Applying the Integrated Reporting concept of “the capitals” in the banking industry

Traditionally, reporting in the banking industry has focused on financial capital and, to some extent, human capital. With the emergence of a digitized world and the notion of the banks themselves under threat of disintermediation, careful consideration of the use of, and effects on, other capitals is increasingly important.

In a paper, written on behalf of the <IR> Banking Network, I have analysed the multi-capitals approach in the International <IR> Framework. This is the inaugural guidance paper prepared by the Network aiming to give industry specific guidance on the application of <IR>. Highlights of the findings include:

1. There are an increasing number of best practice examples to draw inspiration from, despite the fact that the capitals framework is not easily implementable in the banking industry at first sight. Further inspiration can be drawn from companies in similar industries (as illustrated in the paper).

2. Of the 20 surveyed banks, eight applied the <IR> ‘capitals’ terminology as outlined in the <IR> Framework and three others applied a similar concept but used different terms. There was some discussion about how issues such as “brand” and “training of employees” fitted into the multi-capitals model.

3. Banks provide KPIs for “output and outcomes” only rather than for “input” (usage of resource) or net contribution.

4. The highest consistency of KPIs relates to financial capital as this perhaps is the most familiar capital, commonly viewed as most directly relevant to investors, and most easily quantified. Quantitative KPIs for the other capitals tend to be more varied.

5. At least seven banks report on usage (input) of natural capital despite the often-made observation that banks are not large consumers of natural capital. Part of the explanation given for reporting KPIs related to natural capital is that the banks doing so are reporting in line with the requirements of an ESG Framework like GRI.

These application notes are practical in nature and should prove helpful as current and prospective preparers continue on their journey to prepare a better integrated report. The Banking and Insurance Networks intend to collaborate on these publications, where it is practical to do so, and ideally this will inspire other industry networks to develop industry specific guidance.