Evaluating Corporate Sustainability in the Agrifood Industry Using a Five Capitals Framework

In 1987, the Brundtland Commission coined the famous definition of sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (World Commission on Environment and Development, 1987, p. 43). Somewhat less well known is the definition provided at around the same time by the environmental economist David Pearce, asserting that sustainability requires “at least a constant stock of natural capital, construed as the set of all environmental assets” (Pearce, 1988, p. 599) (italics in original). The notion of natural capital (the stock of the world’s natural resources and ecosystems that provide benefits to society) built on Adam Smith’s (1776) classical understanding of economic production depending on the primary inputs of land, labour and capital. More recently, just as the concept of land as a factor of production was extended to natural capital, so too the concept of labour has widened to encompass the concepts of human and social capital. The concept of human capital acknowledges that human productive capacity involves aspects such as health, skills, knowledge and experience; while social capital recognises the distinct value added by human relationships, networks and institutions.

In 2005, these ideas came together in the ‘Five Capitals’ model (FCM) of sustainability (Porritt, 2005), put forward and promoted by the NGO Forum for the Future (see Figure 1). Unlike the better-known sustainability framework, the Triple Bottom Line (Elkington, 1997), the FCM is deliberately hierarchical, seeing natural capital “...as the overarching capital for the others due to its inherent pre-conditionality and underpinning of fundamental human existence” (Tuazon et al, 2013, p. 43). Human capital is derived from natural capital as humans exist within a biosphere; humans then have the capacity and desire to collaborate, creating social capital. Finally, natural, human and social capitals are combined to produce manufactured and financial capital.

Figure 1: Five Capitals Model (contact author to view)

The FCM extends the ‘constancy of stock’ view of sustainability to all of the five capitals: the idea being that sustainability requires maintaining or increasing the stocks of each kind of capital, so that we can “live off the income without reducing the capital itself” (Forum for the Future, 2014). However, as Pearce acknowledged in 1988, the meaning of constant capital stock is far from clear: it may (inter alia) mean constancy in physical terms, economic values or prices; it could be measured in terms of total stock or stock per capita; and the extent to which the capitals should be considered substitutable for each other has generated extensive debate. These questions are challenging even at the global level, and they become even more vexed when applied to the sustainability of an individual company, where questions of scale, efficiency and competitiveness also come into play.

The FCM has been influential in the regional and community development literature (Brereton and Pattenden, 2007 in Tuazon et al, 2013; see also Goodwin, 2003 for other applications in the development literature), but is so far largely absent from the business and management academic literature, despite having found some limited traction within the popular management press and industry publications relating to business and sustainability (Forum for the Future, 2014; Porritt, 2005). In this paper, we analyse an Australian bank’s sustainability strategy from a Five Capitals perspective. We investigate how its strategy and business model has evolved over time, from a traditional banking perspective on the provision of financial capital to investors in manufactured capital, to explicit recognition of its decisive role in the maintenance of natural capital (as lender to one in three Australian farmers) and the development of a comprehensive approach to social impact. We also look at its failings, as documented by the recent Royal Commission into misconduct in the Australian financial sector, which ultimately led to the resignation of the bank’s CEO and Chairman in early 2019. Taking both of these narratives into account, we assess the feasibility of using an FCM framework to evaluate corporate sustainability at a strategic level, and whether this has any advantages over alternative approaches such as the Triple Bottom Line.

References:
Elkington, J. (1997). Cannibals with Forks: The Triple Bottom Line of 21st Century Business. Oxford: Capstone.
Forum for the Future. (2014). The five capitals model – a framework for sustainability, Available at: https://www.forumforthefuture.org/Handlers/Download.ashx?IDMF=8cdb0889-fa4a-4038-9e04-b6aefefe65a9
Goodwin, N. (2003). Five Kinds of Capital: Useful Concepts for Sustainable Development. Global Development and Enviornment Institute, Working Paper No. 03-07.
Pearce, D. W. (1988). Economics, equity and sustainable development. Futures, 20(6), 598–605.
Porritt, J. (2005). Capitalism as if the world matters. Earthscan.
Tuazon, D., Cordera, G.D. and McLellan, B.C. (2013). Sustainable Development: A Review of Theoretical Contributions, International Journal Sustainable Future for Human Security, Vol. 1, No. 1, pp.40-48
World Commission on Environment and Development. (1987). Our Common Future. Oxford: Oxford University Press.