explain double-entry accounting to me some day) on the way to how companies might account for non-financial aspects of their operations within the conventional framework.

Along the way, Jane introduces us (me) to the other Capitals that affect a companies performance, but aren't captured or analysed the same way a profit and loss sheet it. In addition to the "standard" financial ($$$) and manufactured (the stuff they build) capital, they are intellectual (patents and other information the company owns), human (the capabilities of the people that work for the company), social and relationship (what sort of reputation the company has and its relationship with government, other companies and wider society) and natural (for want of a better term, the environment).

There appear two main problems with this process:

Firstly, it can be very difficult to put a value on some of these forms of capital - though this book provides a number of interesting examples where people have attempted to put a value on natural capital (see Raj Patel as an example).

Secondly (and perhaps more importantly), if we value and note resources appropriately, it may not look good for companies that are creating losses in natural capital (polluting water, digging metals from the ground) or human capital (putting workers out of a job). In fact, corporations have a legal responsibility to provide a maximum (financial) return for shareholders.

The other (obvious) option would be for governments to require these capitals to be noted in balance sheets, but seeing how most governments are beholden to corporate interests, I can't see this happening in a hurry. That said, South Africa now requires companies to provide integrated reporting (see below), so it would be interesting to see how that's turning out.

On the plus side, there are some companies with enlightened CEOs and Boards who are genuinely concerned about people and the environment, and there are now incorporation laws in some US states that allow a wider viewpoint. Similarly, many companies now provide integrated reporting on their activities (where they mention their other impacts) which allow investors to analyse these other important aspects of a company's work.

However, it still seems tome that these rely on either enlightened company directors or enlightened investors who have the inclination (me) and time (not me) to look through these to see where our retirement funds are investing.

And while I'm a generally optimistic person, I'm not sure I share this book's optimism in the ability for accountants, company directors, and ourselves to "save the planet", but I'm willing and happy to be proven wrong.

[Christian · Rating 3 out of 5]

She presented some interesting ideas, and I like the idea of integrated reporting. Holding corporations responsible for the natural and human resources they use is a must and complaints and punishments after violations aren't as effective as building requirements and incentives into the reporting system. Assigning financial value to natural resources is on thinner ice, for me. I'm not sure the best way to save the environment from corporations is to translate treasures into the financial language they understand. The offsetting she mentioned seems a likely result. Granting nature rights seemed outside the scope of this book. I'm not entirely on board with that idea either. Granting corporations personhood was probably a mistake and doing the same with nature could cause problems as well. Overall I enjoyed the thought-provoking themes of the book.

[Wendy Campbell]

Jane Gleeson-White has created a huge canvas of how we can live with our planet in a positive and sustainable way, so that the things that we enjoy will be there for our grandchildren. We must change our own values and recreate our organisations! She gives this lesson in a very thoughtful and heavily researched manner.

Thank you, a great gift.

[Michael · Rating 5 out of 5]

A "must-read" for anyone interested in accounting and maybe for those who wonder how the planet may be saved. As the old business adage goes, 'you can't improve what you don't measure' or 'what gets measured, gets done'. There is much food for thought in this book as well as the revelation of exactly how much is happening around the world to account for the true costs of its destruction.

[Robert · Rating 5 out of 5]

I chose to read this for an assignment I am writing on Integrated Reporting, although I had wanted to read it for some time.

Six Capitals serves as a highly readable, engaging and concise introduction to current trends in Corporate Social Responsibility reporting and environmental accounting. Although I was familiar with many of the ideas presented, such as B-Corporations, and environmental offsetting I had yet to read about them in any great depth, Gleeson-White's book provided an approachable way to learn more.

This is definitely not a book just for accountants or accounting students. Anyone who thinks capitalism can still be saved should read this.