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A new collective consciousness – 2017 in review

The last post on A|HEAD|ahead is from May 2016, this is 1.5 years ago. Did I lose appetite in writing? Not at all, but activities shifted. Many ideas first posted here, e.g. the 7-part series on the ‘new impetus’ for reporting (posted here between March 8 and May 11, 2016), advanced and made it into the Reporting Blueprint of Reporting 3.0. Since then I have written more than ever. The four Blueprints of Reporting 3.0 are each about 100 pages of packed research, insights, recommendations and tools for a new take on reporting, data, accounting and new business models, all content to be found at www.reporting3.org. The Reporting Blueprint (me as the lead author) and the Data Blueprint (authored by my colleague and friend Bill Baue) are released, the Accounting Blueprint (with Cornis van der Lugt as lead author) and the New Business Models Blueprint (with Bill and myself as co-authors) are still in the process for release at the 5th Reporting 3.0 Conference in Amsterdam on June 12/13, 2018, hosted once more by KPMG. In parallel we also posted a ten-part series on Sustainable Brands, now also available as an eBook here. By the end of 2017, and looking ahead to another important year for Reporting 3.0, I’d like to revitalise my A|HEAD|ahead blogging for those things that go beyond the purely professional Reporting 3.0 work, but not right away, so stay tuned for that. I’d like to start with a broad review of  what 2017 has taught me. 5 points come to mind:

  1. All research and reviews that we’ve undertaken in our professional work indicate that we need a new layer of institutions to solve our biggest problems. Luckily, this is already happening, and therefore I am happy to see a new collective consciousness arising in which many of the existing institutions also understand (often without admitting) that just being part of a puzzle doesn’t automatically lead to finalising the task of completing the puzzle. Examples are the foundation of a World Benchmarking Alliance, with the potential to create a streamlined and standardised way to compare truly sustainable performance; the creation of an Earth Commission (a program initiated by GEF, WRI, IUCN, WEF, IIASA and SRC), broadening the idea of globally applicable thresholds (carrying capacities) of all natural resources, and Reporting 3.0 itself as a pre-competitive and market-making work ecosystem to prepare for the necessary change of economic system design, potentially the biggest lever to not only rely on sustainability leaders, but to create scalability of impacts through incentivised followership. There are many more of these examples for sure, but these are closer to my and our work.
  2. As a result of this development there is now an even clearer articulation of the shortcomings of existing structures. While the business sector leans back and sings the choir of the SDGs and the Paris Climate Treaty as the ‘thresholds per sé’ upon which all action is now focused on, a more systemic approach shows that much more is needed beyond those given achievements. The SDGs lack a scalability potential as they mainly focus on a set of goals that aim to optimise a knowingly failed economic paradigm in which the rich get richer and the built-in hoaxes called ‘homo oeconomicus’ and ‘trickle-down-economics’ are still playing their disastrous game, happily embraced by e.g. the Trump regime in the US. They are tearing us apart in all means of life. Merely focusing on implementing the SDGs without tackling economic system design change is not creating the level of followership needed to create enough global impact at the level of speed that is needed. Alex Steffen has started a series of blogs on what he calls ‘predatory delay’, I recommend to read this one in particular. Aligned to this there is more and more recognition that we need to focus on a 1.5 degree (or below) global warming target than a 2 degree target if we want to escape the uncontrolled upward spiral of climate change. It is amazing to see how little perception is developing that the Paris Climate Treaty, even at 2 degree global warming target, is a deep and rough transformation agenda for businesses and that investors would be best suited to demand transition plans from the organisations they are invested in (an idea cultivated by Reporting 3.0 partner Preventable Surprises). Compare the urgency of speed to the reality, exemplified by the recent IIASA report ‘Two thirds of major emitting countries not on track to reach their climate targets’ when it comes to countries, so don’t expect things to be different in companies. The climate science itself is also very little connected to the economic system design change needs, at least there is an appeal to internalise external effects, but that plea is already 40 years old and since then bedevilled by economists everywhere. But, as #1 above shows, there is hope! I am however still mourning that there was not enough political will to demand a SDG # 18 – change economic system incentives towards regeneration and thriving.
  3. At Reporting 3.0, while developing and writing the Blueprints, we have decided to focus on building some necessary glue through what we call the Global Thresholds & Allocations Council. It became so blatantly obvious that the blind flight in sustainability is due to the missing implementation of sustainability context. Simply speaking there is much focus on the numerator data of an indicator that completely misses the denominators in order to be able to make a valid assessment how ‘sustainable’ any organisation on this planet truly is. Technically speaking we need a) science-based or norm-based thresholds (that is nicely linked to Kate Raworth’s ‘Doughnut Economics’, my recommended book of the year) in natural, social, human and economic capital spheres, as well as b) the globally/regionally/locally accepted allocations of those available capitals. It is amazing to see how much hardly everybody refuses to think of allocations while they happen all the time, but without proper thinking behind it. Partially the tragedy of the commons, but partially also cultural and educational blindness. Time to move on and open the eyes through a proactive and storytelling way should help pave the road ahead. Wish us luck in getting the GTAC up and running. At least having clarity around the data, levels and benefits of fulfilling the sustainability context challenge would already be a great success (in order to have a glimpse of an idea what ‘impact’ really means), the rest is purely political and societal will of wanting and getting used to this boundary setting as a pre-step to economic system design change.
  4. I have tested this throughout the year, and nobody really opposed: my answer to what ‘economic system design’ now practically means. A ‚grand design’ for the redefinition of economic system boundaries is hardly anywhere captured in its totality. There are existing pieces of the necessary patchwork covered in various fora, but the discussion among sustainability experts is close to non-existing when it comes to linking individual performance to economic system conditions. Language barriers, know-how barriers, a failure in addressing such topics to the right people within the organization to establish a proper discussion culture, lead to non-coverage. Deliberations from various Reporting 3.0 discussions about trying to reduce the complexity to an absolute but necessary minimum of ‚intervention points’ boiled down to mainly four areas in which economic system conditions and incentive structures need to change to allow for a green, inclusive & open economy, delivering market conditions that would automatically lead to minimally neutral, but more likely positive impacts:

    a) Adjusting cost accounting
    to cover the true cost of nature use and abuse, diminishing the ability of future generations to live a life with equal opportunities, respecting the idea of setting precautionary measures to ensure the intra- and intergenerational equity condition of sustainability. This has impacts on natural capital and manufactured capital and needs the monetization of the earth’s services, which is by far not a new topic. This won’t automatically lead to increased cost, a complaint often made by corporations, it will mainly be an incentive for true cost avoidance (not in the sense of ignoring external costs in the first place) in order to offer sustainable goods at a lower price than unsustainable goods. This would potentially help solve the stagnant amount of customers to buy the better – because (in the end) cheaper – sustainable goods. The same logic applies for social costs consequences that are often following the restrictions of nature overuse (see e.g. the current costs for the integration of climate refugees in many parts of the world).b) Introducing benefit accounting for the appreciation of positive impact, part of a total contribution system of accounting. This would include the monetization of positive increases in social capital, human capital, reputation capital and intellectual capital. The same applies for envionmental benefits, accounted for through natural capital and manufactured capital.

    c) Translation of these true costs and benefits into true prices
    and not keeping them hidden in shadow calculations. There are many companies that already use such shadow calculations as internal pricing mechanism, but do not add them to products yet. As said we expect innovative solutions to avoid the negative costs as a generic incentive to create net positive or gross positive products, so that they can be offered at a cheaper price than products that burden the environment or society. As a market mechanism absorbs the pricing signals it gets and prices also represent a value system the market mechanism is based upon, a capitalistic market system can indeed help customers ‚to do the right thing’ when choosing the cheaper options, meaning the more sustainable one. It can also allow the customer to still choose an unsustainable option, but at a price. This of course is only possible when industries accept and build these assumptions into a new global or regional level playing field. What holds us back so far are aspects of competition, power, and (partially accepted) abuse. We also see this part as a crucial necessity to achieve and to unlock the 25 years of expensive testing of how to change the behavior of customers. As long as pricing signals are the main driver for buying decisions, scalability of sustainable solutions can only be achieved through such market-based pricing levers.d) Changes in the incentive structures through taxation. This would mean  to signal a decrease of taxation on labor and an increase of taxes for non-renewable resource use. This can be done in combination with true costing mentioned above (leaving it partially to the regulatory power of governments to include every goods and services producing enterprise and let them become necessary followers of such taxation). This attempt also includes subsidies and other possibilities of tax cuts that can be granted for sustainable behavior. Of course, it would be beneficial to discuss these movements on regional and global scale and insert them in bilateral and multi-lateral trade agreements, an area of utmost friction between the different continents and political forces, but we can’t refrain from the fact that if business asks for it on the basis of creating fair and equal level playing fields, it can be done.Summing up, we see a specific advocational role for the already often quoted ‚leaders in sustainability’ and governments as the legislatory power to support societal consense through necessary laws, representing mainly the ‚bottom line’ of such new level playing fields. When corporate leaders explain the need that everybody in their industry must be following their lead, a voluntary solution will most likely not move the whole industry. Stepping into such a change agenda doesn’t imply a total switch at a certain point in time, a staggered approach following the convention building and new (academic and innovation) insight. We acknowledge the fact that this is most likely a ‚generational issue’, but we also recognize we only have one generation left to make those necessary changes. It is therefore necessary that end goals and timelines need to be negotiated from the outset.
