Six Capitals

Definition

The six capitals refer to the different forms of capital that organizations should consider in order to achieve long-term sustainability and create value. These capitals encompass the various resources and relationships that businesses rely on and impact through their operations.

5 Must Know Facts For Your Next Test

1. The six capitals include financial, manufactured, intellectual, human, social and relationship, and natural capital.
2. Organizations should consider all six capitals to make informed decisions and ensure long-term sustainability.
3. Effective management of the six capitals can help organizations create and preserve value for themselves and their stakeholders.
4. The six capitals are interconnected, and the depletion or enhancement of one capital can impact the others.
5. Reporting on the six capitals provides a more comprehensive view of an organization's performance and its impact on the broader ecosystem.

Review Questions

• Explain how the six capitals framework can help organizations achieve sustainability initiatives.
  • The six capitals framework encourages organizations to consider the full scope of resources and relationships that they rely on and impact through their operations. By understanding and managing the six capitals - financial, manufactured, intellectual, human, social and relationship, and natural capital - organizations can make more informed decisions that balance short-term profitability with long-term sustainability. This holistic approach helps organizations identify and address potential risks, optimize the use of resources, and create value for themselves and their stakeholders in a way that is environmentally and socially responsible.
• Describe how the interdependence of the six capitals can influence an organization's sustainability initiatives.
  • The six capitals are inherently interconnected, meaning that the depletion or enhancement of one capital can have ripple effects on the others. For example, overexploitation of natural capital can undermine the availability of raw materials, thereby impacting manufactured capital. Similarly, investments in human capital through employee training and development can strengthen intellectual capital and social and relationship capital, ultimately supporting the organization's financial capital. Understanding these interdependencies is crucial for organizations to develop sustainability initiatives that consider the holistic impact on all six capitals. By managing the six capitals in a balanced and strategic manner, organizations can ensure the long-term viability of their operations and create value for themselves and their stakeholders.
• Analyze how reporting on the six capitals can contribute to the transparency and accountability of an organization's sustainability efforts.
  • Reporting on the six capitals provides a more comprehensive view of an organization's performance and its impact on the broader ecosystem. By disclosing information related to the organization's use and management of financial, manufactured, intellectual, human, social and relationship, and natural capital, companies can enhance transparency and accountability. This level of disclosure allows stakeholders, such as investors, regulators, and the local community, to better understand the organization's sustainability efforts and its overall contribution to sustainable development. Furthermore, the process of reporting on the six capitals can help organizations identify areas for improvement, track progress, and make more informed decisions to ensure long-term viability and value creation. Ultimately, this holistic approach to reporting can strengthen an organization's credibility and trust with its stakeholders, further supporting its sustainability initiatives.

Related terms

Natural Capital: The stock of renewable and non-renewable natural resources, such as air, water, land, minerals, forests, and biodiversity, that provide goods and services supporting the prosperity of the organization and society.

Social and Relationship Capital: The institutions and relationships within and between communities, stakeholder groups, and other networks, and the ability to share information and enhance individual and collective well-being.

Manufactured Capital: Manufactured physical objects, such as buildings, equipment, and infrastructure, that are available to an organization for use in the production of goods or the provision of services.