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

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

By Jane Gleeson-White

W. W. Norton & Company, 2015, 304 pp.

What is a company worth? On its latest balance sheet, Apple showed assets of $261 billion, including $8.7 billion of “intangibles,” such as the positive views of the company held by consumers and investors. In recent months, the U.S. stock market has valued Apple at around $720 billion; the reasons for the gap between the company’s balance-sheet valuation and its market capitalization are intangible, too, in a sense. Coca-Cola has one of the world’s most valuable brands and counts $26 billion of the $91 billion in assets on its balance sheet as intangible; that, too, is far exceeded by the company’s market capitalization of around $170 billion. Much of the accumulated wealth in the world’s leading economies takes this undefined form.

But intangible value can evaporate overnight. In recent times, Enron, Lehman Brothers, and a host of other firms have suffered that fate when their actions destroyed their reputations—and their future business prospects. Any responsible corporate board should therefore be keen to find a way of measuring and thus managing the true value of the firm it oversees, including its sometimes evanescent intangible components. Yet too many boards and executives still see reputation management as mostly a matter of public relations, rather than as a central element of their business.

To save contemporary capitalism from this dangerous myopia, Jane Gleeson-White’s insightful book Six Capitals suggests a set of unusual prospective heroes: accountants, who can capture and quantify the factors that determine a firm’s reputation and thus its short-term financial value to shareholders and its long-term value to society. A “true and fair view” of a modern company, Gleeson-White argues, must take into account not only financial and physical assets but four other forms of capital as well: intellectual, human, social, and natural. Do this, she claims, and businesses will know and report their true worth and therefore operate more sustainably. No longer will they be able to report profits or assets that depend on the depletion of nonrenewable resources, or damage biodiversity, or pour emissions into the atmosphere, without factoring in those harmful effects. And no longer will firms seek solely to boost their share prices and quarterly earnings; instead, they will take a longer-term view of their goals.


Belief in the redemptive powers of accounting began to build in the 1990s. One of the early evangelists for this way of thinking was Mervyn King, a South African judge who emerges as the hero of Gleeson-White’s book. In 1993, South Africa’s Institute of Directors asked King to propose changes to the country’s corporate governance code so that it would embody the values of the postapartheid era. King initially declined, but he changed his mind after South African President Nelson Mandela personally asked him to take on the task. Mandela recognized that in a society undergoing a major transition, businesses would need to contribute not only to economic growth but also to social stability. King helped craft a corporate governance code that incorporated social as well as financial criteria and that asked corporations to consider the interests not only of their shareholders but of a wider group of stakeholders as well. After his success in South Africa, King developed a kind of missionary zeal and began to spread his message all over the world, chairing the International Integrated Reporting Council (IIRC) to make the approach he pioneered in South Africa an accepted standard elsewhere.

But King was not the only one to begin making the case for a different approach to corporate accounting during the mid-1990s. Another relatively well-known early proponent was the British environmental campaigner John Elkington, who coined the phrase “the triple bottom line” to describe the addition of social and environmental measures to financial reports. At around the same time, two U.S. nonprofit organizations founded the Global Reporting Initiative, or GRI, with the support of the UN Environment Program, issuing guidelines for companies’ reporting on their environmental impacts; Gleeson-White writes that these guidelines have become “the world’s de facto sustainability standard.”

Dancers depicting financial analysts perform during a dress rehearsal of the play "Enron" in New York April 7, 2010.
Dancers depicting financial analysts perform during a dress rehearsal of the play "Enron" in New York April 7, 2010.
Lucas Jackson / Reuters
Behind these efforts, and many others like them, is a desire among accountants to make a more meaningful contribution to corporate life. “We find ourselves spending our time making very rich people even richer, and that isn’t what we intended to do with our lives,” a senior executive at a very large global accounting firm told me a few years ago. Accountants know they could do much more than that, because the act of measuring—which is what accounting is all about—exerts a powerful influence on behavior. “We manage only what we measure” has become a corporate-speak cliché, but it’s accurate; and in truth, people generally don’t even think about what they don’t measure, much less manage it. That’s why metrics matter so much, and why overly reductive measurements can have such a distortive effect. In her previous book, Double Entry, Gleeson-White persuasively argued that accounting is to blame for the fact that profit—the single bottom line—became the sole measure of commercial success, pushing all other metrics out of the picture and leading to short-term thinking that can make it difficult to assess the sustained viability of a business.

One small sign of a shift away from this reductive model is the emergence in recent years of the “benefit corporation” in the United States and its equivalents in other countries. Since Maryland led the way in 2010, 30 U.S. states have passed legislation creating a special category of firms that explicitly and officially seek to achieve certain social or environmental aims. There are now some 1,500 such companies in the United States, including a number of highly successful firms, such as Patagonia, a popular brand of outdoor clothing and equipment. These firms adhere to a specific set of accounting standards, the Global Impact Investing Rating System, which measures their environmental and social impacts.


Meanwhile, almost all publicly traded corporations have begun reporting some indicators of their environmental and social impact, although sometimes merely as “greenwashing” rather than as part of a genuine attempt to broaden their perspectives on the costs and benefits they offer society. The trouble is that even earnest efforts to incorporate such factors run into a larger philosophical conundrum: Should nature 
be monetized?

