THE SIXTH CAPITAL : ANOTHER PERSPECTIVE ON THE FIVE CAPITALS MODEL

Image by Sergio Souza

By Luke Fernandez, Strategic Sustainability Management Professional | Founder, Practice Capital | Carbon Literacy Educator

I often get asked what is the significance of 'practice capital'. The short answer is it simply describes the means by which a practice achieves its objectives. Traditionally, capital is seen in terms of finance. But there are five species of capital stocks: natural capital, human capital, social capital, manufactured capital and financial capital, all of which must be managed effectively to maximise the wealth of the firm.

This article goes some way to explaining these five species of capital and offers a sixth - performance capital - an organisation’s capability to harness and sustain the other five capitals.

Before the first industrial revolution man could exploit his environment to survive without impunity or concern, as nature was all-encompassing and our impact on her, on a global scale, was trivial. But times have changed rapidly. Now, at a global scale, the problems in relation to managing the resources we need to survive is immense, yet still far from the public eye. This issue of course is population, the ingenuity of man and our ability to command the environment, while providing the foundation through which we have enjoyed the prosperity we have seen as a species over the last 250 years, now, our impact on the planet is overwhelming.

The fact remains that 100% of our economic activity is dependent on services being provided from natural systems, from the oxygen we breathe, the capture of carbon dioxide in soil and forests, the replenishment of fresh water, the recycling of nutrients so that our agriculture can be productive, all of these things are done for free by natural systems without which we could not survive as a species. The state of ecosystems are being impacted by human activity and since the great acceleration, as it is called, from the middle of the twentieth century where economic activity has hastened the ecological degradation, the natural systems that support all economic activity, that support our species is under real threat.

We are losing an area of tropical forest equivalent to the size of England each year, undermining water and food security. About one third of agricultural soils have been depleted since mid-twentieth century, another major threat to food production. Fish stocks have been depleted and have completely collapsed in some areas. Species extinction has rapidly increased since mid-twentieth century where it is between 100 and 1000 times the background rate, suggesting we are in the middle of a sixth mass extinction event. And all of this is in the backdrop of climate change where, as a species, we have changed the water cycles, the weather patterns of the Earth, that have been stable for tens of thousands of years, allowing for rise of modern man. And there is no telling where this can go, but if we do not arrest these trends, the survival of the human race and countless other species is under real threat.

If we are going to reverse these trends, let alone halt them, we need to change business strategies as a matter of urgency. So what do we do?

Well, there are many things we can do, but perhaps a starting point is to re-frame our view on capital, the factors of production, as first espoused by the classical economists and then entrenched in business schools into modernity. Capital is the foundation to all economic activity. We operate in a capitalist economy. So what is 'capital'?

The classical economists, Adam Smith and others first defined capital inputs to production under titles of land, labor and productive capital. If you could adequately control and utilise these stocks, you could produce at a profit, the fundamental of a capitalist economy.

In this classical model, land referred to the natural world, from which we derived all stocks required for production. The eighteenth century view was that land, particularly nature and all her resources was limitless. Only land, for agriculture or for production, was seen in limited supply. Labor was simply person-hours of paid work, which again was viewed as having an endless supply, as long as you could feed and provide for population growth. Thus, capital, that which was produced in terms of an economic good, was boundless. And man went forth and conquered the lands, the rivers and oceans, for it was his God-given right.

Fast forward an unprecedented 250 year period of economic prosperity, where over more than a dozen generations of experience has taught us more about the world in which we live, through the science with which we have developed, than in all ages of history. And of course we now know that none of the old stocks of capital are boundless nor limitless. Indeed the world is very finite, and given our population and ingenuity, our impacts on it are not only eroding away the ability for the capitals to sustain production levels in our economies, but to sustain ourselves.

Through a better understanding of the world, we have now refined the simple understanding of the classical stocks of capital inputs necessary for production. In fact productivity is based on a much more complex set of variables than land, labor and capital.