  5. Closing this post and referring back to the starting point about a growing collective consciousness of what is needed above and beyond existing institutional design, this year has been revealing on many other fronts. It is strange to see how the existing economic paradigm is keeping us hand-cuffed. This reality does not even stop at the level of NGOs and foundations, those that once started out to ‘save the world’. These whole ‘sectors’ are so cut into issue-specific pieces that hardly anybody really oversees the whole systemic connectedness, even more a reason why it needs the pre-competitive and system-relevant thinking. I developed a very deep gratitude for the few that see ‘the whole’ and who funded the work of Reporting 3.0 in 2017 and will continue to do so in 2018. I have developed a rather thick skin for those that simply don’t want to learn, calling what we do ‘academic’ or ‘pie in the sky’. I tend to ask them what their alternative solution then is, and that is normally when it becomes rather quiet or they start to praise their own incrementalism which can be torn apart with 1-2 more questions (sorry if I stepped on anyone’s toes here). We have only seen the glimpse of the possibilities beyond ‘sustainability as usual’, of regeneration and ThriveAbility. I see how lost most are when you address aspects like prosperity and intergenerational equity, once essential but now forgotten preconditions of sustainability (we perverted the original concept to making it fit into an existing economic paradigm); or the understanding that incrementalism is part of the problem; or the fact that risk aversion in all sorts of hierarchies avoids seeing through; or the understanding that we suffer the ‘illusion of separation’ as my good friend Giles Hutchins has coined it and written a book about it (another recommendation to read). At Reporting 3.0 we have coined the mental mindset and world view needed to be that of a ‘positive maverick’. I think we can now say within 5 minutes if anyone fits that category or not. 2017 have brought us many new positive mavericks, others mentally unsubscribe. In a way this is clearing the mist.

I am thankful for the great meetings in 2017, the good discussions, the great team members at Reporting 3.0. I’d like to especially thank Bill Baue for thoughtful editing of a lot of what Reporting 3.0 published this year and thereby increased much extra depth into my writing; he is not just a wonderful friend and colleague to work with, he’s one of the most positive of all mavericks I know on this spaceship called Earth.

I wish all of you positive mavericks out there to have a bit of time to reflect on what we can achieve together in 2018. The look into our children’s eyes shows all the worth of it. They deserve it, and we need to deliver.

Happy Christmas and a wonderful turn of the year to you and your families!

 
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Posted by on December 19, 2017 in Towards 'sustainomics'

 

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Integral Thinking & True Materiality – Part 7/7: What Others Say About The New Impetus

This 7-part series has been first published on Sustainable Brands between late January and early March 2016 as a 6-part series and a follow-up by Bill Baue, co-founder of Convetit and the Sustainability Context Group. It captures the essence of my thinking I was able to gather through the extraordinary work of the Reporting 3.0 Platform, GISR and the ThriveAbility Foundation in 2015. What came out is a structure that I called a ‘new impetus embracing purpose, success and scalability for thriving organizations’. I am reposting the original 6 parts here and add a part #7 with reflections of others. This is part 7/7.

Time to let others speak! I am grateful to Allen White, Georg Kell, KoAnn Vikoren Skrzyniarz, Bill Baue and Robin Lincoln Wood for their appraisals of ‘Integral Thinking & True Materiality’. I guess the impetus stands the test of some of the top thinkers and past and existing leaders in sustainability. Time to test it further, pilot it and share the learning experience with others, through the various angles to do so: Reporting 3.0, GISR and the ThriveAbility Foundation.

Allen White (Co-Founder of GRI and Founder of GISR) 

Progress toward a thriving future requires a new lens for viewing corporate purpose, strategy and practice.  Ralph Thurm’s Integral Thinking & True Materiality framework provides such a lens, enabling business leaders to better understand the broader socio-ecological milieu in which they operate and to which they ultimately are accountable.  This kind of holistic thinking is a prerequisite to transforming organizations at the depth and speed a troubled world demands.  Indeed, anything less imperils the prospects for building a just and resilient global future.

