Context-Based Sustainability (CBS) – also known as Context-Based Accounting – is an integrated accounting methodology relative to upper and lower limits in, and demands for, vital resources (i.e., capitals) in the world. It uses open-source, triple/multi-bottom-line methods for measuring, managing, assessing and reporting the performance of individuals, groups, organizations, and other human social systems. As such, CBS is a performance accounting system that interprets performance through a sustainability lens, according to which impacts are sustainable if and only if, when generalized to a broader/responsible population, they would (or do) have the effect of preserving, producing and/or maintaining vital capitals at levels required to ensure human well-being (i.e., at levels that are sufficient). Impacts that would (or do) have the opposite effect are unsustainable, as are the activities that produce them.
The reference to context in CBS pertains to social, economic and environmental circumstances that give rise to entity-specific responsibilities or standards of performance grounded in sustainability principles. Such circumstances most importantly include: (1) the kinds of impacts an entity may already be having on social, economic and environmental resources/capitals people rely on for their well-being, (2) the kinds of impacts on resources an entity ought to be having, or not, by virtue of the relationships it has with others, (3) the specific supply of and/or demand for such resources, for and by those who need them, (4) the identities of such parties or groups to whom corresponding duties and obligations may be owed (i.e., stakeholders) to manage one's impacts on resources, and (5) the presence and identities of others, if any, with whom such duties or obligations may be shared. The combination of these circumstances gives rise to entity-specific standards of performance or norms for what an entity's impacts on vital resources or capitals must be in order to be sustainable and, therefore, responsible. Impacts can then be planned, measured and reported against such standards or norms in order to assess and manage performance in meaningful ways.
Because CBS involves the measurement, management and reporting of performance in context-based ways, references to its workings are sometimes made using derivative terms, like Context-Based Measurement, Context-Based Management, Context-Based Reporting, Context-Based Targets, Context-Based Metrics, Context-Based Carbon Metrics, Context-Based Water Metrics, etc. All of that falls within the scope of CBS.
At the enterprise scale, carrying capacity also plays a critical role in making it possible to measure and report the integrated/sustainability performance of organizations. This is most clearly demonstrated through the use of CBS tools, methods and metrics, including the open-source MultiCapital Scorecard, most of which has been in development and use since 2005. Contrary to many other mainstream approaches to measuring the sustainability performance of organizations – which tend to be more incrementalist in form – CBS is explicitly tied to social, economic and environmental limits and thresholds in the world. Thus, rather than simply measure and report impacts in relative or marginal terms from one period to another, CBS makes it possible to compare the impacts of organizations to literal, entity-specific norms, standards or thresholds for what they (the impacts) would have to be in order to be not just empirically sustainable (i.e., which if generalized to a larger population would maintain the sufficiency of vital resources for human or non-human well-being), but also responsible.
Thresholds and allocations
Organization-specific standards of performance can also be thought of as fair, just and proportionate shares of burdens or responsibilities organizations have to help preserve, produce and/or maintain vital resources in the world at levels required to ensure human well-being. In the vocabulary of CBS, this is very often explained in terms of thresholds and allocations. A threshold is a measure of the magnitude or size of a resource that must be preserved, produced or maintained (e.g., the volume of available renewable water in a watershed, or a livable wage level for employee compensation). An allocation, in turn, is a fair, just and proportionate share of the responsibility required to maintain a threshold, and which is assignable to an individual organization. Such assignments will either be shared or exclusive. An organization's obligation to abide by its fair share of available renewable water in a watershed, for example, would be a shared responsibility; its obligation to pay its employees a livable wage and nothing less would be an exclusive one, borne only by itself.
In some cases, organization-specific standards of performance may also be science-based; in other cases, they may be purely moral or ethics-based. A science-based standard, for example, might consist of targets for the rate at which greenhouse gas emissions should be reduced over time in order to reverse climate change; an ethics-based standard, by contrast, might call for gender equality in organizations, or that the use of child labor be prohibited. In other cases, standards of performance might be purely legal or regulatory. In all cases, standards are expressed in terms of organization-specific shares (allocations) of shared and/or exclusive duties to maintain vital resources at levels (thresholds) required to ensure human and/or non-human well-being. Allocations thereby define organization-specific standards of performance, or norms, to maintain vital capitals at required (threshold) levels.
