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Six Capitals and Value Creation Model in Integrated Reporting

Updated 11 October 2026 · Fact-checked

The six capitals are financial, manufactured, intellectual, human, social and relationship, and natural. In the Integrated Reporting Framework they are the stocks of value an organisation uses and affects. Its business model takes capitals as inputs, turns them into outputs and outcomes, and so creates, preserves or erodes value over time.

Understand Six Capitals and Value Creation Model

Integrated Reporting (IR) asks one question: how does your organisation create value over the short, medium and long term? Financial statements show only part of the answer. The IIRC Framework adds the other resources a business depends on and affects. It calls these resources capitals.

The Framework names six capitals. Financial capital is the funds available to the organisation, from equity, debt or grants, or generated by operations. Manufactured capital is physical objects such as buildings, plant, equipment and infrastructure. Intellectual capital is knowledge-based intangibles such as patents, software, licences, systems, procedures and organisational know-how. Human capital is people's competencies, capabilities and experience, and their motivation to innovate. Social and relationship capital is the institutions and relationships within and between communities, stakeholder groups and other networks, including trust and brand reputation. Natural capital is all renewable and non-renewable environmental resources and processes, such as air, water, land, minerals and biodiversity.

The capitals are not a mandatory list or a rigid format. An organisation need not structure its report around the six headings, and it may use other categories if they suit it better. But it should consider all six when it decides what is material. Capitals also increase, decrease or are transformed by an organisation's activities. For example, training raises human capital, while heavy water use reduces natural capital.

The value creation process is shown as a model. The organisation operates in an external environment and is overseen by those charged with governance. At its centre is the business model: inputs (capitals drawn on) are converted through business activities into outputs (products, services, by-products and waste). These lead to outcomes, which are the effects on the capitals, positive or negative. Outcomes then feed back as inputs for the next cycle.

The capitals interact through trade-offs. A decision that builds one capital may cost another. Installing automated plant raises manufactured capital but uses financial capital and may reduce human capital through job losses. IR asks you to explain these links, not to treat each capital in isolation.

Key rules to remember

Six capitals: Financial + Manufactured + Intellectual + Human + Social and relationship + Natural; Learn the names in this order. Be ready to define each in one line with an example.
Value creation flow: Capitals (inputs) → Business activities → Outputs → Outcomes → Effect on capitals; Outcomes can be positive or negative and can be internal or external. They feed back into the capitals.
Context of the model: External environment + Governance + Business model + Risks and opportunities + Strategy + Performance + Outlook; The model sits inside this wider setting. Use it to link the capitals to the other content elements of an integrated report.
Nature of the capitals: Capitals are stocks of value that increase, decrease or are transformed; The six categories are a guide. The organisation may group them differently.

How to solve Six Capitals and Value Creation Model questions

Use this method for any question on the six capitals or the value creation model, whether it asks you to define, explain, apply or evaluate.

1Read the verb. Define, list, explain, discuss and illustrate need different depth.
2Name the capitals relevant to the question. If it asks for all six, give all six in the standard order.
3Define each capital in one line, then add a short example from the facts or from an Indian company.
4Trace the model: inputs, business activities, outputs, outcomes. Tie your example to each stage.
5Show interaction. Say which capital increases, which decreases and what the trade-off is.
6Link to time. State the effect in the short, medium and long term.
7Conclude. Say what the report should tell the reader about how value is created, preserved or eroded, and note that the capitals are a guide, not a fixed format.

Quickest way: Capital-by-capital table in sentences

When to use it: Use when a case gives a business and asks how it creates value or which capitals it affects.

Write the six capital names down the margin in order.
Against each, note one input and one outcome from the case in a few words.
Mark each as increased, decreased or unchanged.
Pick the one biggest trade-off and write it as your analysis paragraph.
Write the answer in model order: inputs, activities, outputs, outcomes. Finish with a one-line conclusion.