The five capitals model goes some way to better represent this complexity. It describes fives species of capital stocks: natural capital, human capital, social capital, manufactured capital and financial capital. The five capitals model is a better real-world representation of the stocks of capital inputs necessary for production. And because of this it allows us to better manage and sustain the stocks of capital necessary for our economic production, and in turn, allows us to better appreciate the landscape of sustainable development.

Natural capital is the sum total of resources available from the natural world. And again it is worth recalling that 100% of our economic activity depends on natural capital from the resources we need to sustain production and to sustain ourselves as a biological species. It is from that natural world that all things come and go, including us. So natural capital can be considered all resources, sinks that absorb and neutralise waste (eg forests, oceans) and processes (eg the oxygen produced from plant life, carbon sequestration by forests, disease-free environments in which to live and water production through our water cycles).

In a money economy, before a single sale is made, staff need to be hired, land needs to be rented and machinery needs to be purchased. Financial capital is used to start-up production, expand production or indeed change ownership of an income producing asset, as the case may be.

Manufactured capital is that which is produced by applying human productive processes to natural capital, or in using manufactured capital to produce a further product, such as when components are used to produce a smart phone, or medical equipment is used to provide a health service. Manufactured capital not only has a cost in sourcing natural capital but also has a corresponding cost in dealing with the waste that needs to be absorbed by the natural environment (eg landfill, carbon emissions), which is in many corporate setting is still artificially treated as nil.

Human capital, far from simply person-hours of paid work, is the stock of capital that depends on the productive capabilities of the individual worker. These capabilities not only apply to their education, knowledge, skills and experience but their personality and personal traits, temperament and intelligence, physical strength and health. Organisations depend upon individuals to function and retain brand reputation. Damaging human capital by abuse of human rights, flouting labor laws or health and safety can have direct performance and reputation costs.

Social capital is an even more complex measure and related to the stock of social network behind the individual. It is more than just education or work experience. It is the networks, partnerships and alliances, government structures, the stock of trust, of mutual respect, shared values and social understanding that facilities the social coordination of an economic activity.

In using the five capitals model we can think more fully in terms of how an organisation and an economy in general, nurtures and sustains these stocks of capital, that can see an organisation thrive or indeed an economy collapse. It is also true to say that not all capital can be adequately classified by these five forms.

A sixth capital, performance capital, can be viewed as the organisation’s capability to harness and sustain the other five capitals to achieve their business objectives. Just as human capital is the capability of the individual based on individual traits, performance capital is the capability of the firm based, not just on its ability to earn a profit but on its capability to nurture and sustain the 5 capitals and to manage internal requirements: process efficiencies; customer engagement and loyalty; and learning, innovation and technology.

In examining figure 1 then, we can see how the six capitals model plays out. The three pillars of the model are how you, as a firm, manage your people, your impact on the planet and your profit requirements in terms of financial gain. Your impact on the planet is best managed by considering manufactured capital, natural capital and social capital. You can best manage your people by considering social capital, human capital and performance capital. And your profit is maximised over the long run, by managing for manufactured capital, financial capital and performance capital.

It is not only necessary to extract productive flows from capital stocks but it is imperative that these stocks are sustained. Indeed, sustainable development creates a flow of desirable economic goods and services without depleting the capital stocks used in production. The six capitals model is a modern-day perspective of the firm that, if used across industries, allows for sustainable development to become the norm and not the exception across society.

The Practice Capital Accelerator Program: Integrating the Six Species of Capital

Achieve Leadership, Compliance & Market Differentiation

Our structured flagship program The Practice Capital Accelerator helps firms integrate sustainability into their business model, operations, and market positioning—enhancing compliance, securing project opportunities, and building long-term resilience. By embedding sustainability at the core of your practice, this program ensures that your firm is strategically positioned for growth while contributing to a regenerative future.

