Archive for December, 2017

Comments on SASB Standards

December 24, 2017

William P. Fisher, Jr., Ph.D.

LivingCapitalMetrics.com, Sausalito, CA  (william@livingcapitalmetrics.com)

and UC Berkeley BEAR Center (wfisher@berkeley.edu)

Submitted to SASB on 22 December 2017

These comments pertain to all SASB Industry Standards, all Disclosure Topics, all Accounting Metrics, and all Metric-Level proposed updates. The latter are of particular interest because unexamined assumptions about how the proposed metrics work compromise all of the Criteria for Accounting Metrics in the SASB Conceptual Framework, as listed, for instance, on page 7 of the Services-Basis for Conclusions.pdf document. The criteria of particular interest include fair representation, usefulness, applicability, comparability, and being complete. The goal here is to document these issues for future targeting as the metrics are improved.

In creating an array of sustainability accounting standards, SASB has worked to advance the practical value of the ancient interdependencies of measurement and commerce. The profound efforts that have been invested in creating standards for sustainability accounting demand continued focus in moving forward from intuitions about measurability to more rigorous, convenient, and scientific approaches to qualitatively meaningful quantification. The Proposed Changes to Provisional Standards that are currently open for public review and comment extend and amplify previous assumptions about measurement and approaches to it. These comments spell out some of those assumptions and offer alternatives more likely to function as transparent media embodying the values of sustainability.

Six issues in particular unnecessarily complicate and hobble the standards and their implementation, and should be addressed in future improvements. The scientific value and viability of these recommendations have been asserted in recent collaborations of metrologists (weights and measures standards engineers) and psychological measurement researchers. The practical value of these recommendations has been established in over 60 years of research and applications across a wide range of fields. A small sampling of the tens of thousands of peer-reviewed publications in this area are listed below, grouped by topic.

First, comparable metrics need not be based in common content. Content provides an initial clue as to common interests and potential comparability, but remaining fixated on content as the sole criterion for communicating variation creates more problems than it solves. Decades of research and practice in psychology and the social sciences show how different indicators can be calibrated to measure the same thing. This opens the door to flexible methods of adapting indicators to the needs of individual firms or industries without compromising comparability across firms within and across industries.

Second, the focus on individual sustainability indicators as the metrics of interest needlessly over-complicates the interpretation and application of the standards. The consensus choice of particular indicators as being of interest in evaluating sustainability in a given industry suggests an implicit theory of what all the indicators taken together likely measure. That theory needs to be articulated, a formal mathematical model of what is to be measured needs to be stated, the model needs to be experimentally tested, and the entire population of all relevant indicators needs to be calibrated in a common unit of comparison. Doing this will result in a capacity to summarize multiple indicators in a single number that can be interpreted meaningfully in terms of the established consistency of the pattern across all indicators measuring the same aspect of sustainability, whether or not they were administered.

Third, and in the same vein, numeric counts and percentages are not measures. Contrary to the terms used in the SASB standards, counts and percentages are not quantitative in the sense of each additional one more standing for the same amount. I may have five rocks, and you may have two, but there is no way of telling from those counts who has more rock. Counts and percentages are at best ordinal, not interval. Commercial measurement standards for weight, volume, etc. all employ interval units established via theory and experiment as maintaining their size across counts of concrete individual instances of real things. Sustainability metrics require the same attention to technical detail as metrics in any other area of commerce.

Fourth, to interpret measures of mass, energy, volume, etc. as measures of sustainability, they need to be shown via theory and experiment to actually support these kinds of inferences. Physical measures (such as metric tons, joules, kilowatt hours, etc.) are scientifically calibrated to measure in standard unit amounts, but that does not mean those measures of physical variables automatically translate into measures of sustainability, which is what is assumed across many of the SASB standards. To measure sustainability, as distinct from mass, energy, or volume, it must be conceptualized in theory, experimentally modeled and tested, and embodied in a network of calibrated instruments traceable to a unit standard.

