What is social capital and how is it relevant to business?
Without people, business cannot exist. Consumers buy products that maintain or increase their welfare. Employees work for companies by adding value using their knowledge and skills, with companies supporting their livelihoods in return. Investors finance companies that generate wealth.
The impacts and dependencies that business has on people can be thought of as influencing social capital. Social capital is a term that has been defined in a number different ways over the years. At its broadest, it describes the stocks of knowledge, skills, experience, health and wellbeing within people; as well as the stocks of relationships, institutions, shared values and norms that exist between people. Just like other forms of capital, social capital can be increased or decreased by the flows of social capital - the social impacts - which result from business activity.
Business can positively influence how society operates. It can build and maintain social capital through its core operations; the goods and services it provides; and the activities supported through increasingly global and complex supply chains.
Skills can be maintained or built through work based training or products and services. Livelihoods can be supported both through employment and products both domestically and in international supply chains and markets - which can contribute to poverty reduction, individual empowerment and increases in health and wellbeing.
But, social capital can be damaged or destroyed where governance breaks down, regulations are not enforced, risks are not managed, or when public standards about what is acceptable shift from the status quo. Business activities may cause physical or psychological damage to their employees through unsafe working conditions, neglect of labour standards and human rights, or unequal treatment of individuals or groups. Products may negatively affect consumers health and wellbeing. Businesses may put pressure on local infrastructure and on the communities in which they operate.