Georg Kell (Vice Chairman of the Board, Arabesque Partners; former Executive Director of the UN Global Compact)

Ralph Thurm has always been on the forefront of sustainability, from his time at Siemens to joining GRI and later Deloitte. He now continues as A|HEAD|ahead, working on necessary structural enhancements in sustainability through the various affiliations of his work, eager to explore the next level of finding suitable criteria for clarified purpose, better understanding of success and ways to scale up what’s needed to overcome sustainability incrementalism. This reader is condensing some of his thinking into a new impetus, and it contrasts current thinking that often still tends to be a bit cautious and risk-averse into a wonderful tour de force that opens the mind and connects what belongs together. Enabling fresh thinking, Integral Thinking & True Materiality is at the same time inspiring and without doubt a precious resource for anybody who wants to build lasting and thriving organisations. Following this lead we may rethink if we have done enough to invigorate trust, innovation and scalability, the outcomes of the new impetus Ralph describes.

Dr. Robin Lincoln Wood (Founder, ThriveAbility Foundation)

How can the SDG’s be integrated into corporate reporting so as to move beyond a set of silo’ed goals for ‘zero negative impact’, to stimulate innovation, excitement and the breakthroughs we need to create a safe, just operating space in which humanity can thrive? Some of the answers to this question will be found, like clues in a detective novel, in Ralph Thurm’s short compendium of articles on Integral Thinking & True Materiality.

The first clue is to be found in the leading Diagram 1 in the compendium – „Trust“. In a world where trust in our institutions and the ‚system’ is at an all time low, who can you trust? The power of great brands, like good leaders, is that they inspire trust in their promises, and by delivering reliably on those promises, that trust grows. Many organizations are now learning just how critical and valuable trust is, especially those who have lost the trust of their key stakeholders at considerable financial cost.

Clue no 2 is that „Resilience“ and „Innovation“ are pre-conditions for products and services to deliver in the longer term on an organization’s promises. The big question is: How can we ensure that an organization is trustworthy, resilient and innovative? For that we need to go inside the triangle in Diagram 1 to find four enablers: integral thinking, success, purpose and scalability:

  • Integral thinking requires leaders to incorporate both negative and positive externalities into their business reporting within the context of planetary boundaries and social floors, to be genuinely sustainable. This results in „True Materiality“.
  • Success in the 21st century will not be measured purely in financial terms.Through the integration of the seven capitals, we can arrive at the True Future Value of any decision or investment, thereby providing a trustworthy indicator of where an organization should focus its efforts.
  • Purpose is needed to align organizational stakeholders toward a North Star that enables the web of stakeholders and their business ecosystems to realise their True Future Value creating potential as an interconnected system of mutually satisfying promises delivered and commitments met.
  • Scalability enables the fruits of True Future Value generating innovations to „cross the chasm“ from the early adopters to the mainstream markets to go truly global, resulting in world enhancing outcomes.

Reporting standards and the sustainable development goals have the power to shape the governance frameworks which determine how value is perceived and created in our economy. Business leaders, investors and consumers need to trust that their decisions are contrubuting to True Future Value, not just doing less or no harm. By being able to measure what „Doing well by doing good“ really means for all stakeholders in an organization, the ThriveAbility Governance Framework and Index offers us the opportunity to move rapidly to a regenerative inclusive economy- a world where promises are delivered in ways that rebuild our trust in ourselves, each other and the possibility of a thriving future.

KoAnn Vikoren Skrzyniarz (Founder/CEO Sustainable Life Media, producers of Sustainable Brands)

In 2006, Sustainable Brands launched out of a belief that the pathway to a flourishing future depends on our ability to successfully shift our businesses and the global economy beyond those models that enabled success during the industrial age and toward something new, and more evolved. We recognized that while the industrial age delivered significant improvements in prosperity around the globe through the design of business systems focused on driving efficiency from mechanistic models of operating and the development of silos of expertise, it also produced a raft of unintended consequences brought about largely by the loss of our up till then natural aptitude for being conscious and sensitive to the interconnectedness of things.

