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DEBATE

The Integrated Reporting Value Proposition Who Should Care About the Capitals and Why? by Mary Adams, Founder Smarter-Companies Inc. Boston USA

T

he Integrated Reporting ( IR )

Capital Type

Scarce/Abundant Tangible/Intangible

Owned/Attracted

movement has a stated focus

Financial

Scarce

Tangible

Owned

Manufactured

Scarce

Tangible

Owned

Natural

Scarce

Tangible/Intangible

Owned/Attracted

Intellectual

Abundant

Intangible

Owned

Human

Scarce

Intangible

Attracted

Relationship

Scarce

Intangible

Attracted

on providers of

nancial

capital as the primary audience for an integrated report. The underlying a s s u m p t i o n i s t h at t h i s k i n d o f stakeholder is focused on the success of the business and that there is a clear business purpose to the practice. However, the (still) prevailing mainstream view is that traditional

nancial and manufactured capitals are

pre-eminent in the mind of any provider of nancial capital. This means that the movement needs to be clear on the value proposition and business rationale of IR to these and other stakeholders. This article examines the question of the value proposition for IR through a deeper examination of the capitals at the core of the model. The logic is that the reporting on the capitals is important because the capitals themselves are important to the current performance and continued viability of the reporting company.

Scarcity and Abundance One of the bedrock concepts of the economics we all learned in school is scarcity. That is, if I sell you physical products I have produced, I have fewer products and you have more. This principle applies very clearly to the

companies around the world. Businesses have intricate systems to protect, control and account for these scarce assets. Human and relationship capital are also scarce resources. However, they are not owned. This means that they don t appear on the balance sheet. Nevertheless, businesses still have intricate systems to protect, control and account for

None of the six capitals that are the focus of an integrated report are new. Businesses have always used all of these kinds of capital resources. What has changed is the relative importance of different kinds of capitals. In the past, the dominant corporate assets driving corporate value and value creation were those that were scarce, tangible and capable of being owned. In recent decades, there have been

these scarce assets. Natural capital is also a scarce resource. However, it is usually not owned by a company. Also, many natural resources have in practice seemed abundant, with an in nite supply. So these resources could not be subject to the same degree of control and protection by businesses. This, of course, is changing as

shifts toward greater relative importance in abundant, intangible, and attracted assets. The table below lays out three differentiating characteristics of the capitals and examines why they are important to business and, by extension, to the consumers of their integrated reporting. I hope to make the argument that the shift in importance of different kinds of capitals to the success of a business should drive interest from providers of nancial capital. Further, the importance of attraction and reputation imply the providers of nancial capital should also care what other stakeholders of IR think.

89

nancial and

manufactured capitals that dominate the balance sheet of

November 2015

Social Value and Intangibles Review - November 2015  

NOVEMBER 2015: Centre for Citizenship, Enterprise and Governance journal on Social Innovation and Social Impact Analysis SUPPLEMENTS: EU Sei...

Social Value and Intangibles Review - November 2015  

NOVEMBER 2015: Centre for Citizenship, Enterprise and Governance journal on Social Innovation and Social Impact Analysis SUPPLEMENTS: EU Sei...