The Bruce Column — Social and human capital accounting starts to accelerate change

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29 Jun, 2017

It has been a slow burner. But, as our regular columnist Robert Bruce reports, the changed thinking that is being brought about by social and human capital accounting is now starting to take off. A new guide provides the detail required to put it into action and practical examples.

There is a time when everything suddenly comes into focus. This is what appears to be happening in the field of social and human capital accounting. The business benefits are becoming clear and the practical ways to achieve them are moving into the mainstream. Social and human capitals are, inevitably, seen as more subjective than other capitals like financial, natural and manufactured capitals. It was always going to take more time before they reached broad acceptance and ease of practical usage. But the launch and publication of the CFO Leadership Network’s Essential Guide to Social and Human Capital Accounting, under the aegis of the Prince of Wales’ Accounting for Sustainability project, looks to be the long-awaited catalyst. It provides the tools and the guidance but, more importantly, it details case studies of what businesses have already achieved. This is the body of practical experience that organisations and business need. 

It is a question of recognising the role of social and human capital accounting, measuring its effects, and bringing it forward into decision-making. Done properly this creates a revolution. In the words of Judith Batchelar, Director of Sainsbury’s Brand: ‘This is not the icing on the cake. It is the cake’. It deals with risk. It deals with reputation, cost savings, stronger stakeholder relationships, better access to and retention of talent, staff and workforce. It deals with how the core skills of finance teams are essential for the integration of social and human capital information into decision-making. At the launch of the guide Sabina Nealon, Finance Director, Sustainable Business at Unilever, described how her role was ‘a bridge’ between the finance and sustainability teams. ‘By putting social and human capital into the heart of our strategy we are building a stronger platform for long-term sustainable value creation’, she said. 

It can work at a simple and logical level. Judith Batchelar outlined the Sainsbury’s ‘Greenest Grocer’ programme, which led to energy savings of £1.7m in electricity in under a year. The company has just under 200,000 people. Over 2,000 people went through training programmes and what started as leadership from the CFO spread wide through the company. ‘It became’, as she said, ‘the leadership and judgement of many’. A simple but well thought through and implemented action brought lasting change. ‘That is the value your people can bring to the business’, she said. 

It is also about risk. It is the simple risk of not doing something or not taking something into account. What would that something cost? And how would it impact on reputation? Connect that with the figures which show that market value is overwhelmingly made up of intangibles and you have changed the way people think. When the power company SSE first calculated the value of its human capital in 2014 it came out at £3.4bn. ‘It is so important to monetise it as that drives decision-making’, said George Cobb, SSE’s Group Sustainability Accountant. ‘We are uncovering new insights into our workforce that are leading to real business benefits,’ he said. And it works outside the business as well. ‘It has been a real eye-opener to our investors’, he said. ‘It is showing that we have invested in people’. 

Previously unseen figures and factors change the thinking around a business. Examples abound in the guide. British Land tackled skill shortages. National Grid invested in employee wellbeing and found that for every £1 invested it was getting back more than £2 return in reduced sickness absence costs. The Crown Estate set up a partnership to help jobseekers into sustainable employment. It produced some £40m of societal value through savings on welfare and tax credits, increased tax and national insurance payments, and boosting local economies.  All of these came from looking at the business from a different standpoint, through a new lens. 

In the words of Kate Bowyer, CFO at the Crown Estate, and a member of the A4S CFO Leadership Network, they have seen ‘many benefits from investment in social and human capital and realised how investment in one capital often helps to transform others’. It is this transformation in the thinking that has brought about the changes which are still only the beginning of what can be achieved.

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