Today, we find ourselves faced with a compound set of crisis resulting from the unchecked exuberance of our construction of a consumer economy. Our highly efficient, take, make, waste based economic engine has left us with dangerously depleted natural resources, concerning levels of toxic waste, rising temperatures and sea levels, and a rampant decline in biodiversity — all of which have has put our very survival at risk. Perhaps even more insidious is the way we’ve slowly redefined the role of humanity, away from that of citizens tasked with being stewards of our common well-being, and toward being simply a cog in the economic machine, tasked only with buying and consuming more in order to feed what some would define as a somewhat cancerous economy which seems now to have become dependent on over consumption beyond the needs of health and happiness.

Now is the time to turn our ship back toward healthier modes of commerce and consumption based on a ressurgence and deepening of our ability to see and think in systems.  We have complex challenges to face, partly of our own creation.  At Sustainable Brands, however, four key beliefs, supported by mounting research and evidence, encourage us and give us hope for the future:

  1. We believe and see growing evidence that humans are actually wired for good, and that we generally desire to learn, solve problems and to leave the world a better place than we found it.
  2. We believe that business as an institution is uniquely equipped to innovate and create new forms of value in the world.  Once we recognize a problem, and can connect solutions to the potential for economic return, we are well equipped to act.
  3. We believe brands — which are essentially the promises made by business to their stakeholders about what they aim to deliver, are uniquely equipped to help shift our global aspirations back toward health.  We have it in our capacity to help nurture a shift back toward our now latent, but yearning to be reengaged higher selves, offering more systems conscious models that acknowledge our growing awareness of the interconnectedness of things.  And maybe most importantly,
  4. The available knowledge and growing set of models and tools to help us get where we need to go are exploding all around us.

Ralph’s booklet Integral Thinking & True Materiality – A New Impetus Embracing Purpose, Success and Scalability, published as an e-book together with Sustainable Brands is a perfect example of the 4 bullet points mentioned above. It asks for new focus on purpose, connecting to the truly material problems to which we all can make contributions to; on success, in which the pathway to a multi-capital success measurement as a litmus test for delivering the truly material issues becomes blatantly clear; and on scalability, in which education, collaboration and advocation are so essential. Sustainable Brands embraces these ideas through the events it organizes and the services it offers. Ralph’s work helps us to level up our approach to business, and deliver against a new desire to fully account for all externalities impacted by our business activities, and ultimately to deliver net positive good to the world. The work of Reporting 3.0, GISR and the ThriveAbility Foundation, the parts of Ralph’s portfolio to deliver on the new impetus, are also presented and showcased in Sustainable Brands conferences.

Sustainable Brands is a global community of the willing — influential leaders in and around business who are committed to breaking through to new models that can enable a thrivable, flourishing future. We are happy to call this team of integral thinkers part of our community and to support bringing visibility to their ideas as together we search for the best possible solutions for transforming our world for sustainability.

Bill Baue (Editor, Co-Founder Convetit & Sustainability Context Group)

It has been my pleasure to edit this tour-de-force 6-part series by my colleague Ralph Thurm in which he lays out his vision for how integral thinking and true materiality can catalyze a regenerative and inclusive economy, leveraging the work of the ThriveAbility Foundation, the Reporting 3.0 Platform, and the Global Initiative for Sustainability Ratings (GISR).

In editing this series, I recognized the genius of Ralph’s triangulated conception centered on true materiality and integral thinking, as it resolves the primary outside-in and inside-out dilemmas in current corporate architecture.

True Materiality reconciles what GISR Founder Allen White calls “the artificial distinctions between internal and external materiality.” Internal materiality prioritizes that which impacts of the organization and its ability to generate value – primarily for providers (and extractors) of financial capital. External materiality prioritizes that which impacts the organization and its stakeholders, including their mutual ability to maintain wellbeing through ongoing access to vital capitals shared in the commons.

Ralph’s notion of true materiality bridges this divide, integrating both the issues that determine the future value of companies expressed in financial capital (with consideration of the multiple capitals), and the issues that determine the true value of companies by assessing positive and negative impacts on the common capitals that are vital to stakeholder wellbeing in terms of ongoing viability of these capitals within the thresholds of their carrying capacities. True materiality dismantles White’s “artificial distinctions” and thereby serves as the linchpin for assessing what the ThriveAbility Foundation calls True Future Value.

Integral thinking takes up where integrated thinking leaves off – in particular, addressing the inside-out dynamic. The primary object of integrated thinking, as conceived and articulated by the IIRC, is the external structures in need of integration – primarily, the multiple capitals. While Ralph’s notion of integral thinking certainly includes this need to integrate the capitals, it also transcends this limited focus on external realities by integrating internal dynamics as well.