Fifth, uncertainty needs to be explicitly estimated and presented as an expected range of variation.

Sixth, inconsistencies in a firm’s data across indicators need to be flagged for special attention. Longstanding report formats and methods can be put to good use here.

Given the importance of sustainability standards for the future of life on earth, given SASB’s efforts at creating sustainability metric standards, and given the huge multipliers obtained when distributed network effects are put in play, the implicit goal of SASB is the establishment of a new intangible assets metric system. These comments are intended to provoke further deliberately conceived and implemented developments in that direction.

The end result of those developments will be the creation of common languages of sustainability research and practice, common languages that provide the media for collectively coordinating decisions and behaviors across local and global spheres of activity. As such, given the history of economics, it can reasonably be expected that the efficiencies gained from enhanced communications and information infrastructures will bring sustainability capital to life on previously unimagined mass scales. See the references listed below for more information in this area.

Following through on these recommendations will make it possible to harness the energy of the billions of people globally who for decades have been vocally expressing their desire for change. Providing a medium for channeling and focusing that energy on sustainability is the most urgent demand of our times. SASB is leading a vitally important array of efforts in this direction. The challenges are huge, but having defined the problem, humanity is likely able to come through for itself as the steward of life on earth.

References on bringing intangible assets to life

Fisher, W. P., Jr. (2002, Spring). “The Mystery of Capital” and the human sciences. Rasch Measurement Transactions, 15(4), 854 [http://www.rasch.org/rmt/rmt154j.htm].

Fisher, W. P., Jr. (2007, Summer). Living capital metrics. Rasch Measurement Transactions, 21(1), 1092-1093 [http://www.rasch.org/rmt/rmt211.pdf].

Fisher, W. P., Jr. (2009, November 19). Draft legislation on development and adoption of an intangible assets metric system. Retrieved 6 January 2011, from Living Capital Metrics blog: https://livingcapitalmetrics.wordpress.com/2009/11/19/draft-legislation/

Fisher, W. P., Jr. (2009, November). Invariance and traceability for measures of human, social, and natural capital: Theory and application. Measurement, 42(9), 1278-1287.

Fisher, W. P., Jr. (2009). NIST Critical national need idea White Paper: Metrological infrastructure for human, social, and natural capital (Tech. Rep. No. http://www.nist.gov/tip/wp/pswp/upload/202_metrological_infrastructure_for_human_social_natural.pdf). Washington, DC:. National Institute for Standards and Technology.

Fisher, W. P., Jr. (2010). Measurement, reduced transaction costs, and the ethics of efficient markets for human, social, and natural capital, Bridge to Business Postdoctoral Certification, Freeman School of Business, Tulane University (http://ssrn.com/abstract=2340674).

Fisher, W. P., Jr. (2011). Bringing human, social, and natural capital to life: Practical consequences and opportunities. Journal of Applied Measurement, 12(1), 49-66.

Fisher, W. P., Jr. (2012). Measure and manage: Intangible assets metric standards for sustainability. In J. Marques, S. Dhiman & S. Holt (Eds.), Business administration education: Changes in management and leadership strategies (pp. 43-63). New York: Palgrave Macmillan.

Fisher, W. P., Jr. (2012, May/June). What the world needs now: A bold plan for new standards [Third place, 2011 NIST/SES World Standards Day paper competition]. Standards Engineering, 64(3), 1 & 3-5 [http://ssrn.com/abstract=2083975].

Fisher, W. P., Jr., & Stenner, A. J. (2011, January). Metrology for the social, behavioral, and economic sciences (Social, Behavioral, and Economic Sciences White Paper Series). National Science Foundation: http://www.nsf.gov/sbe/sbe_2020/submission_detail.cfm?upld_id=36

Fisher, W. P., Jr., & Stenner, A. J. (2011, August 31 to September 2). A technology roadmap for intangible assets metrology. In Fundamentals of measurement science. International Measurement Confederation (IMEKO) TC1-TC7-TC13 Joint Symposium, http://www.db-thueringen.de/servlets/DerivateServlet/Derivate-24493/ilm1-2011imeko-018.pdf, Jena, Germany.

