With the purpose of decision-making in mind, the primary users of this document are ideally people who have insight into business strategy and operations, as well as an understanding of socio-economic issues. This person (or group of people) should have a mandate to build a team of experts (inside and outside the organization) to apply the Protocol, and to communicate the results to key internal and external stakeholders.
This Protocol is a technical document, so will not be accessible to everyone. Nor will it immediately enable the user to conduct a social capital assessment themselves. Instead, the Protocol intends to provide the information and understanding needed to engage specialists, or external experts, when necessary.3
Key concepts and definitions
Companies rely on a diverse set of ‘capitals’ to function effectively. WBCSD applies a simple model of three capitals, Financial, Natural and Social,4 to reflect the reality that, beyond financial capital, companies also use and rely on social and environmental resources.
Put simply, through their business activities, companies make use of and convert these capitals into outputs, such as products and skilled employees, which leads to outcomes that in turn affect the stock of these various capitals as well as a company’s long-term viability. In this document, WBCSD applies the term ‘social capital’ to refer to the resources and relationships provided by people and society. This encompasses human capital (people’s skills, knowledge and wellbeing), and societal capital (societies’ relationships, shared values and institutions). Together, these resources need to be maintained and enhanced to make society more cohesive and resilient, and to make business more successful.
Combining these three concepts with a single term facilitates the consideration of stocks and flows of social capital5 (alongside stocks and flows of financial and natural capital). Critically, this goes beyond the measurement of the ways business impacts social capital to also consider the ways in which business depends on social capital. This will help companies to understand how social capital relates to their business drivers and how its effective management underpins sustainable performance.
Whilst the Protocol considers social capital as a single concept in this way, in practice, the Protocol can be used to measure and value individual components of social capital separately, or alongside one another.
As this field progresses, we will continue to develop the concept of social capital for practical use by companies and their stakeholders.
The interactions between social capital and business are depicted in Figure 5. This also illustrates the approach used in the Protocol to measure and value impacts and dependencies on social capital, in terms of business risks and opportunities or costs and benefits to society.6
Every business impacts social capital. This can be a direct impact (arrow 1a), e.g. through employment and the paying of wages, or an indirect impact, through impacts on natural capital (arrow 1b), e.g. the emission of pollutants which cause respiratory problems and illness to local communities. The Natural Capital Protocol7 contains guidance on assessing the impacts represented by
Impacts on social capital can be described as the extent to which a company’s actions or decisions contribute positively or negatively to a change in the welfare, capabilities, relationships or livelihoods of people living in society. A positive impact is a benefit to society, and a negative impact imposes a cost on society. For some companies, social impacts and the consequent costs or benefits to society remain ‘externalities’8, or issues without internal consequence.
In addition to impacting social capital, all companies also depend on social capital. This is represented in Figure 4 by arrow 2. Social capital dependency is a less established concept within social capital measurement, but one WBCSD believes is useful. Companies depend, for example, on healthy and skilled workers, access to quality public infrastructure and services, as well as the rule of law. Some companies depend heavily on resources that are also used by local communities, and are therefore dependent on a good relationship with these local communities.
Business’ social capital impacts and dependencies are closely linked and it can be the case that an impact, in turn, has an effect on a social capital dependency. This is called ‘internalisation’ of the business impact and is represented by arrow 3 in Figure 4.
An example of internalisation is that a company may depend upon a healthy and skilled workforce and, at the same time, the company’s working conditions, health and safety standards, and human resource, supply chain and procurement policies are impacting the health, wellbeing, and skills of their workforce.
There are several potential drivers that may lead to social impacts being internalized in the future, including increasing regulatory or legal action, market forces and changing operating environments, new actions by, and relationships with, external stakeholders, plus an increasing drive for transparency or voluntary action by competitors who recognize the significance of transparency to future success.9 Understanding impacts and dependencies on social capital can highlight potential risks and opportunities to the business arising from internalisation. More guidance on this can be found in Step 2 of the Protocol.
Valuation and Monetary Valuation
To value something means to understand what it is worth to us. In the Protocol, valuation refers to the process of estimating the relative importance, worth, or usefulness of social capital to people, in a particular context.10
In financial accounting terms, valuation is understood to mean an estimation or determination of worth in monetary terms, but in welfare/wellbeing economics and in this Protocol, valuation means more than just monetary valuation. It includes qualitative, quantitative, and monetary approaches, or a combination of these, which measure the relative importance of impacts and/or dependencies. The value derived from social capital varies between the parties involved. Applying a value (monetary or otherwise) to social capital does not imply ownership in an economic sense by any of these parties.
Note that monetary valuation attempts to generate a monetary measure of the value of social capital for a specific party in the absence of a market that establishes this value. The valuation therefore is based on assumptions (and often proxy indicators) and so should be understood to be an estimate of value.
3 Adapted from the Natural Capital Protocol
5 It is acknowledged that social capital is not always approached as a ‘stock’ but can also be considered through a ‘capability/ capacity’ approach, as described in UNIDO, Social Capital for Industrial Development: Operationalizing the Concept. Whilst some assumptions have to be made to facilitate the use of the term ‘stock’ in relation to social capital, it is applied by WBCSD because it is a useful model to engage business and promote the measurement and valuation of it.
6 Text adapted from the Natural Capital Protocol, which also contains an equivalent diagram for understanding natural capital impacts and dependencies
7 The Natural Capital Coalition, Natural Capital Protocol.
8 An externality is defined as a consequence of an action that affects someone other than the agent undertaking the action, and for which the agent is neither compensated nor penalized. Externalities can be positive or negative.
9 Adapted from the Natural Capital Protocol
10 Adapted from the Natural Capital Protocol