Putting a price tag on nature can achieve significant results in terms 
of environmental protection. In 1997, Costa Rica began paying landowners to protect and enhance forests on their property, offering them the same amount to conserve that they would earn from clearing the land for cattle ranching. The program is funded by tax revenues, tariffs, and contributions from private firms, which means it doesn’t add to public debt. In addition to the environmental benefits this step yielded—a reduction in deforestation rates and a consequent improvement in water and air quality—the government now also enjoys increased revenues from ecotourism, and it can now divert more water, conserved by the forests, to hydroelectric power plants. Between the late 1980s and 2010, the proportion of Costa Rica covered by forest has climbed from 21 percent to 52 percent, an improvement attributed in large part to the program.

However, as Gleeson-White explains, many environmentalists criticize such efforts. “Costing nature tells us that it possesses no inherent value; that it is worthy of protection only when it performs services for us,” the British environmental activist and writer George Monbiot has written. The American political philosopher Michael Sandel makes a similar point in his best-selling 2012 book, What Money Can’t Buy: the very act of bringing something into a market undermines its nonfinancial value—which, in the case of the natural world, is arguably more important.

To get around this dilemma, Gleeson-White proposes that natural objects be granted legal personhood: rather than being seen as passive objects to be counted, or accounted for, they would become holders of legal rights, protected by the courts, presumably in cases argued by human supporters. That is an entirely romantic notion that would effectively preserve nature in the state it is today and preclude the possibility of economic development. What is more, it is hard to see how legal personhood would resolve the philosophical problem: the natural environment is either inviolable or not—and if not, it makes sense to try to estimate the scale of the tradeoffs involved in altering it.

This underlines another problem in trying to extend the scope of corporate accounting to nonfinancial areas. Accounts are of limited use when it comes to revealing tradeoffs, particularly tradeoffs between present gains and future costs. It’s very hard to tell whether a company is, say, cannibalizing its own future revenues by gouging customers right now. But environmental sustainability hinges on those kinds of calculations. Building a new office or bringing a new product to market is bound to have some environmental impact, but it’s difficult to forecast what the effect will be. To complicate matters further, it is often difficult to measure a single company’s contribution to any particular environmental effect. Causing an oil spill is one thing, and a firm can perhaps measure its own specific emissions or pollution. But how should any given firm account for the cost of its own carbon emissions when virtually all economic activity contributes to global warming? Even if a company can accurately measure all its harmful outputs, how is it supposed to calculate the precise cost those outputs impose on everyone else? How can externalities such as climate change, which involve vast, complex processes, be represented on the balance sheet of a single corporation—even a large one? Given how hard it has proved to establish a reasonably stable price for carbon in cap-and-trade emissions markets, and considering the vast range of factors involved in such externalities, traditional accounting methods probably aren’t up to the task. To effect the kind of change that’s needed, the heroic accountants that Gleeson-White envisions will need to design and put into practice a new set of international standards for companies to report their social and environmental impacts alongside their financial results.

Peter Breiter, CEO of Raiffeisen Gammesfeld eG bank, works with an old adding-machine at the bank in Gammesfeld, Baden-Wuerttemberg January 29, 2013. 
Lisi Niesner / Reuters


Corporate accountants’ attempts to go beyond profit and loss in measuring success in the private sector have been echoed by efforts to improve, or even transcend, gross domestic product, the often overly reductive metric that countries rely on to measure their economies. In 2008, the UN updated its standards for national income accounting, the so-called System of National Accounts, by incorporating some new categories of intangible assets, such as intellectual property. For some years now, a number of countries have also published “satellite” accounts that record changes in their environmental assets; official statisticians and economists have made significant progress in measuring such so-called natural capital. Countries have adopted these innovations at various paces, and much remains to be done in terms of making these new accounting concepts operational. But there is consensus in the community of national accountants that they must get better at measuring the globalized, fragmented economies of the contemporary world.

To judge from Six Capitals, no such consensus yet exists when it comes to innovations in corporate accounting. In 2009, the IIRC set out to bring together the existing reform initiatives and develop new standards, with the aim of creating a coherent account of the financial and nonfinancial influences that affect a firm over time, in clear and understandable language. The IIRC’s website claims that it is now in the “breakthrough phase.” King has argued that such an approach might have prevented the kind of fraud that led to the Enron scandal. But it’s not clear why King and other proponents of that approach believe that lying with words and numbers would be much harder than lying with numbers alone.

Gleeson-White concedes that there’s a long way to go before “integrated reporting”—as the more holistic form of accounting that she advocates is sometimes called—will win acceptance. At present, it is mandatory in some form in only a few countries, including France and South Africa. One problem is that few understand what integrated reporting means in specific terms. Still, Gleeson-White is optimistic. “It is an evolving practice, which will gain coherence and consistency with the framework’s publication and gradual adoption, initially by pioneering businesses,” she writes. She predicts that accounting will move away from merely reporting a one-way message to shareholders and instead move toward creating a two-way dialogue with a broader range of stakeholders.

An accounting revolution of that kind would be highly desirable, not only for society but also for shareholders, at least for those who care about more than what a firm’s share price will be for the next few nanoseconds. Whether or not such a shift happens will depend not only on accountants and their ideas and initiative but also on international policy coordination to sustain the momentum for change in legally mandated reporting standards. There is a growing appetite to measure and quantify costs and benefits in ways that capture what society actually values. But there are also many people and groups with vested interests in the present system, not least the corporate executives whose bonuses and incentive plans are linked to financial reporting that they know how to manipulate and the lobbyists they would no doubt hire to argue for retaining the existing accounting framework. So would-be reformers should expect a fight: the intellectual challenge of replacing traditional financial accounting is significant, but the political challenge of implementing it would be even tougher.

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  • DIANE COYLE is Professor of Economics at the University of Manchester and the author of GDP: A Brief but Affectionate History.
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