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Disclosing Impacts on Natural, Social & Human Capital in Financial Statements

Public calls to redefine capitalism are becoming more common and this paper is being released against exciting developments in non-financial reporting. The International Financial Reporting Standards (IFRS) Foundation has released proposals for a Sustainability Standards Board and the European Financial Reporting Advisory Group (EFRAG) has released its recommendations to the European Commission for the elaboration of possible EU sustainability reporting standards. Whilst these reports highlight the need to improve non-financial reporting, the possibility that the approach to financial reporting also needs to develop should not be forgotten and is the focus of this paper.

‘…it takes time to understand, accept and implement new ways of analyzing transactions and other events. Nevertheless, establishing a goal towards which to strive is essential if financial reporting is to evolve so as to improve its usefulness.’ (CF1.11) 

This paper starts with the proposition that the most effective place for information on performance and stewardship to inform user decisions and shift resource allocation at speed and scale is in the financial statements. That is, in the calculation of the assets, liabilities, income, expenditure, and, critically, the equity of a reporting entity. One type of information that informs an understanding of performance and stewardship is a business’s impacts on the capitals and the management of those impacts. 

This paper aims to explore the interface between financial and non-financial reporting in this context and to stimulate discussion on:

  • The opportunities for disclosure of impacts on all capitals that are assets or liabilities within financial statements, based on existing accounting standards. 
  • Where the disclosure of those impacts could be considered within financial statements.
  • Where there are not opportunities for disclosure, the specific areas where the application of accounting and auditing standards or the standards themselves could evolve.

We invite you to consider your own financial disclosure and how you identify the information that is ‘useful’ to users without overreliance on historic information or previous reporting processes. 

We would be particularly interested in examples where you have disclosed information on natural, social and human capital impacts and dependencies in the financial statements.

We look forward to continuing the discussion and offer the opportunity to discuss the proposals set out here with us and with others in the growing community of practice.

This paper builds on the Capitals Coalition’s report on Improving Nature’s Visibility in Financial Accounting, which set out four options to include the capitals in the financial statements ranging from further analysis of existing information through to changing the basis for the calculation of profit.


This work was authored by Jeremy Nicholls and Rosie Dunscombe on behalf of the Capitals Coalition with input and guidance from Mark Gough, and Richard Spencer (Institute of Chartered Accountants in England and Wales).

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