Tensions around the meaning of ‘value’ and value to whom in integrated reporting

written by Carol Adams

The meaning attributed to ‘value’ and value to whom is critical in shifting the extent to which business, society and the environment co-exist in a mutually beneficial way. Is creating value about increasing shareholder wealth, improving the quality of lives of communities, enhancing our natural environment or all of these?

The concept of value creation is one of three interconnected ‘fundamental concepts’ of integrated reporting – the other two being the business model and the capitals.  Yet a careful read of documents published by the International Integrated Reporting Council (IIRC) reveals differences, tensions and contradictions in the meaning of value.  These are to some extent drawn out in the IIRC’s Value Creation Background Paper prepared by EY with guidance from a multi-stakeholder expert steering committee.

An improved business, society relationship is critical to the long term success of companies. The extent to which the IIRC transforms  this relationship will depend on how the concept of value creation is articulated.  Also important is the extent to which the IIRC facilitates a shift towards longer term thinking by corporate managers, Boards and report users and acceptance that stakeholder concerns influence ‘value’.

The meaning attributed to ‘value’ and value to whom?

The IIRC’s Capitals Background Paper for <IR> considers ‘value’ in the context of the six capitals.  It recognises that organisations depend on all the capitals, not just financial capital, for their success and that some impacts on the capitals can only be reported on in narrative terms.  It explicitly acknowledges that in their quest to create value overall, organisations might destruct or deplete the stock of one or more capitals in the process.

The IIRC’s Value Creation Background Paper considers value from the perspective of the organisation and specifically from the perspective of providers of financial capital in noting (page 11):

“Providers of financial capital equate value creation with the potential for future cash flows and sustainable financial returns, but this also takes into account the importance and limitations of different forms of capital for value creation.”

From this perspective then, the six capitals might only be reported to the extent that they were thought to lead to measurable impact on financial returns for providers of capital.  In the context of climate change it is surely clear that this is unacceptable.  Global failure to reduce emissions to a point which will avoid a situation where the planet becomes uninhabitable to people, including providers of capital, would mean zero financial returns.  At points in time prior to this the impact of climate change on financial returns to providers of capital of any one particular company might be very difficult to predict.  Does this mean that organisations do not need to report their emissions?

Elsewhere the IIRC’s Value Creation Background Paper states that an integrated report should explain the increases and decreases on the pool of capitals and how and to what extent value has been created for others.  The IIRC needs to make it unambiguously clear that this is what is expected.

Are stakeholder concerns considered to influence ‘value’?

The IIRC’s Value Creation Background Paper acknowledges that stakeholder concerns and actions can influence financial returns and that the impacts may not be immediate or direct.  The fact is that the impact of stakeholder actions and concerns may not be measureable in financial terms for a long time if at all. Nevertheless, countless examples have demonstrated that they present a considerable risk if not addressed.

Yet the IIRC’s Value Creation Background Paper (page 11) goes on to say: “Integrated reports should enable providers of financial capital to assess whether, to what extent and how an organization’s use of, and outcomes for, all of the capitals adds to financial value.”

This will be interpreted by some as meaning business as usual – if you can’t measure it in monetary terms, it’s not important.

Accountants could do much more than they have to date been inclined to measure the impacts of corporate business models across all six capitals and of stakeholder actions.  Integrated reporting could play an important role in this.  But telling accountants who play an important role in corporate reporting that they should only include impacts if their financial value can be measured is unlikely to encourage lateral thinking.

The message is somewhat different on page 14: “When reporting on value, an organization may… draw a boundary around elements and interactions that are most relevant to their business model and strategy, and therefore to the way in which the organization expects to create value over time. The boundary should be disclosed together with any significant assumptions and estimates made by management in its disclosures about value creation, so that intended users understand the limitations of the connections that it is possible for the organization to make, given that some of them might be outside its sphere of knowledge, or might not yet be apparent.”

This assumes that companies a) have a desire to be accountable and b) have the know-how to report in this way.  It also points to the need for external assurance if reports are to be credible.

Do corporate managers, Boards and report users really believe their thinking needs to shift longer term?

The IIRC framework does quite a good job of establishing the need for longer term thinking.  But is it enough to shift the focus of reporting far enough for the relationship between organisations, society and the environment to improve so that all can prosper long term?  Time will tell.

In writing this piece, I am reminded of Ruth Hines (1991) article titled ‘On Valuing Nature’ in an accounting journal.  It starkly demonstrated the limitations of accounting to measure the value of nature and relationships and finished with the words:

“It is in the name of Net Profit, Budget Surplus and Gross National Product that the natural environment in which we all co-exist is being destroyed.  Those who speak this language have more social power to influence thinking and actions than they perhaps realise, or utilise.”

Since that time the Global Reporting Initiative (GRI) and the International Integrated Reporting Council have emerged.  The GRI has played an important part in change.  The IIRC may or may not.

Recommendations to companies, accountants and the IIRC on defining value (creation)

The IIRC’s Consultation Draft of the International <IR> Framework did not specifically ask for comments on the articulation of the fundamental concept of value creation.  Yet perhaps it is one of the most contentious issues.

If integrated reporting is to create the transformational change many are hoping for it needs to be clear in articulating:

  • Value (creation) means different things to different stakeholders
  • Much of what is valued is not or cannot be measured
  • Organisations should disclose how they define value and the relevance of stakeholder views and the six capitals to their concept of value
  • Organisations should disclose what steps they have taken to maximise value creation according to their definition
  • Companies should seek external assurance to demonstrate that they are working to create value as they define it

I am confident that the organisations which prosper long term will be those who listen to their stakeholders that define value broadly in terms of all six capitals.


Hines R (1991) “On Valuing Nature” Accounting Auditing and Accountability Journal Volume 4, Issue 3.

Related articles on this website

Tensions around the meaning of ‘value’ and value to whom in integrated reporting

Integrated Reporting: the Guiding Principle of ‘Connectivity of Information’ made simple

Understanding (how sustainability fits into) your business model

Integrated Reporting and the Six Capitals: What does it all mean?

Integrated thinking and integrated reporting

Integrated reporting and directors’ responsibilities

Materiality: financial reporting, sustainability reporting and integrated reporting

The banking sector and integrated reporting: focus on HSBC

Integrated reporting and integrating sustainability: a presentation

ESG issues and business responses: an interview with Ian Woods, AMP Capital

Response to IIRC’s Consultation Draft of the International Integrated Reporting Framework

Next steps in integrated reporting: bankmecu


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