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2. Strategy and objective-setting for ESG-related risks

To support these considerations in practice, some organizations
recommend a multi-capital approach to enhance an entity’s Guidance
understanding of its business model. Underlying the multi-capital
c
approach is the concept of integrated thinking, which is defined by the Examine the value creation
d
IIRC as “the active consideration by an organization of the relationships process and business
7
between its various operating and functional units and the capitals model to understand
that the organization uses or affects.” The IIRC developed the Integrated impacts and dependencies
Reporting Framework (<IR> Framework)to provide an approach for on all capitals in the short,

embedding integrated thinking. Two salient features of this framework are: medium and long term
1) The value creation process: Value is created through an entity’s
business model, which takes inputs from the capitals and transforms them through business activities
and interactions to produce outputs and outcomes that, over the short, medium and long term, create or
destroy value for the organization, its stakeholders, society and the environment (see Figure 2.1). e

Figure 2.1: The IIRC’s value creation process

2) The capitals: Integrated thinking recognizes the broader range of resources and relationships used and
affected by the entity. Though each entity can define important physical and intangible resources that
it uses or affects by using a multi-capital approach, the <IR> Framework defines six capitals: financial,
manufactured, human, social and relationship, natural and intellectual, which are shown in Table 2.1.

. . . . . . . . . . . . . . . .
c For example, the United Nations Inclusive Wealth Index, first launched at the Rio +20 conference, provides a way of measuring their wealth, growth, and societal progress
in more inclusive and sustainable ways. The Index was created to complement GDP by introducing the impact and value of Inclusive Wealth: natural capital, human
capital, and produced capital. Other examples include “King IV: Report on Corporate Governance for South Africa 2016” produced by the Institute of Directors Southern
Africa, the Natural Capital Protocol from the Natural Capital Coalition and Social & Human Capital Protocol from the Social & Human Capital Coalition.
d For more information, refer to the <IR> Framework or “CGMA in Integrated Thinking: The next step in integrated reporting” and others.
e The <IR> Framework is used for illustrative purposes throughout this chapter, though other resources, such as the CGMA Business Model Framework
(Retrieved from cgma.org), take a broader definition of value and help organizations articulate their business model as well as facilitate stakeholder communication.
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