Today, with the COVID pandemic providing a blanket of economic uncertainty and risk, many businesses, enterprises, and organizations, in both the public and private sectors, are facing a cash flow crisis.
Leaders are searching near and far for sources of capital to help their organizations remain in business in these challenging times, as well as position them for future growth. Cities are also searching for new capital sources to help redevelop and revitalize their communities. Sources of traditional and new sustainability capital are now available in various forms and types and it is time to take a fresh look at how they can be inventoried and accessed. One place to start is by looking at the overall sustainability “triple bottom line” (TBL) framework of economic, environmental, and social sources of capital.
Let us start with the types of economic capital first. Economic capital addresses the amount of capital that a business or organization needs to remain solvent, operate, and respond to the risks it undertakes given the amount of assets and liabilities it has.
Financial capital is a source that most enterprises focus on initially. Financial capital is a broader term than economic capital and traditionally uses forms of both debt and equity for growth. Many times, financial capital is thought of as the assets required for an organization to provide its goods and services in marketplace.
Manufactured capital is an also important capital resource for many businesses. Manufactured capital represents the materials, processes, and fixed assets that contribute to operations rather than the finished goods or output. Companies and organizations can inventory their buildings, tools, machines, equipment etc. that provide the physical, material, and technological resources for the enterprise. Many times, organizations also take stock of their transport, energy, water, waste, and other infrastructures that support their products goods and services. There are also a number of available new economic and financial capital sources, especially for small businesses. These sources include crowdsourcing, crowdfunding, and crowd granting; peer to peer lending; investment clubs; community development financial institutions; and local banks and credit unions. These newer economic capital resources provide resources for smaller enterprises and are focused many times on local economic development.
Environmental capital is a second capital resource area and includes those essential resources provided by the ecosystem for humans to exist and flourish.
Natural capital is the ecosystem of “life capital” that constitutes the flow of energy and materials that can help produce goods and services for an organization or enterprise. The natural ecosystem comprises available land, clean air, clean water, and natural resources that must be regenerative and restorative.
Clean energy companies are often built on renewable energy sources such as solar, geothermal, wind, hydro, biomass, tidal waves and other natural capital reserves and assets. Many businesses and enterprises are also using biomimicry as a process to help design new products and services that must meet most challenging design issues practicing nature as the solution. The future will also contain a low carbon economy. Science Digest defines a low carbon economy as a green ecological economy that is based on low energy consumption and low pollution that will be supported by both the private and public sectors. Important resources include land and forests that provide important capital for carbon mitigation and sequestration. One important complementary process is the Circular Economy model that is concentrated on minimizing resource use, waste generation, pollution, and carbon emissions. The closed loop system addresses many inputs and outputs through the process of the “Rs” including reimagining, repairing, recycling, reusing, remanufacturing etc. (www.ellenmacarthurfoundation.com)
A third area of capital resources includes social capital and is many times overlooked as a major capital resource contributor. Social Capital is a term used to describe the organizations, enterprises, and businesses that help nurture and develop human capital in collaboration with others including families, schools, neighborhoods, communities, businesses, government, and public service organizations.
Human Capital is a broad term to encompass an individual’s skills, experiences, knowledge, creativity, and motivation necessary to produce effective work including training and education. Enterprises today are searching for top talent and hope that a pipeline for employee attraction and retention can be developed.
Relational Capital represents the collective network of informal and formal working relationships, collaborations and partnerships including organization contacts, stakeholders, shareholders, employees, supply chain partners, customers, etc. that can be drawn upon for feedback and future direction.
Intellectual Capital is a term usually thought of as just intellectual property and trade secrets but is much broader in scope. Intellectual capital comprises both human capital and relational capital, as well as all the intangible assets available to an enterprise including patents, trade secrets, system processes, data, etc. that enables innovation, creativity, and value creation for the enterprise over the long term.
Diplomacy Capital today is a much sought after and critical resource, and includes the capabilities an organization has to dialogue, progress discussions, and assist in negotiations to help influence conduct and behavior, and improve overall decision making between one or more parties including competitors. The Business Institutional Furniture Manufacturers Association (www.bifma.org) is a professional trade association that has this competency. New standards of sustainable manufacturing have been set for the industry using this resource strategy by raising the bar on industry standards and certifications.
Political Capital is another source of capital that includes the ability of an organization to influence industry standards, regulations, and policies including their enforcement by working with and guiding government and elected officials. One example of exceptional political capital is the Michigan Chemistry Council (www.michiganchemistry.com) that has worked tirelessly on behalf of the chemical industry in Michigan, specifically in the area of environmental regulations. The industry professional organization is also a strong proponent for the use of sustainable or green chemistry.Conscious Capitalism is a new marketplace term applied to those enterprises that have aspirational goals to become a purpose built or purpose fit organization by behaving and operating ethically and in a socially responsible manner in the communities where they are located. Cascade Engineering (www.cascadeng.com) was a pioneer in adapting sustainability best practices through the leadership of the Keller family and is well recognized for their commitment to conscious capitalism and sustainability best practices.
What about Place-Based Capital?
However, there are still additional sources of capital that can be accessed beyond the TBL sources of economic, environmental, and social capital for an organization. In fact, one could say there is a 4th leg to the triple bottom line, that being Place-Based Capital, or those sources of capital that are available within a specific community or location. Enterprises and organizations have corporate locations in which they operate, but they also have facilities and plants in other locations and regions. There are several sources of place-based capital that can be used for local economic development and help determine an overall “sense of place” for a community.
Community Capital can be determined by using the Asset Based Community Development (ABCD) process. ABCD enables an organization to develop and identify community assets relating to individuals and residents, local associations, local institutions, physical assets, and connections through a deep listening and sharing process between the organization and the community.
Cultural Capital is also an important resource within a community that identifies the skills, education, norms, behaviors, and culture that can be further leveraged and built upon. Using the various sources of placed based capital, local support and leadership can be established with the overall goal of improving equity ownership in the community through economic development and revitalization initiatives.
Moving forward, organizations and enterprises alike will be searching for additional capital resources, whether they be traditional or new in nature. Over a dozen resources have been mentioned and there are more depending how one groups the sources of capital. A suggestion is that your organization begin to inventory those sources of capital that are critical to your stability, security, and growth. Hopefully, you will find one or two new resources that will create greater prosperity and add future growth and value for your organization.
I wish you the best on your sustainability journey!