Most importantly, integral thinking calls for mindset shifts, and equips us with the tools to map the center of gravity of our mindsets in terms of psychological and cultural stages of development. This additional depth transforms the more mechanistic approach of integrated thinking into a more holistic approach that accounts for both internal and external perspectives, both individual and collective perceptions.

In approaching this 6-part series, I find it quite remarkable that Ralph manages to address such a broad swath – both the shortcomings and the solutions – before us. This series challenges us to acknowledge the existential crises we face, as a corporate community and as a society, and to rise to the occasion by tapping into our human genius and resilience through inspiration and aspiration toward true thriving.


 
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Posted by on May 11, 2016 in Thriveability

 

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Integral Thinking & True Materiality – Part 4/7: Success Definition For True Future Value Creation

This 7-part series has been first published on Sustainable Brands between late January and early March 2016 as a 6-part series and a follow-up by Bill Baue, co-founder of Convetit and the Sustainability Context Group. It captures the essence of my thinking I was able to gather through the extraordinary work of the Reporting 3.0 Platform, GISR and the ThriveAbility Foundation in 2015. What came out is a structure that I called a ‘new impetus embracing purpose, success and scalability for thriving organizations’. I am reposting the original 6 parts here and add a part #7 with reflections of others. This is part 4/7.

In this part of the series, we will focus on another very important aspect for the new reporting impetus that can serve the needs of a green & inclusive or regenerative economy – the question of how we define success. We are at this moment not able to truly claim when an organization is ‚sustainable’ (as laid out in stage 3 of the strategy continuum Diagram 4 in Part 3 of this series), and that just being ‚minimally good enough’ to indeed sustain the organization – and the real-world systems it operates within. Most reports aren’t giving a proper ‚world view’ or scenario context to their long-term targets.

Bildschirmfoto 2016-03-08 um 10.37.58

Diagram 5: Integral thinking and true materiality need a renewed focus on the definition of success to create True Future Value for the economy we want to live in.

Progress in defining ‚micro-macro’ links

Discussions in recent years show progress on defining ‚micro-macro’ links between companies’ impacts and the health of the broader systems they operate within. The elaborations about context-based reporting, science-based target setting, together with Kate Raworth’s Doughnut that defines environmental ceilings and social floors, has added vision and revealed depth as to the ‚devil in the details’ of measuring them in relation to the corporate context, and splitting them up into local, regional or global ‚allowances’, raising the profile of around thresholds and allocations.

Also, the link to the economic system thinking around the usefulness of GDP as the leading success factor has been called into question through the discussion around ‚Beyond GDP’, the Global Footprint Network, and the enhanced (yet mostly unconnected) indicator systems around National Sustainable Development Strategies of regions (like the EU). We see combinations of indices – e.g. country Ecological Footprints versus the Human Development Index – revealing the corridor in which countries should end up being sustainable. The problem here is that the ‚micro-macro’ link is not expressed at the corporate level, so companies take note of these data, but don’t know how to apply them in their specific case. The bigger and the more diversified a company is (crossing national borders), the more difficult it becomes.

The SDGs are an interim step to help fill that ‚micro-macro’ gap by dividing the global challenges into silo’ed aspects of problem articulation. There is merit to see the SDGs as a valuable attempt to induce companies to consider their contribution to a threshold through science-based goal-setting and context-based reporting. The problem is that, while the SDG areas are interconnected, the performance indicators aren’t. We already see companies start to think about picking and choosing some of the SDGs closest to them and define contributions they could make, without taking the step of developing a worldview (see Part 3 on purpose) that articulates responsibility for helping achieve the SDGs. We should not think that the SDGs will get us to any economic system transformation through voluntary contributions by the world’s millions and millions of companies. But without this transformation, there won’t be regeneration, let alone sustainability.

A stable solution for the next couple of hundred years?

We are in an experimentation phase, I fully admit, but I also claim that now is the time to not only set conventions for delivery indicators for the SDGs by 2030, but something that we can use for the next couple of hundred years, and that gets me to … accounting systems. Jane Gleeson-White already proclaimed the ‚third accounting revolution’ in her bestselling book Six Capitals, or can Accountants save the Planet?, cutting through double entry bookkeeping that was invented in the 15th century for the throughput economy, towards multi-capital bookkeeping. We now need an accounting system that prepares us for the green & inclusive economy.