Miller, P., & O’Leary, T. (2007, October/November). Mediating instruments and making markets: Capital budgeting, science and the economy. Accounting, Organizations, and Society, 32(7-8), 701-734.

References on metrology and psychological measurement

Fisher, W. P., Jr., & Stenner, A. J. (2016). Theory-based metrological traceability in education: A reading measurement network. Measurement, 92, 489-496.

Mari, L., Maul, A., Irribarra, D. T., & Wilson, M. (2016, March). Quantities, quantification, and the necessary and sufficient conditions for measurement. Measurement, 100, 115-121.

Mari, L., & Wilson, M. (2014, May). An introduction to the Rasch measurement approach for metrologists. Measurement, 51, 315-327.

Mari, L., & Wilson, M. (2015, 11-14 May). A structural framework across strongly and weakly defined measurements. Instrumentation and Measurement Technology Conference (I2MTC), 2015 IEEE International, pp. 1522-1526.

Pendrill, L. (2014, December). Man as a measurement instrument [Special Feature]. NCSLi Measure: The Journal of Measurement Science, 9(4), 22-33.

Pendrill, L., & Fisher, W. P., Jr. (2013). Quantifying human response: Linking metrological and psychometric characterisations of man as a measurement instrument. Journal of Physics Conference Series, 459, http://iopscience.iop.org/1742-6596/459/1/012057.

Pendrill, L., & Fisher, W. P., Jr. (2015). Counting and quantification: Comparing psychometric and metrological perspectives on visual perceptions of number. Measurement, 71, 46-55.

Wilson, M., & Fisher, W. (2016). Preface: 2016 IMEKO TC1-TC7-TC13 Joint Symposium: Metrology Across the Sciences: Wishful Thinking? Journal of Physics Conference Series, 772(1), 011001. Retrieved from http://iopscience.iop.org/article/10.1088/1742-6596/772/1/011001/pdf

Wilson, M., Mari, L., Maul, A., & Torres Irribara, D. (2015). A comparison of measurement concepts across physical science and social science domains: Instrument design, calibration, and measurement. Journal of Physics Conference Series, 588(012034), http://iopscience.iop.org/1742-6596/588/1/012034.

References on the state of the art in psychological measurement

Barney, M., & Fisher, W. P., Jr. (2016, April). Adaptive measurement and assessment. Annual Review of Organizational Psychology and Organizational Behavior, 3, 469-490.

Stenner, A. J., Fisher, W. P., Jr., Stone, M. H., & Burdick, D. S. (2013, August). Causal Rasch models. Frontiers in Psychology: Quantitative Psychology and Measurement, 4(536), 1-14 [doi: 10.3389/fpsyg.2013.00536].

Wilson, M. R. (2013, April). Seeking a balance between the statistical and scientific elements in psychometrics. Psychometrika, 78(2), 211-236.

Wilson, M. R. (2013). Using the concept of a measurement system to characterize measurement models used in psychometrics. Measurement, 46, 3766-3774.

William P. Fisher, Jr., Ph.D.

Research Associate

BEAR Center

Graduate School of Education

University of California, Berkeley

Skype: wfisher2

We are what we measure.

It’s time we measured what we want to be.

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Private Costs and Public Goods

December 4, 2017

Concerning the relation of private costs to public goods, I see two issues here that need to be spelled out in greater detail.

First, everyone is likely well aware, the concept of private property is unknown in many, most or all traditional cultures. Land in the sense of a bordered parcel carved out of the larger whole of interdependent relationships in an ecosystem is bizarrely dysfunctional and confused, from this point of view. The public goods of watershed, air purification, fishery, wildlife, etc. services cannot in any way be disentangled from the way private costs are thoroughly absorbed into the cyclical dynamics of symbiotic give and take, investment and return. Profit is defined entirely in terms of value for life. Overuse and misuse that imbalances relationships has tangible consequences that negatively impact quality of life.