Common mistakes in Six Capitals and Value Creation Model

Treating the six capitals as a mandatory reporting format or checklist.
Students memorise the list and assume every report must have six headings.
Fix: State that the capitals are a guide. The organisation may use other categories, but should consider all six in deciding what is material.
Confusing financial capital with the financial statements, or with profit.
The word financial feels familiar.
Fix: Financial capital is the pool of funds available to the organisation. Profit is one outcome that adds to it.
Putting patents and brand in the wrong capital.
Both seem like intangibles.
Fix: Patents, software and know-how are intellectual capital. Brand reputation and stakeholder trust sit in social and relationship capital.
Listing outputs and outcomes as the same thing.
Both come after the activities.
Fix: Outputs are the products, services and waste produced. Outcomes are the effects on the capitals, positive or negative.
Discussing each capital separately with no links.
It is the easiest way to write the answer.
Fix: Add at least one trade-off, such as spending financial capital to build natural capital, and say how it changes over time.
Showing only positive outcomes.
Students think a report must praise the company.
Fix: Include decreases or erosion of capitals, such as emissions reducing natural capital, because IR covers value created, preserved or eroded.

Worked examples

Example 1

Explain the six capitals under the Integrated Reporting Framework, giving one example of each for a steel manufacturing company.

Show the solution

Financial capital: funds from equity, debt and operating cash. Example: a term loan raised to expand capacity.
Manufactured capital: physical assets. Example: blast furnaces, rolling mills and plant.
Intellectual capital: knowledge-based intangibles. Example: proprietary process technology and patents for a special steel grade.
Human capital: people's skills, experience and motivation. Example: trained metallurgists and a safety-trained workforce.
Social and relationship capital: relationships and trust. Example: community ties around the plant and long-term supply agreements with customers.
Natural capital: environmental resources and processes. Example: iron ore, coal and water used, and emissions to air.
Note that the capitals are a guide and an organisation may group them differently, but should consider all six.

Answer: The six capitals are financial, manufactured, intellectual, human, social and relationship, and natural. For a steel company these are respectively loan and equity funds, plant and furnaces, process patents, skilled workforce, community and customer relationships, and ore, coal and water. They are stocks of value that the business uses and affects.

Example 2

A textile company installs water-recycling equipment costing ₹8,00,000 funded from retained earnings. It also trains its staff to run the plant. Discuss how the value creation model captures these actions and the interaction between capitals.

Show the solution

Inputs: ₹8,00,000 of financial capital is used. Staff time and existing skills are human capital inputs.
Business activities: buying and installing the equipment and training the workforce.
Outputs: the recycling plant becomes operational, treated water is produced, and less effluent is discharged.
Outcomes: manufactured capital increases because of the new equipment. Human capital increases through training. Natural capital improves as freshwater use and effluent fall. Financial capital falls in the short term by the amount spent.
Trade-off: the short-term fall in financial capital is exchanged for gains in manufactured, human and natural capital. Over the medium and long term, lower water costs and better regulatory and community relations may raise financial and social and relationship capital.
Feedback: the stronger capitals become inputs for later cycles.

Answer: The spending of ₹8,00,000 reduces financial capital now but increases manufactured, human and natural capital. Over time, savings and better stakeholder trust may rebuild financial capital and strengthen social and relationship capital. The report should explain this trade-off and time horizon, which is what the value creation model shows.

Exam tips

Learn the six names in fixed order and write a one-line definition for each. Short-answer parts often ask only for this.
In case questions, tie every capital to a fact from the case. Generic definitions earn fewer marks.
Always show at least one trade-off between capitals and a time dimension.
Remember that the capitals are not a compulsory format. A single line stating this can separate your answer from others.
Use the model order: inputs, activities, outputs, outcomes, and mention that outcomes can be negative.

Practice questions from Integrated Reporting Framework, Global Reporting Initiative Framework and Business Responsibility and Sustainability Reporting

Six Capitals and Value Creation Model: frequently asked questions

What are the six capitals in integrated reporting?

They are financial, manufactured, intellectual, human, social and relationship, and natural capital. They are the resources an organisation draws on and affects as it creates value. The IIRC Framework uses them as a guide to what a report should cover.

Must a company report on all six capitals separately?

No. The Framework does not require a fixed structure or the six headings. An organisation should consider all six in deciding what is material, but it may group or name them differently.

How do the six capitals interact?

An activity can raise one capital while lowering another. For example, spending funds on a cleaner plant lowers financial capital but raises manufactured and natural capital. IR asks the organisation to explain such trade-offs over time.

What is the difference between outputs and outcomes in the value creation model?

Outputs are the products, services, by-products and waste the business produces. Outcomes are the resulting effects on the capitals, whether positive or negative. Outcomes then become inputs for later periods.