THE EVOLUTION OF CHANGE WITHIN THE SIX CAPITALS

We’re not talking about London, New York, Paris, Rome, Sydney and, of course, Joburg here. The six capitals of integrated reporting originate from the International Integrated Reporting Council (IIRC), which developed the concept as part of its efforts to create a global framework for integrated reporting. The IIRC was formed in 2010, bringing together regulators, investors, companies, standard-setters, accounting professionals, and NGOs with the goal of promoting a more cohesive and efficient approach to corporate reporting.

While contemporary challenges mean moving with the times, the six capitals remain essential to integrated reporting, and companies continue to embrace this framework rather than moving away from it. Integrated reporting, which focuses on how an organisation creates value over time, has increasingly become a preferred approach for companies aiming to provide a comprehensive and holistic view of their business. The six capitals – financial, manufactured, intellectual, human, social and relationship, and natural – serve as a foundation for this approach, offering a structured way to assess and communicate the full range of resources and relationships that contribute to value creation.

Current Trends:

While the six capitals are still central to integrated reporting, the framework is evolving. Companies are increasingly integrating environmental, social, and governance (ESG) factors into their reports, which are closely aligned with the six capitals. Some companies may emphasise certain capitals more than others, depending on their industry and strategic focus, but the underlying principles of integrated reporting remain robust and relevant.

The six capitals of integrated reporting are evolving to better address the changing needs of businesses, stakeholders, and the broader global environment. Here’s how each of the six capitals is adapting to contemporary challenges and trends:

  1. Financial Capital
    • Evolution: While traditional financial metrics remain essential, there is a growing emphasis on long-term value creation and sustainability. Companies are increasingly integrating financial performance with non-financial indicators, such as environmental, social, and governance (ESG) factors, to show how financial capital is being used to create sustainable value.
    • Trends: There’s a shift towards including measures like impact investing, long-term financial health, and alignment with sustainable development goals (SDGs).
  1. Manufactured Capital
    • Evolution: Manufactured capital is expanding beyond physical assets to include digital and technological infrastructure. Companies are also focusing more on the sustainability of their manufacturing processes, incorporating circular economy principles, and reducing their carbon footprint.
    • Trends: The rise of Industry 4.0, with smart factories, automation, and the Internet of Things (IoT), is transforming how manufactured capital is managed and reported.
  1. Intellectual Capital
    • Evolution: Intellectual capital is increasingly focused on innovation, digital transformation, and data-driven decision-making. The value of intangible assets like data, algorithms, and digital platforms is being recognised and reported more explicitly.
    • Trends: Intellectual property is now seen in the context of its contribution to sustainability and long-term resilience, not just competitive advantage. Companies are also highlighting their investment in cybersecurity and data protection as part of intellectual capital.
  1. Human Capital
    • Evolution: Human capital reporting is evolving to include aspects like employee well-being, diversity, equity, and inclusion (DEI), as well as remote work dynamics. Companies are also emphasising the importance of continuous learning and development to adapt to technological changes.
    • Trends: There’s a growing focus on mental health, workplace safety, and how human capital contributes to innovation and company culture. The role of human capital in driving ESG goals is becoming more prominent.
  1. Social and Relationship Capital
    • Evolution: Social and relationship capital now includes a stronger focus on stakeholder engagement, social justice, and community impact. Companies are increasingly being held accountable for their social license to operate and their role in addressing societal challenges.
    • Trends: The rise of social media and digital communication platforms is reshaping how companies manage and report on relationships with stakeholders. Transparency, trust, and corporate citizenship are key themes.
  1. Natural Capital
    • Evolution: Natural capital is at the forefront of the evolution of integrated reporting, with climate change, biodiversity, and resource scarcity driving the need for more detailed and transparent reporting. Companies are now expected to measure and disclose their environmental impact in greater detail.
    • Trends: The adoption of frameworks like the Task Force on Climate-related Financial Disclosures (TCFD) is becoming standard. Companies are increasingly using metrics related to carbon neutrality, water stewardship, and circular economy practices.

Cross-Capital Evolution:

    • Integrated Thinking: There’s a greater emphasis on how the capitals interrelate and contribute to overall value creation. This approach promotes integrated thinking, where companies consider the dependencies and trade-offs between capitals.
    • Technology Integration: Digital transformation is influencing all six capitals, driving changes in how they are managed and reported. The use of big data, AI, and advanced analytics allows for more precise measurement and reporting of the capitals.
    • Sustainability Focus: The integration of the SDGs and ESG criteria into the six capitals framework is a significant evolution. Companies are increasingly aligning their reporting with global sustainability goals, ensuring that the capitals are used to promote long-term environmental and social sustainability.

The evolution of the six capitals reflects broader shifts in business, society, and the environment. By adapting these capitals to contemporary challenges, companies can ensure their integrated reporting remains relevant, comprehensive, and aligned with stakeholder expectations. This evolution allows businesses to better demonstrate their commitment to sustainable value creation and long-term resilience.

Overall, companies are not moving away from integrated reporting but are rather enhancing and adapting it to address new challenges and expectations from stakeholders.

Blue Apple has been helping companies produce award-winning integrated and annual reports for 25 years. Chat to us here if you’d like us to help you write, design, publish or workshop your next report.

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