Western culture broadened the scope of activity in ways that made it possible to expand the relationships in play beyond the constraints of local circumstances. Private costs incurred in cycles of investment and return could be sunk over longer time periods and across wider geographic ranges. Negative local consequences were balanced against positive returns accumulated elsewhere. Overall returns were negative as the resource base was destroyed, but the accounting methods in use and cultural values in play ignored this in favor of a narrower definition of personal profit that reinforced the extractive processes.

This system could continue only as long as new resources could be identified and converted to profit. As private costs increased and returns decreased new accounting methods and cultural values emerged and focused on rebalancing ecosystem interdependencies. Unfortunately, culturally ingrained habits of thought and institutionalized patterns of incentives and rewards often result in counterproductive conceptualizations of the situation. Too often, the linear destruction of the resource base is assumed to be the defining characteristic of a functional economy, and it is further assumed that this system must somehow be juxtaposed alongside or made externally congruent with ecosystems’ paradigmatically different circular interdependencies.

This, to me, is the background to your question about private costs and public goods. As long as we conceive and enact our relationships with social value and environmental services in terms of an either-or dichotomy, we are lost. But is it really true that our only alternatives are to subject externalities to extractive processes or to constrain those processes so as to allow ecosystem dynamics a wider scope of free reign at the expense of humanity? Should we think only in terms of (a) letting the current form of capitalism run rampant, (b) scaling back human activity to some kind of utopian low-tech, low-impact integration with a nature religion, or (c) the currently dominant assumption of a tense compromise between these two options of destroying or preserving the resource base?

Why are so few people talking about reconceiving economies as ecosystems of interdependent relationships that encompass not just human institutions but nonhuman forms of life and ecologies as well? Why should not we strive for an economy in which value for life is conceived as authentic wealth and market institutions make monetized profits contingent on nurturing genuine productivity? Why should not negative impacts on public goods be translated into private costs borne by individuals, communities, and businesses? Why should not everyone have the means to impact via their own behaviors, and to track in their own accounts, the quality and quantity of the personal stocks of shares in public goods they own? Why cannot we create legal and regulatory supports for entrepreneurs to be rewarded for wide commercial sales of their innovations reducing human suffering, social discontent, and environmental degradation? Why should not individuals be able to invest in privately owned shares of public goods in ways that efficiently move capital resources to where they are most effectively employed in the name of creating authentic wealth? How else could we ever amass the magnitude of focused effort it is going to take to rebalance the climate, get plastic microparticles out of the oceans, eliminate human suffering, and remove the sources of social discontent?

I am sure it seems counterintuitive but this problem is akin to a Chinese finger puzzle. The harder we pull, the more tightly trapped we become. We have to relax into the problem to be released from it. In jujitsu fashion, we have to use the energy of what we oppose to advance toward our goals. The profit motive is destructive because we have not integrated the genuine wealth we say we value into our accounting, financial, and economic systems. If we really do value human, social, and environmental riches over mere monetary riches as much as we say we do, why have we invested so little effort in finding qualitatively meaningful and mathematically rigorous ways of communicating, sharing, storing, and growing that value? Why haven’t we codified the legal structures and enforcement bodies that would monitor adherence to new institutional norms? Why don’t we have standards for the common languages and currencies we need if we are to be able to efficiently exchange meaningful expressions of real value?

If we would measure and manage investments in individual stocks of intangible assets the way we do for tangible assets, we could orchestrate a different balance of power. Efficient markets for investments in human, social, and natural capital would quickly channel flows away from businesses destroying genuine wealth toward those growing it. So efficient markets are not themselves the primary problem. The problem is that three of the four forms of capital comprising the economy have not been brought to life in the form of transferable representations serving as common currencies for the exchange of value. Just as land was once universally regarded a public good but came to be a privately owned source of costs and profits, so, too, will today’s public goods also be transformed.

