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The REAL – and very surprising – reason why companies must report against SIX capitals

We’ve just had that season again – no, I don’t mean for eating Easter eggs, but for presenting company reports. Columns of numbers that are eye-glazing for most of us, but vitally important for the integrity of business and the employment and other benefits it creates

But a big shake-up is now well under way.

In 2010 Mervyn King (economist and then Governor of the Bank of England) announced to the Johannesburg Stock Exchange that listed companies had two years notice of the requirement to prepare integrated reports. No longer could a company present financial reports that excluded their social and ecological externalities: they had to report against the six capitals shown in the diagram above.

Since then, many firms have realized a suite of financial, reputational and competitive benefits from these integrated reports. But when I looked through the New Zealand stock exchange listings for other likely contenders for sustainability or integrated reports, there were also some absences. Why?

What compelling argument would persuade any firm – good, bad or poor performer – to report against the six capital?

The answer is not what you may first think.

In a 2-part article for Pure Advantage, I argue that the real argument for every business to do integrated reporting against the six capitals is to become a learning organisation.

What’s so good about that? Check out the Harvard Business Review’s most cited paper in 60 years. It’s Michael Porter’s 1990 paper on competitive advantage, and he remains a world-leading business commentator.

In a 1995 Harvard Business Review paper (Green and Competitive), Porter said “How an industry responds to environmental problems may be a leading indicator in its overall competitiveness … Only those companies that innovate successfully will win. A truly competitive industry is more likely to take up a new standard as a challenge and respond to it with innovation.”

Business is increasingly rising to the challenge of leading the way to mitigate climate change and any number of other environmental risks – and the associated geopolitical and social risks. I firmly believe the six capitals approach and the IIRC’s principles of reporting offer enormous scope to companies to show how they can innovate to create value across all six capitals – with the holy grail of becoming a learning organisation falling at last within their reach.

Read more here.

My thanks to Simon and Heather at Pure Advantage for the opportunity to capture this thinking, as well as my very generous friends, family and colleagues who read some rather rough first drafts!