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ESG is access to capital

By: Josh Dowse, Head of ESG, SenateSHJ


  • ESG performance is increasingly considered in investment and corporate decisions, supported by voluntary and soon mandatory disclosures.
  • It provides access to the four capitals – financial, human, social and natural – on which companies rely, especially the ‘intangible’ human and social capitals that investors value most.
  • An ESG ‘performance-and-engagement’ cycle is a new model to understand the many meanings of ‘ESG’, and how it helps gain access to those four capitals.


ESG has its share of critics, ranging from the ideologically opposed to the open-minded. It has been called everything from ‘scrambled eggs’ to, famously, ‘the Devil Incarnate’ by Elon Musk. The Economist even called for it to be abolished, in its November 2022 cover piece. Many US Republican ‘red’ states have tried to do just that.

Fortunately, markets in Australia and its trading partners are looking past that opposition. Slowly but surely, we are embedding ESG into voluntary and mandatory disclosures, and into investment and corporate decision-making.

Still, there is a risk that companies may see ESG as a compliance issue, at best, and miss opportunities to secure material, long-term value.

This article puts forward a new model for thinking about ESG, one that builds on quite familiar and valuable concepts and puts them together in a recognisable way. It helps understand what ESG is, how it is used, and who uses it.

The model we suggest is simple. We start with a financial performance-and-engagement cycle with which you might be familiar. A company that can generate financial capital will be more likely to engage with investors and get access to more capital.

ESG is best understood as a similar cycle. However, it embraces all the types of capital that an organisation relies on — financial, yes, but also human, social and natural — and engages with all the stakeholders that have or control access to that human, social and natural capital.

Seen this way, ESG is at worst an innocuous representation of reality. At best it becomes a powerful, holistic way for organisations to improve their performance and get access to the capital they need.

The financial performance-and-access cycle

Let’s start by suggesting a new model for considering the familiar story of how financial performance data is produced and used, shown in Figure 1.

Figure 1 - a financial performance-and-access cycle
Figure 1 – a financial performance-and-access cycle

As soon as a company acts in any way, it affects its financial capital. A single paid person working for an hour will draw down the hour’s wage from the company, immediately affecting a ‘live’ P&L and balance sheet. Anything the person does, any assets or materials they use, will have a similar affect. With a bit of luck, that person will generate some profit, adding to the company’s capital. At the end of any given period, or in real time, all those impacts are measured in dollar terms, and reported internally.

Assuming the company needs to report externally at some point, it may need to audit the numbers, and it may want to create a narrative around them. There are regulations and standards involved to ensure that those using the numbers can rely on them. All this financial data is packaged up and shared with markets and regulators.

The whole purpose of all this is for investors to know what’s happening with their money. If they like what they see, they’ll keep it there, or even chip in more. If they don’t, they might sell their stake, assuming they can.

In other words, all that effort to measure, report and audit financial impacts and then engage with investors is for one sole purpose — to get access to financial capital. Without that capital, the company — or any organisation — will cease to exist.

In the Figure 1 model, the top half of the cycle is the company’s actual performance. The bottom half is its engagement on that performance. At the heart of that cycle is governance — everything the company does to make sure that the cycle is safe, reliable and legal.

Financial capital is an outcome of other capitals

Any organisation, indeed our economy as a whole, relies not just on financial capital, but on a range of different tangible and intangible capitals. Together, those capitals tell a simple story.

Before thought, there was just the Earth’s natural capital. To that we added our human capital (the whole gamut of productive imagination, labour and leadership). As individuals and organisations, we then add social capital — all that it takes for others to join us in or consent to what we’re doing: trust, relationships, reputation, brand and social licence all rolled into one.

With that natural, human and social capital, over millennia, we produced everything else there is in the world. There are material, manufactured objects, as well as ideas and services. Many of them can be sold, in turn, for money, which can be re-used to re-start that cycle.

There are two good models that capture this story. The first is Six Capitals, best described in Jane Gleeson-White’s excellent 2015 book, The Six Capitals: The revolution capitalism has to has1. These six have been merged into four in the other model, adopted by the Capitals Coalition, an international association of companies, organisations and advisory firms, of which SenateSHJ is a member: see Figure 2. Either works, so choose the one that helps you most.

Figure 2: The Capital Coalition's four capitals with which to build a world
Figure 2: The Capital Coalition’s four capitals with which to build a world

The value of human and social capital

The ‘intangible’ human and social capitals have become more and more significant in how investors value companies. Ocean Tomo, a firm specialising in financial valuations, has measured just how much more significant. It estimates that, back in 1970, about 80% of the aggregate market value of listed companies in the U.S. represented material assets: cash or physical things that could be turned into cash. Only 20% of that value represented what investors then thought of ‘goodwill’: the intangible capital of its people, brand, reputation, intellectual property and the like: see Figure 2.

Figure 3: Components of S&P Market Value
Figure 3: Components of S&P Market Value

Over the last 50 years, Ocean Tomo suggests that the balance between the tangibles and intangibles has been turned on its head. The 20% ascribed to the intangibles has risen steadily to an astonishing 90% today, with all of the balance sheet and physical stock and plant making up just 10%.2

The rise reflects that our economies are now less about physical products, and more about data and services. Investors realised that the tangible capital represented past performance, but the intangible capital represented the promise of future cash flows. There is more profit in the future than the past.