The litmus test question of success that needs to be answered, both for each and every single SDG, and also as the basis to define what we will define below as ‘true future value’ simply is: does an organization have a license to grow by showing that it hasn’t built financial capital on the back of any other capital – or, quite the opposite, that it has built business models that regenerate all capitals? If yes, this would be sustainable, and possibly gross positive (ThriveAble) over time (stage 5 in the Strategy Continuum in Diagram 4 in Part 3).

In order to get there, though, we will need to renew our accounting system from double-entry to multi-capital-based. Why?

  • Simply because accounting is how economies and executives, boards and supervisory boards tick and answer questions: is my company successful? Where can I be more efficient? Do I deliver on my purpose? On my targets? On my benchmarks? Did my incentives work? What information does controlling need from accounting? What can I externally assure? Interesting how shy our community is to create this missing reporting link – also for the SDGs. We sorely need accountants to raise their voices on the need for multi-capital accounting!
  • A multi-capital accounting system aims to cover all sets of potential performance calculations: on SDGs, for context-based reporting, for science-based targeting, for value cycle efficiency. An outcome capital of the supplier can be an input capital for the next phase of such cycle, so it can serve as ‘docking station’ in a seamless review of value cycles – if all partners agree on the necessary convention on how to account and disclose in what the recently published UNEP Raising the Bar report calls “Collaborative Reporting”.
  • The structure of multi-capital accounting gives space to the necessary formulation of conventions (that’s what an accounting system mainly is, it’s not a 100% accurate discipline) and structuring of the discussions we need to have: what can be monetized? Is it necessary to monetize everything? How to link to local/regional/global thresholds? E.g., water has a different, more local or regional threshold basis than carbon emissions. How to implement threshold based and capital-absorbing indicators into corporate dashboards, into national statistics, into a ‘global pulse’ of how we are doing altogether.
  • Finally, the painful and often repeated mistake is that we think we can create indicators without proper data architecture in mind, where aggregation and disaggregation are possible and where slicing and dicing of information for multiple aspects is possible. A multi-capital based systematic approach can support that, like activity-based costing does in controlling for a long time.

Multi-capital accounting to create ‘True Future Value’

Multi-capital accounting shifts from measuring value to measuring ‘True Future Value’. The ThriveAbility Foundation adds a forward-looking focus on true future value, assessing not only the ongoing viability of the organization and the systems it operates in (science-based thresholds), but also its potential for breakthrough innovation to reduce (and ultimately eliminate) negative environmental footprints while maximizing and optimizing social handprint value creation. It uses 7 capitals, adding relational capital as a separate capital to the group of 6 capitals as proposed by the IIRC.

Bildschirmfoto 2016-03-11 um 09.22.40Diagram 6: High-level formula for deriving at ‘True Future Value’; a more detailed version with all variables can be sent by the author on request.

Here are some of the advantages of using a multi-capital basis to create ‘true future value’ (TFV) results:

  • CONTEXT SENSITIVITY – TFV is a context-sensitive methodology, which works on the basis of progressive approximation to arrive at a best-estimate based decision. The context of the decision/s being made is the very first factor taken into account when applying the equation;
  • TRUE BENEFIT/COST – TFV is a holistic equation that measures the ratio of the value created in any human activity through synergies between human, relational, social and knowledge capitals (or “anthrocapitals” that generate thriving and benefits), relative to the natural and manufactured capitals costs associated with that value creation activity;
  • THREE CORE VARIABLES – TFV includes three key terms – on the denominator we have Science Based Thresholds (social floors and environmental ceilings) divided by a Sustainable Innovation Factor (including, for example, circular economy/C2C, green chemistry, renewable energy, biomimicry and micro-biome based innovations); and on the numerator we have the Value Creation Capacity of the anthrocapitals that generate thriving;
  • ALL EXTERNALITIES INCLUDED – TFV includes both positive and negative externalities in terms of metrics that measure both impacts and value/thriving, in such a way that context based sustainability thresholds are honored;
  • THRIVEABLE DECISION BENCHMARKS – TFV provides a benchmark for decisions of all kinds through which a “thriveable” decision can be made, taking into account a full seven-capital, multi-stakeholder analysis of the true costs and true benefits of a particular investment, program or action.

True Future Value as the Basis for a ThriveAbility Index

Going a step further, the ThriveAbility Foundation has designed the ThriveAbility Index model in which the components of the TFV are embedded (see Diagram 7).

