Why do we exist and what is our unique contribution to the needs of society and the environment? Sounds familiar? Well, here we are not talking about the existential question that we all face once in a while in our day-to-day life as individuals. This is the premise of existence of corporates in this ever-evolving global environment. We are all aware and many have already worked upon the concept of Integrated Reporting which is fast becoming indispensable for the corporates to demonstrate the integration of their financial performance with the company’s performance on the Environmental, Social and Governance parameters – the important “Whys” in today’s world.

Now is the time of “one” report which aims to:

• • Improve the quality of information available to providers of financial capital to enable a more efficient and productive allocation of capital.
• • Promote a more cohesive and efficient approach to corporate reporting that draws on different reporting strands and communicates the full range of factors that materially affect the ability of an organization to create value over time and does not focus on just short-term achievement of financial goals.
• • Enhance accountability and stewardship for the broad base of capitals(financial, manufactured, intellectual, human, social and relationship, and natural) and promote understanding of their interdependencies
• • Support integrated thinking, decision-making and actions that focus on the creation of value over the short, medium and long term.

The Integrated reporting framework includes seven guiding principles that help identify how and what disclosures are to be prepared and how these will be presented.

It starts with strategic focus and future orientation - An Insight into the organization’s strategy, and how it relates to the organization’s ability to create value in the short, medium and long term, and to its use of and effects on the capitals. It essentially requires connectivity of information. A holistic picture of the combination, interrelatedness and dependencies between the factors that affect the organization’s ability to create value over time. One has to understand the stakeholder relationships. Nature and quality of the organization’s relationships with its key stakeholders, including how and to what extent the organization understands, takes into account and responds to their legitimate needs and interests. Focus on materiality. Information about matters that substantively affect the organization’s ability to create value over the short, medium and long term. Another important principal is conciseness. Relevant and to the point. An integrated report should include all material matters, both positive and negative, in a balanced way and without material error. It should be reliable and complete. Lastly, there has to be consistency and comparability. The information in an integrated report should be presented: (a) on a basis that is consistent over time; and (b) in a way that enables comparison with other organizations to the extent it is material to the organization’s own ability to create value over time.

As per the integrated framework of reporting there are six capitals which are the basis of an organization’s value creation, preservation or erosion. These capitals are Financial, Manufactured, Intellectual, Human, Social &Relationship and Natural. These capitals are dependent on each other and may vary in their importance to an organization depending upon the purpose, vision and mission of the Organization. These capitals are used as inputs in the business activities and are processed and impacted by the organization’s business model, strategy and resource allocation, outlook, performance, risks and opportunities, external environment and governance. The output is value creation, preservation or erosion in terms of these capitals only.

Let’s take a look at what these capitals mean and how organizations are reporting on the value of these in their Integrated Reports.

Financial Capital: The pool of funds that is available to an organization for use in the production of goods or the provision of services obtained through financing, such as debt, equity or grants, or generated through operations or investments. Inputs and outputs may be presented in the IR under:

• • Net Assets
• • Consolidated cash & investments
• • Constant currency revenue growth
• • Earnings per share growth
• • Return on equity
• • Mergers & acquisitions
• • Managing liquidity facilitated debt rationalisation and restructuring
• • Maintaining flexible capital structure in line with business needs
• • Allocating funds to efficient and value-accretive opportunities

Manufactured Capital: Manufactured physical objects (as distinct from natural physical objects) that are available to an organization for use in the production of goods or the provision of services, including:

• • Buildings
• • Equipment
• • Infrastructure (such as roads, ports, bridges, and waste and water treatment plants)
• • Manufactured capital is often created by other organizations, but includes assets manufactured by the reporting organization for sale or when they are retained for its own use
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• These will significantly vary depending on the type of industry the organization is operating in.
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• • Manufacturing of products and their utilisation in the environment & society
• • Capex spent on infrastructure
• • Green buildings
• • Climate change solutions
• • Safe and healthy workspaces for employees

Intellectual Capital: Organizational, knowledge-based intangibles, including:

• • Intellectual property, such as patents, copyrights, software, rights and licences
• • “Organizational capital” such as tacit knowledge, systems, procedures and protocols
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• Depending upon the industry, it can be presented as:
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• • Development of manufacturing and testing designs
• • Employee training in various skills
• • Innovation and industry leading products, solutions and platforms
• • Publication of reports and artifacts
• • Start-up accelerator programs
• • Research & development infrastructures

Human Capital: People’s competencies, capabilities and experience, and their motivations to innovate, including their:

• • Alignment with and support for an organization’s governance framework, risk management approach, and ethical values
• • Ability to understand, develop and implement an organization’s strategy
• • Loyalties and motivations for improving processes, goods and services, including their ability to lead, manage and collaborate
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• Predominantly measured with respect to development and growth of current resources and generation of jobs in the future:
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• • Total number of employees
• • Annual average training hours per employee
• • Investments in employee well being
• • Hiring of fresh college graduates
• • Diversification and inclusion of the work force
• • Impactful learning aligned with business and hr strategies
• • Flexible working hours/ work from home
• • Protecting human rights

Social and Relationship Capital: The institutions and the relationships within and between communities, groups of stakeholders and other networks, and the ability to share information to enhance individual and collective well-being. Social and relationship capital includes:

• • Shared norms and common values and behaviours
• • Key stakeholder relationships, and the trust and willingness to engage that an organization has developed and strives to build and protect with external stakeholders
• • Intangibles associated with the brand and reputation that an organization has developed
• • An organization’s social licence to operate
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• Relationships with society, customers and suppliers is included in the IR as:
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• • CSR spends
• • Number of carbon offset projects
• • Driving governance with the government
• • Partnerships with leading educational institutions
• • Proximate community development programs

Natural Capital: All renewable and non-renewable environmental resources and processes that provide goods or services that support the past, current or future prosperity of an organization. It includes:

• • Air, water, land, minerals and forests.
• • Biodiversity and eco-system health.
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• Natural Capital may be presented in the IR as:
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• • Reduction in non–renewable content of power and fuel
• • Use of solar systems and renewable sources of energy
• • Resource efficiency and waste management
• • Water management projects
• • Development of circular economy

The integrated reporting demonstrates the integration of financial aspects with other aspects of organizational performance towards reaching its goals and vision. The above-mentioned parameters are some such examples and can be varied as per the focus and priorities of the organisations and the external environment and industry they operate in. The Integrated Reporting and the concept of “one report” is fast gaining momentum and in not so remote future will be a necessity than an option.