NextFrontier: The Most Valuable Asset on No Balance Sheet

 

NextFrontier: The Most Valuable Asset on No Balance Sheet - Episode 7

 

Dr Michelle De Jongh, Inspired and Alex Money, University of Oxford

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Ask any business leader what their most important asset is and most will say their people. Ask them to quantify what that means, however, and the conversation becomes considerably harder.

 

In the latest episodes of NextFrontier, Inspired’s ESG podcast series, host Alastair Greener puts that question to two guests whose understanding of the issue runs deep.

 

Dr Michelle De Jongh is Managing Director of Inspired ESG, a business unit that has spent two decades helping clients navigate the practical demands of environmental, social and governance reporting. Alex Money is Founder and Chief Executive of Watermark and Principal Investigator and Founder-in-Residence at Oxford University’s Smith School of Enterprise and Environment. Together, they work through the social dimension of ESG with a rigour that moves well beyond the familiar language of diversity initiatives and employee surveys.

 

The conversation begins with first principles. What does the S in ESG actually mean? De Jongh defines it through a business lens: a framework that examines how a company relates to its employees, customers, suppliers and the communities in which it operates. Money situates it more broadly, placing it within a capital framework in which natural capital forms the outer boundary and human capital sits nested within social capital, which itself sits within manufactured and financial capital. Critically, he argues that financial capital is the only one of these that holds no intrinsic value of its own. Its purpose is to mobilise and unlock the others.

 

Human capital, on this account, comprises health, welfare, education and the capacity to be productive. It is, as Money puts it, what makes us human. De Jongh anchors the concept in business reality. Its meaning for any organisation depends on company type, territory, sector and the legislative environment in which it operates. A listed company on the London main market faces obligations under the Financial Conduct Authority’s reporting requirements that a private business does not. A manufacturer with supply chains in Southeast Asia operates under different labour norms to one based entirely in the UK.

 

Legislation, De Jongh explains, is the primary driver that shapes how human capital is defined and deployed. Employment law, health and safety requirements, maternity and paternity entitlements – these vary significantly between jurisdictions. What is standard practice in the UK may be unusual in the United States; what is mandated in the EU may exceed requirements in both. Money extends this point by framing it in terms of corporate citizenship. Adherence to applicable legislation is the minimum threshold. Beyond that, companies make choices about how to invest in their people – through training, continuous professional development and the conditions that support physical and mental health – and those choices reflect cultural context as much as regulatory obligation.

 

The tension between regulation and culture becomes particularly pointed when a European corporation attempts to apply uniform standards across a global supply chain. De Jongh addresses this carefully. On gender balance at board level, for instance, a comply-or-explain regime governs UK-listed companies. There is no single prescribed ratio, and the appropriate composition will differ by sector and geography. The requirement is not perfection but transparency. For supply chains in higher-risk regions, the more urgent obligation is straightforward: ensuring that no modern slavery exists within the value chain, and that suppliers have signed up to a code of conduct that commits them to the same standard.

 

The question of how human capital appears – or fails to appear – in financial statements draws a revealing response from Money, who spent 15 years as a professional investor. Human capital does not sit on the balance sheet as a line item. But its effects are visible in the difference between the cost of capital and the return on capital employed. The value that a business generates beyond the sum of its inputs – its productivity, its innovation, its creative capacity – is, ultimately, the expression of human capital at work. The counterfactual is equally instructive: a company seen to treat its people poorly will see that reputation migrate outward to customers and other stakeholders, and the value of the business will decline accordingly.

 

The conversation closes with the question that gives the whole discussion its sharpest edge. Both guests are asked for their key takeaways, and Money’s answer is worth sitting with. We are, he argues, at an inflection point. Technology and automation will commodify every capital except one. As computing power, logistics and manufacturing processes become accessible to all, the source of competitive advantage – what investors call alpha – will migrate back to people. Human capital will become the arbiter of success or failure precisely because everything else can be replicated.

 

De Jongh reinforces the point from a practical direction. Automation will reduce headcount in many sectors. The question is not whether workforces will shrink but how businesses prepare for it – through reskilling, upskilling and deliberate investment in the people who remain. The businesses that get this right will have something no algorithm can generate.

 

It is a bracing conclusion, and a useful corrective to the tendency to treat human capital as merely a compliance matter. It is, as this conversation makes clear, a strategic one.

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NextFrontier: Rethinking the ESG Investment Case - Episodes 1 & 2

 

NextFrontier: The business case for ESG - Episodes 3 & 4

 

NextFrontier: Why geospatial data is becoming the new bedrock of ESG intelligence - Episodes 5 & 6

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NextFrontier is brought to you by Inspired