That’s why, for instance, Tesla shares in 2021 were valued at more than all other car companies in the world, put together. But perception can be a double-edged sword. The desire to own a Tesla depends in some part on the shared values or even admiration for the company — buyers are comfortable with the brand. Actions by the company or its founder may lessen that desire. To understand why, we turn to a longer-term, ESG performance-and-engagement cycle.

The ESG performance-and-engagement cycle

The Capitals Coalition or Six Capitals models are immensely powerful constructs with which to see the world. As Paul Druckman says in Six Capitals, ‘Without a focus on a range of capitals, providers of financial capital simply do not have the information needed to allocate resources most effectively’.

If the intangibles of human and social capital do account for such a large proportion of an organisation’s value, it makes sense that investors would want any data they could access, to understand what they’re buying. Increasingly, they’re asking for that information in the form of ESG data. Just because it’s hard to turn that information into simple numbers, doesn’t make it any less valuable.

To understand how ESG data meets that need, we can expand our financial performance-and-engagement cycle and expand it to take into account of all forms of capital.

Figure 4: The ESG performance-and-impact cycle™
Figure 4: The ESG performance-and-impact cycle™

Each stage of this cycle bears a different meaning of the term ‘ESG’. That’s why the term can be so confusing.

At the top of the cycle is what a company3 does, its ESG performance. This meaning of ‘ESG’ is displacing terms like ‘Corporate sustainability’ or ‘Corporate Social Responsibility’ or ‘the Triple Bottom Line’ — i.e., how a company interacts with the environment, society and the economy, for better or for worse. Every action affects both the total capital it has, and the total capital it can access. Most importantly, each type of capital affects the others, so you only know how much capital the organisation has by considering all capitals together.

Next, ESG measures. Companies work out how they can measure their ESG performance, ie, their impact on the four capitals. They can do so in many ways, from fuel efficiency or carbon emissions, to headcounts and employee engagement, to research and innovation, to compliance and community actions. Some of these measures are needed for ESG disclosures; others are desirable because progress on that metric will help build the four capitals and drive business performance. Ideally, they will do both. Every company makes its own choices about what is material (often guided explicitly by their investors).

Then, ESG disclosure. The company decides how to report on these measures to others, whether there are any standards that apply, whether they need to meet the expectations of ESG ratings agencies or investors, and the need for any audit. They then choose, to a greater or lesser extent, to share this information with others. Usually that’s voluntarily, but there are an increasing number of regulatory obligations.

Any disclosure should be part of broader ESG engagement. A company uses its reports to support conversations with the stakeholders that matter. Its investors may also be engaging on ESG issues, so it will in most cases be a mutually beneficial conversation. A new class of stakeholder looking to engage are the agencies that produce ESG ratings from disclosed measures and other sources. These ratings are used by investors to complement or in place of their own engagement.

The success or otherwise of the company’s ESG engagement is whether the other party offers access to their capital. A government may give a resort operator access to a national park. A farming community may give a mineral explorer access to an opportunity. A university may join a collaborative initiative, giving it access not only to its human capital, but to its reputation or social capital. An up-and-coming manager may give it their personal human capital, by joining the firm. An investor may give the company access to more, or less, financial capital.

A new ESG fund may be created with the explicit purpose of taking all of the cycle into account in its investment decisions, ie, the company’s ESG performance, measures, disclosures, engagement and ratings.

These meanings of ESG are having a dramatic impact on how people decide to engage with organisations, either as investors, employees, consumers or citizens.
The ESG performance-and-engagement cycle is a comprehensive model to understand the many ways in which the term ‘ESG’ is used, and why. Organisations can use it in many ways, together with a capitals approach, to clarify the ‘what, why and how’ ESG, unlocking the opportunities to build social and human capital, as well as financial capital, and better avoiding the risks to those assets.

A longer form of this article is published as a white paper by SenateSHJ.


Josh Dowse can be contacted on 0400 912 612 or by email at

1 — Quoted in Jane Gleeson-White, The Six Capitals: The revolution capitalism has to has, WW Norton 2015. Again, there is natural capital, then social capital, then human as well as intellectual capital (or IP), then manufactured as well as financial capital. There are real distinctions within the two sets of capital that have been merged. Human capital stays with the person, while intellectual capital can be transferred. Material capital includes physical assets, while financial capital is cash. Nonetheless the four capitals correspond to the original six quite directly but are easier to talk about. There is also a convenient correlation between human capital and an organisation’s people, and social capital and its external stakeholders.

2 — Intangible Asset Market Value Study – Ocean Tomo

3 — The model applies to any public or private organisation, for profit and non-profit, however this discussion focuses on a private or listed company, for whom action on the ESG cycle is most urgent.

Material published in Governance Directions is copyright and may not be reproduced without permission. The views expressed therein are those of the author and not of Governance Institute of Australia. All views and opinions are provided as general commentary only and should not be relied upon in place of specific accounting, legal or other professional advice.

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