One of the primary motivations of the integrated reporting movement is the observation that profit, when narrowly defined in purely financial terms, does not exhaust what we might call “genuine value.”
If we consider what does constitute genuine value, it would include more than just the products and services that people can attain through commercial transactions, and would also include features of the natural and social world, such as clean air and water, a stable climate, and healthy, well-educated and trusting communities.
Robert Kennedy summed up this observation nicely in his 1968 speech at the University of Kansas when he criticized Gross National Product for being an incomplete measure of a society’s wellbeing. “Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage…Yet the Gross National Product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.”
As in Kennedy’s time, there are a great many things today that we genuinely value that remain external to commercial decision making. The IIRC has identified no less than six forms of capital – financial, manufactured, intellectual, human, social and relationship, and natural capital – yet of those six, only the first three tend to be considered when businesses report their financial performance. The other three – human, social and relationship, and natural capital – typically remain as external factors.
The observation that financial profit alone does not exhaust genuine value is also the primary motivation behind the Universal Commons Project. For this reason, we see ourselves as fellow travelers with the integrated reporting movement, working towards our common goal of gearing the economy towards generating genuine value while preserving the condition of the natural environment that sustains us all.
One of the great challenges in achieving this goal is measuring the actual impact that commercial activity has on people and the planet. This is particularly the case for the various forms of capital that are not already internalised into the economy. To simplify things, we condense the six forms of capital described by the IIRC down to just three: Financial Capital, which includes financial, manufacturing and intellectual capitals; Social Capital, which includes features of the human and social worlds, such as healthy, trusting and well-educated communities; and Natural Capital, which includes features of the natural world, like fish stocks, clean air and water, and a stable climate.
There are currently hundreds of individual metrics for measuring changes in the condition of different dimensions of Social and Natural Capital (S&N Capital), such as changes in air quality, literacy or social cohesion. Many of these metrics employ radically different methodologies and apply varying standards, even when they apply to the same thing in the world, which results in conflicting or incommensurable outputs. This makes it harder to determine the true impact of any particular activity or to compare similar activities in different parts of the world.
This is why the first goal of the Universal Commons Project is to improve the way we measure movements in S&N Capital. We are working closely with Nesta to develop a Measurement Challenge Prize, which will offer substantial cash prizes for the individuals or teams that can produce high quality metrics and inexpensive measurement tools for various forms of S&N Capital. These metrics will then be made available for use by businesses and organisations worldwide, including the IIRC, to help improve reporting. We are also working with a variety of organisations to develop new standards around measurement based on these metrics in order to improve international coordination around how S&N Capital is measured.
But that is only the first stage of the Universal Commons Project. We believe that high quality measurement of S&N Capital will not only improve reporting, but has the potential to transform the way we interact with and invest in those things that contribute to genuine value. We believe good measurement will enable us to eventually internalize many dimensions of S&N Capital into commercial decision making and bring them alongside Financial Capital. When that happens, the economy itself will be more geared towards generating genuine value.
We believe this is possible because measurement can unlock a tremendous amount of latent demand for S&N Capital and transform it into actual demand. Currently, individuals and businesses struggle to satisfy their desire for clean air and water, healthy and literate communities, etc. Because these things are typically left as unmeasured and unaccounted external factors, they are difficult or impossible to invest in. Even if an organisation, such as a not-for-profit, does invest in improving something like literacy or air quality, the lack of measurement means it is unable to capture the genuine value it has created.
Good measurement can change all this. In fact, we believe that high quality measurement can even enable us to create a market for improvements in S&N Capital. If the not-for-profit is able to measure the improvement it has made in literacy and air quality, and it is rewarded with digital credits representing those improvements, then it could sell those credits to an organisation that wishes to invest in them or wishes to offset the degradation to air quality that occur as a result of its business operations.
This is why when the Measurement Challenge has started to yield high quality metrics for S&N Capital, the next step for the Universal Commons Project is to create a specialized market for improvements in S&N Capital. We anticipate that this market will take some years to fully mature, but when it does, it will go a long way to internalizing many aspects of S&N Capital that we genuinely value into our business decision making.
This is where we also see it being of potential value to the integrated reporting movement. Reporting is a powerful tool for businesses to understand their impact on the world at large, and use that information to direct business decision making. The Universal Commons market can also be a rich source of information, indicating which dimensions of S&N Capital are in most need of investment, which are in the highest demand and which are the least expensive to improve. This information can aid real-time business decision making and can also contribute to producing more detailed and accurate reports.
There is a great deal more information about how we plan to develop high quality metrics and how the market in improvements in S&N Capital will function. You can read about these on the Universal Commons website. We are currently hard at work fine tuning the market model and developing the Measurement Challenge so that they fit the needs of the businesses, and we are looking to work closely with a wide range of potential users, including the IIRC.
We believe the integrated reporting movement and the Universal Commons project are responding to the same fundamental challenge: how to help businesses ensure that their activities are generating genuine value and doing so in a way that minimizes their negative impact on people and the planet. The integrated reporting movement has made great strides into responding to this challenge, but we believe that the Universal Commons and a market for S&N Capital could serve as powerful tools for businesses to improve the way they make commercial decisions. Ultimately, we believe the Universal Commons will help to bring our idea of profit closer to our idea of genuine value.
For more information about the Universal Commons Project, visit: https://www.universalcommons.com/