Importantly, all of this stands in stark contrast to most of what passes for mainstream practice in accounting today, which tends to be expressed in more incrementalist terms. Performance according to such incrementalism is all about how performance in one period compares to another, but only in terms of more of this or less of that. If profits go up, performance is positive; if energy efficiency goes down, performance is negative. At no time, however, do such measures express the sustainability of impacts - only their incremental or relative movements from one period of time to another.
Multicapitalism vs. monocapitalism
CBS is also capital-based in the sense that it is an accounting implementation of what many are now referring to as multicapitalism. Multicapitalism is a relatively new economic doctrine according to which the performance of an organization, economy, municipality, or any other human population, can be seen as a function of what its impacts are on the sufficiency of multiple vital capitals, and not just in terms of economic outcomes. From this perspective, modern-day capitalism can be seen as the practice of monocapitalism: the pursuit of development or growth in only one type of capital (economic), very often at the expense of all others (e.g., natural, human, social, constructed and intellectual). As a new economic doctrine, the concept itself, and the terms monocapitalism and multicapitalism were first developed and coined by Martin P. Thomas and Mark W. McElroy in 2014, and frequently discussed thereafter in various publications of theirs.
Under the multicapitalistic view of things, an organization's performance is favorable if and only if its impacts on all vital capitals (i.e., ones that have been determined to be material to itself) are sustainable. And to be sustainable, an organization's impacts on vital capitals must be in full compliance with whatever entity-specific standards of performance have been defined for itself. Anything less than sustainable performance in any material area of impact should, in principle, cause overall performance to worsen under the doctrine of multicapitalism and CBS, or what can also be referred to as multiple capital, multicapital, or multi-capital accounting. Making materiality determinations is therefore key in CBS, although not only for the sake of shareholders, but for other stakeholders as well.
Multicapitalism has its roots in economic theory going back to at least the early twentieth century. In 1906, for example, the economist Irving Fisher wrote: "A stock of wealth existing at an instant of time is called capital. A flow of services through a period of time is called income." By the middle of the same century, another prominent economist, Kenneth Boulding, had taken Fisher's definitions to the next level by applying the concept not only to economic capital per se, but to other capitals as well. In 1949, Boulding identified several other non-economic capitals that must be maintained in order to ensure human well-being, including human capital, cultural capital, intellectual capital, and geological capital, the last of which arguably corresponds to what today is referred to as natural capital.
By the end of the century, a growing chorus of scholars and practitioners in the field of sustainability were actively advocating for adoption of the multi-capital-based interpretation of the subject, including Donella (Dana) Meadows, who in 1998 wrote: "The Balaton working group agreed unanimously that the idea of capital - all forms of capital - is central to information systems for sustainable development … They allow the stock-flow analysis that can make indicators dynamic. And they begin to suggest a conceptual framework to keep track of the linkages among many forms of capital and to derive indicators that could help people and nations build up the several kinds of wealth that are necessary for a people-enriching, nature-preserving system."
In the sustainability/capital literature today - still heavily influenced by not only historical, but modern-day economists as well - capital is now commonly defined as a stock of anything that yields a flow of valuable goods or services important for human well-being. The consensus on multiple capitals, too, has largely settled on a framework of six primary types (i.e., natural, human, social, constructed, economic and intellectual), including several permutations or derivatives thereof. The idea behind every one of them, though, is the same: that human well-being is utterly dependent upon their continued and adequate existence. To diminish the sufficiency of any one of them is, in a word, unsustainable.
Central to the importance and application of multicapitalism to organizations and human social systems writ large is the further idea that capitals have carrying capacities that can be measured and quantified, and for which the responsibilities to maintain them can be attributed to individual actors (e.g., to organizations) in fair, just and proportionate ways. The carrying capacity of a stock of capital is the extent of demand for its goods or services it can support. Indeed, as resources that humans and other species rely on for their well-being, capitals do have their limits. In some cases, the limits are beyond our control (e.g., most natural or ecological capitals). In other cases, the limits are within our control because the capitals themselves are human-made. These are the anthropogenic capitals, or what some refer to as the anthro capitals (i.e., human, social, constructed, economic and intellectual capitals).