The Sustainability Octopus

Does any one know what the word “sustainability” really means? We all believe that it signifies long term viability, but its definition varies from application to application. And for people who care about our environment and our society, it connotes an implication of healthiness as well.

But how can one assess the sustainability of organizations? Don’t they simply try to maximize their immediate profits every year? Or is it possible to broaden one’s analysis of a business entity to evaluate notions like stability and fitness too?

The International Integrated Reporting Council (IIRC) has created a model that defines the extent to which organizations achieve the twin goals of financial stability and sustainable development. Believe it or not, the Council refers to this framework as an octopus because of its round central body and its many tentacles. If you download the primary image of the model, you’ll see that it is entitled Octopus.jpg.

So … what should we make of it? First and foremost, the central body of the model focuses on business activities. It highlights how organizations acquire inputs, transform them, produce and sell outputs, and then create outcomes that extend well beyond the generation of immediate profits.

The tentacles refer to all of the internal and external resources that businesses utilize to conduct their activities. Financial, manufactured, and intellectual resources appear on their balance sheets as money, as tangible assets, and as intangible assets, respectively. And although their human, social / relationship, and natural resources do not appear on their balance sheets, they are nevertheless utilized for business operations.

These six categories of resources are called “capitals” because accountants quantify them as: (a) the direct value of the assets, minus (b) the value of the liabilities that are incurred to develop and maintain them. Because Assets minus Liabilities equals Capital in the classic accounting equation, these net asset values have become known as “capitals” by users of the framework.

Not yet impressed? Then consider the fact that an author named Jane Gleeson-White emphasizes this model in her non-fiction book entitled Six Capitals, or Can Accountants Save The Planet? She believes, for instance, that our society will only be able to regulate the private sector’s use of the earth’s limited set of natural resources by devising methods to measure the value of those resources. And this type of task can only be completed by accountants.

That’s why the New York State Society of Certified Public Accountants will join the New York Hedge Fund Roundtable next month to present its first annual investment leadership conference on sustainability. Ms. Gleeson-White will appear at that conference, and will presumably exhort the accountants in the audience to proceed with the task of saving the planet.

In other words, the Sustainability Octopus is more than a complicated theoretical model. It helps us understand how businesses develop, utilize, and deplete or pollute valuable internal and external resources. And serious authors like Ms. Gleeson-White are asserting that accountants are uniquely qualified to measure the extent to which these activities are sustainable over the long term.

The next time you join a conversation about the Sustainability Octopus, by all means, please feel welcome to smile at the slight absurdity of the visual reference. But after you do so, then please respect the gravity of the subject matter. After all, the planet’s future might be at stake.

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