Total Capital Accounting
Conventional financial accounting has a critical limitation – the inability to effectively reflect the full costs and benefits of production. Whilst financial inputs and outputs are a significant factor, Route2’s Total Capital Accounting framework allows businesses to consider all types of capital stock, and so gives a much more complete and meaningful picture of a business’s activities.
There are six types of capital stock required for business activities. These stocks generate a flow of services that have economic benefits and therefore economic value.
Natural capital concerns the natural environment and flow of ecosystem services such as raw materials and climate stability.
Human capital is people and their flow of labour services.
Intellectual capital is collective knowhow and the flow of instructions orchestrating production and business behaviour
Social capital is trust and the flow of stakeholder interactions.
Manufactured capital is the property, plant & equipment and the flow of shelter, mechanical work, and intermediate inputs.
Financial capital is cash and cash equivalents and the flow of market exchanges, value storage and accounting units.
The condition of these stocks determines the quantity and quality of these service flows.
For example, if an individual is unwell, they will be unable to work as effectively. Similarly, if we release excessive carbon dioxide into the atmosphere, we destabilise the climate.
Total Capital Accounting categorises these stocks and flows and provides associated quantification and economic valuation methods. To achieve sustainable outcomes businesses must ensure capital stock conditions are at worst maintained and at best enhanced. This is achieved by understanding the relationships between stock use and stock investment.
Route2 maintains a live list of capital flow categories that assess the impacts and requirements of businesses across all industries. positioning them across the value-chain according to their financial & non-financial (external) value-dimensions. Each category contains several measurable indicators. For example, GHG Emissions contains seven discrete gases (CO2, CH4, …) and Inequality of Opportunity contains gender, ethnicity, and age dimensions.
Each measurable indicator has its own economic valuation methodology that translates performance, where necessary, into an associated cost or benefit and parcels it across 5 key stakeholders: (1) The responsible company; (2) the employee; (3) the industry sector; (4) the host government; and (5) wider society. Each benefit or cost is comprised of several financial and non-financial components, estimated using various valuation techniques.
The condition of these stocks determines the quantity and quality of these service flows.
For example, if an individual is unwell, they will be unable to work as effectively. Similarly, if we release excessive carbon dioxide into the atmosphere, we destabilise the climate.
Total Capital Accounting categorises these stocks and flows and provides associated quantification and economic valuation methods. To achieve sustainable outcomes businesses must ensure capital stock conditions are at worst maintained and at best enhanced. This achieved by understanding the relationships between stock use and stock investment.
The condition of these stocks determines the quantity and quality of these service flows.
For example, if an individual is unwell, they will be unable to work as effectively. Similarly, if we release excessive carbon dioxide into the atmosphere, we destabilise the climate. Total Capital Accounting categorises these stocks and flows and provides associated quantification and economic valuation methods.
To achieve sustainable outcomes businesses must ensure capital stock conditions are at worst maintained and
at best enhanced. This achieved by understanding the
relationships between stock use and stock investment
Route2 maintains a live list of capital flow categories that assess the impacts and requirements of businesses across all industries. positioning them across the value-chain according to their financial & non-financial (external) value-dimensions. Each category contains several measurable indicators. For example, GHG Emissions contains seven discrete gases (CO2, CH4, …) and Inequality of Opportunity contains gender, ethnicity, and age dimensions.
Each measurable indicator has its own economic valuation methodology that translates performance, where necessary, into an associated cost or benefit and parcels it across 5 key stakeholders: (1) The responsible company; (2) the employee; (3) the industry sector; (4) the host government; and (5) wider society. Each benefit or cost is comprised of several financial and non-financial components, estimated using various valuation techniques.
The net performance position,
when accounting for an
organisation’s use and dependency on 6 capital stocks (over a specified period of time), is coined the
organisation’s Value2Society™
To learn more about our research methodologies, or to discover how they apply to your business please contact us.