To achieve this, the Practice Capital Accelerator program is designed to incorporate the six species of capital, recognising that true sustainability extends beyond financial or environmental considerations. The following shows our approach in relation to an architecture firm, optimising and sustaining all six capitals, strengthening long-term performance and market positioning.

How the Practice Capital Accelerator Program Integrates the Six Capitals:

1. Natural Capital (Environmental Sustainability)

• Architects depend on natural resources (timber, minerals, water, energy) and must design for resource efficiency, circularity, and climate resilience.

• Our program helps you assess and reduce environmental impact through low-carbon materials, regenerative design principles, and passive house strategies.

• Outcome: A sustainability-driven practice that meets compliance standards via ISO14001 enhances project viability, and strengthens brand reputation.

2. Financial Capital (Business Growth & Stability)

• ISO14001-aligned firms are now more attractive to investors and clients seeking sustainable architecture solutions, and provide stronger tender applications.

• Our approach includes carbon footprint analysis and risk assessments to ensure long-term economic resilience.

• Outcome: A financially sustainable practice that meets investor expectations, improved contractual success, reduced operational costs, and improved profitability through sustainability-driven efficiencies.

3. Manufactured Capital (Sustainable Design & Innovation)

• Architectural firms rely on building materials, digital tools, and construction systems to execute their designs.

• The program helps your firm adopt sustainable design innovations, such as life cycle analysis (LCA), digital twins, and prefabrication techniques to reduce waste.

• Outcome: A future-proofed practice that leverages cutting-edge materials, technology, and sustainable design for enhanced project delivery and market differentiation.

4. Human Capital (Skills, Leadership & Workforce Development)

• A firm’s employees, leadership, and industry partners are crucial to embedding sustainability.

• The program provides carbon literacy training and sustainability leadership development to empower teams with the knowledge and skills to lead sustainability transitions.

• Outcome: A highly skilled workforce that is aligned with global sustainability best practices, fostering employee engagement, retention, and leadership in the industry.

5. Social Capital (Stakeholder Trust & Market Positioning)

• Architecture firms thrive on collaboration with clients, suppliers, government bodies, and industry networks.

• We help you build stronger relationships through transparent reporting, ISO14001 compliance, sustainable procurement, and stakeholder engagement strategies.

• Outcome: A firm that is recognised as a trusted sustainability leader, with strong client relationships and a competitive market advantage.

6. Performance Capital (Sustained Business Excellence)

• Sustainability is not just about strategy—it’s about execution.

• Our program ensures your firm has the systems, processes, and governance structures to implement and maintain sustainability initiatives effectively.

• Outcome: A firm that not only meets compliance but thrives by integrating sustainability into operations, marketing, and client engagement strategies.

Why This Matters for Your Architectural Practice:

By embedding sustainability across these six capitals, your firm will:

✅ Strengthen market differentiation and attract high-value clients.

✅ Ensure compliance with evolving ESG regulations and building codes.

✅ Improve financial performance through efficiency gains and new revenue opportunities.

✅ Enhance brand reputation as a sustainability leader in architecture.

✅ Develop a high-performing team equipped with cutting-edge sustainability knowledge.

The Practice capital Accelerator is more than compliance—it’s a framework for long-term business success in a rapidly evolving industry.

Get in touch today to future-proof your practice.

If you are interested to see how your organisation can more fully nurture and sustain its six capitals contact our offices for an obligation free discussion at info@practicecapital.com.au.

References

1. Goodwin, N.R. (2003, September). Five kinds of capital: Useful concepts for sustainable development. Working paper No. 03-07. Global Development and Environment Institute, Tufts University, MA, USA.

2. Porritt, J (2018) The Five Capitals Model – a framework for sustainability, Forum For The Future, USA

3. Juniper, T. (2014, April 23). Framing natural capital: Economy and ecology are not in competition. The Guardian. Retrieved from https://www.theguardian.com/sustainable-business/blog/framing-natural-capital-economy-ecology-not-competition