There is a huge difference in the contexts of these transformations that must not be overlooked. Land became a private commodity in isolation with no system of checks and balances to constrain it. The earth appeared to be a bottomless resource well available for the taking. Issues of intangible market externalities were relevant only to the extent they negatively affected profits. Compassion for collateral damage was regarded either as foolish or as marketing opportunities for ostentatious public displays of prepackaged concern.

The transformation of the broader array of public goods into some form of privately owned and managed property is taking place in a qualitatively different context. Taking the trouble to articulate our values in ways that make us accountable for them will lead to a decisive “put up or shut up” moment for humanity. If people are as innately greedy and selfish as some think, the availability of legally binding and monetarily profitable accounting, financial, and economic systems for investing in and producing enhanced social value will mean nothing, and monetary profits will continue to be extracted, illegally, and perhaps at higher rates, only from privately owned tangible assets in such high demand that no one could get along without them.

On the other hand, a global movement spanning well more than half a century has been consistently seeking to devise ways of addressing these problems. Hundreds of millions of individuals, thousands of organizations, and hundreds of countries have conferred, invested, discussed, agreed, planned, and created across billions of ideas and possibilities. The will to do what needs to be done seems to me to exist in abundance. Those who think otherwise seem reconciled to the destructive scaling back of human activity, which only puts on display their own inability to think past today’s cultural assumptions to new expansions of the ecologically sound aspects of institutions of the past.

I think that we can indeed imagine ecosystems of interdependent relationships in which people will do what needs to be done not because it is the right or good thing to do but because they can see how it works to enrich the value obtained in their lives, for their families and communities. The ecosystem has to do the work of multiplying value indirectly into the larger community as an effect of each individual’s decisions and behaviors. This is not and cannot be a matter of individual concerns or intentions. The institutions have to support what Hayek called the true individual: not the falsely isolated and selfish individual but the authentic person whose identity and roles are shaped via relations of trust in thousands of unknown others, mediated by every exchange of information or value.

What we need to do is amplify and multiply the number and nature of these relations of trust. These amplifications and multiplications have been in process for decades in education, health care, social services, environmental resource management, and other areas. Technical advances in the quality of the information created and managed in these fields is quietly accumulating into new relationships between teachers and students, clinicians and patients, researchers and practitioners, consumers and producers, the social and natural sciences, markets and externalities, etc. The information transforming these relationships builds trust by revealing the day-to-day consistency and reliability of what people say and do in classrooms, clinics, and offices over time and across situations. New information systems show where students, teachers, clinicians, patients, managers, etc. stand relative to where they were in the past, relative to their goals, and relative to everyone else. The information is actionable in previously unavailable ways, as it shows what comes next in one’s self-defined learning trajectory or improvement goal sequence.

Technical issues concerning information complexity are being addressed to prevent the kinds of failures plaguing efforts in the past. Most importantly, in the manner of the advances in resilience and lean thinking informing manufacturing in recent decades, one of the consequences of increased information quality and the enhanced levels of trust obtained in the caring arts and sciences is that those on the front lines are empowered to act creatively in new ways. There is no reason to think that the innovations and advances that can be expected in these contexts will be less impressive or valuable than we have witnessed in technological areas in recent years. It seems highly likely that the inflationary spirals characteristic of these fields will be reversed into deflationary economies akin to that of microelectronics, where lower costs and higher quality drive increased profits.

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To express all this from another point of view, as I’ve said many times before, we keep assuming that our modern Cartesian methods are the only ways of defining problems and solutions, but the actual truth of the matter is that these methods are themselves the problem. As long as we keep assuming that solutions to our problems depend on finding the political or financial will to take them on, we will continue to fail. If we instead harness the energy of the profit motive to focus efforts productively in the direction of integrated solutions, we will successfully achieve our goals on a scale far exceeding what anyone so far has projected as possible or likely.

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Leveling the playing field and setting up equal opportunities for entry into a game played with the goal of keeping the game going.