This model picks up on the idea of the three gap model in Part 2 of this series, and measures the gap closure in all three dimensions, and by that explaining where an organization stands in the continuum from surviving to thriving. It represents a different way to assess and report on the overall fitness of an organization. This is a completely new quality in helping to define the profile and positioning of an organization in a three-dimensional fitness space and probably represents the most holistic performance measurement. The argument that ‘sustainability’ or ‘thriveability’ can’t be summarized in one indicator, something the sustainability community has always declared impossible (and by that has kept the interest of multiple financial market players on a low simmer), can be overcome. This high level fitness indicator, to be developed for 10 cluster industries through the ThriveAbility Foundation by 2017 to 2019 (with the aim the have it ready to use in 2020), can be disaggregated into its three components, used for True Future Value Creation of any contextual area of interest (such as the SDGs) and offers high potential for a new quality of corporate, city, country or global performance dashboards. It can be used by Rating Organizations to produce a new generation of sustainability or ThriveAbility fitness ratings. It can be used by regions (e.g. counties) or national statistics offices as a meta- performance structure.

Bildschirmfoto 2016-03-08 um 10.39.04

Diagram 7: Three axis model of the ThriveAbility Index model that corresponds with the three gap model assessing progress in all the gap areas (Source: A Leader’s Guide to ThriveAbility, page 38).

Will we get there?

We may need new and different networks to build what’s needed. I fear the existing standard setters alone won’t cut it, the UN system alone won’t succeed, the governments alone won’t deliver, the accounting standard setters need support, IT companies needs an architecture meta-structure to work in consortiums and open source (liberated data), and the majority of corporations in the mainstream will anyway only respond to legal requirements or ‘cookbooks’ that give them a step-by-step delivery template.

Reporting 3.0, mentioned in Part 1, a networked community of several hundred interested individuals has recently proposed a set of blueprints to recommend the necessary ‘glue’ between those defining a green & inclusive economy and those in reporting, accounting, IT and new business models.

The ThriveAbility Foundation offers masterclasses, pilot projects and a multi-year business plan to deliver on TFV and the ThriveAbility Index and invites partners into the Index development.

GISR offers principles and an accreditation scheme to align with the principles, many of them in support to ingredients mentioned here for reporting and accounting. The Labs, one of the components of their CORE program, offer space for joint creation of the basics for thriveable ratings.

 What to do in the short term?

 So, let’s again imagine a sustainability and/or integrated report that showcases a reporting organization’s contribution through a success measurement involving a multi-capital accounting approach (e.g. as showcased by The Crown Estate, UK, in their integrated reports on Total Contribution). What would a reader expect to see answered? Here are examples of what I would find substantial in that area, taking into account that it still takes time to report back in a complete and structured manner as described above.

Measurement:

  • To what degree does the company inventory shows its impacts from the different levels of its value cycles (instead of value chain, reflecting the need for a circular economy)?
  • Is the internalization of external effects seen as part of a ‘True-Value-Screening’ an option to better understand the value-creation process?
  • Does one differentiate between various capitals and are these integrated in the success measurement? Does the company therefore know its value-creation potentials and weaknesses better? Does the company address the consequences from these outcomes?
  • Does the company identify one or more SDGs to align measurement methodology that looks at context-based or science-based thresholds, and does it aim to develop multi-capital assessments about their contributions to these SDGs?
  • Does the company also collect data about the organizational transformation capacity and leadership capacity, taking into account the 3-dimensionality of achieving ThriveAbility, responding to the 3-gap-problem?

 Target setting:

  • Are there defined target corridors for the sustainable use of different capitals?
  • Are ‘science-based-goals’ assessed and context used for connecting to ‘social floors’ und ‘environmental ceilings’ when targets are defined?
  • How are long-term targets defined and then used to backcast mid- and short-term targets?
  • How are data of organizational transformation and leadership capacity used in defining targets also for these categories?
  • How are potential scenarios linked to target-setting?

Incentives:

  • How does the company incentivize sustainable performance? How does it punish unsustainable performance? Is this based on the measurements as mentioned above?
  • How does the company trigger and incentivize better leadership and transformational capabilities?

The combination of multi-capital approaches in internal accounting and controlling as well as external reporting, combined with experimenting their interconnections through True Future Value Calculations, and adding transformational and leadership capacity factors into measurement, target-setting as well as incentive structures, could help tremendously to report on the future readiness of an organization’s business model(s).

 

 
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Posted by on March 11, 2016 in Thriveability

 

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