A new Australian-based Universal Commons Project “seeks to use the power of the market to preserve and improve our precious social and natural assets, which we call Social and Natural Capital, by internalising them into commercial decision making.”
Here’s how it sums itself up:
- The problem the Universal Commons is aiming to solve is that our current economic system fails to sufficiently account for the impact of economic activity on people and the planet by treating them as an “externalities.” This means a business can generate a financial profit even while it degrades community health or pollutes the environment. Meanwhile, an organization that cleans a waterway or improves community cohesion will struggle to capture the value it creates.
- In order for Social and Natural Capital to be internalized into commercial decision making, we first need to measure and quantify these forms of capital. Once we do that, value can be determined through market forces (demand and supply), making it possible for those who improve Social and Natural Capital to be rewarded and those who degrade it to pay for its restoration.
- Once we can bring Social and Natural Capital alongside other kinds of financial capital, then our economy will be geared towards producing what we truly value, which is preserving and enhancing human welfare and a healthy environment.
The first step is to be a “Measurement Challenge” that “will offer a substantial cash prize for the individual or team that can best deliver a new measurement framework for Social and Natural Capital.” It appears the main effort at present is on nailing down the parameters of this challenge, including issues such as “where to set the bar in terms of measurement detail and rigour.” In due course this will enable the establishing of a Universal Commons Exchange, described as follows:
- This is a specialized market that will enable individuals, organisations, businesses and governments to lease and trade in the Social and Natural Capital (S&N Capital) they wish to either use or improve.
- The S&N Capital will be listed in the form of Asset Classes representing one dimension of S&N Capital, such as clean air or community trust. Each of these Asset Classes will become products that can be invested in or traded.
- The UCX performs three primary functions:
- 1. Measurement of S&N Capital
- Engaging and rewarding organisations for measuring S&N Capital to produce a living account and to accurately assess the total amount available for trade on the UCX.
- 2. The leasing of S&N Capital.
- Those enterprises that improve S&N Capital will be rewarded with virtual tokens representing that improvement.
- 3. Trading in S&N Capital.
- Those enterprises that have earnt tokens representing improvements to S&N Capital can trade them on the market in order to generate revenue. Those who wish to invest in improving social or natural goods can purchase these tokens knowing their funds are flowing to the organizations that have improved them. Those enterprises that degrade S&N Capital in the course of business can purchase tokens to contribute to its restoration.
This sounds like a conceptually fascinating and obviously ultra-well-intended project. The challenges of course are overwhelming. Although the website and the premise are impressive, the whole thing appears to be heavily powered by a single strong-minded individual – even then, it’s taken the best part of a year just to get to this point. It’s not clear whether the project can acquire the broad-based standing and momentum which would be required to render it into more than yet another interesting but ultimately not very consequential niche. Even if the project succeeded to the point of its wildest dreams – say, by popularizing within a decade a new measure of profit that became incorporated into IFRS and US GAAP and changed the nature of such conversations forever – what then? As I quoted here, IASB Chair Hans Hoogervorst recently warned against exaggerated expectations for what sustainability reporting can achieve, basically citing the eternally self-interested nature of corporate and personal decision-making. Much of the developed world is going backward rather than forward in its leadership and political decision-making, suggesting that the increased complexity of prevailing challenges is as (or more) likely to cause a collapse into ugly, regressive irrationality and self-interest than to trigger a new wave of enlightened decision-making.
I don’t say all this to counsel defeatism – more likely I’m expressing my anxiety. One of the articles on the project’s website concludes: “Reforming our notion of profit to include movements in the condition of social and nature goods is a simple and elegant fix that ensures that our economy is working us rather than us. It is a natural evolution of economics whose time has come.” But such ingratiating language only encourages a fear that the project may end up as another worthy intellectual backwater. The underlying conceptual and measurement framework for such an item will not in any way be simple, and such a fix won’t “ensure” anything, any more than IFRS ensures that all companies make good financial decisions. Nothing about this is elegant, nothing is natural. We can surely agree though that the matter is urgent, and beyond urgent…
The opinions expressed are solely those of the author