A few weeks ago, I had the opportunity to visit Zermatt, in Switzerland. The village is one of the most prominent mountain destinations in the world. And for sure the one hosting the most famous trademark of Switzerland: the Matterhorn.

The shape and the uncontestable beauty of the mountain have made it one of the most pictured spot in the world.

Zermatt had the chance to face the most beautiful side of the mountain. The touristic development of the destination is uncontestably associated with the presence of the Matterhorn.

How many people would be visiting the site if the mountain was not there? Without hesitation, we could say significantly less. The alpine village has been gifted with the presence of this natural masterpiece that has made the fortune of the villagers.

The economic importance of the Matterhorn for Zermatt is crystal clear. In which other situations the presence of rare, localized resources is creating a competitive advantage? In other contexts, such resources are humans.

Think about the local know-how developed in some areas associated with industrial clusters, like watchmaking in Switzerland or shoemaking in Italy. Again, companies can leverage on a competitive advantage just for being in specific regions and relying on local resources.

How do companies identify and manage such elements? Understanding the existence and importance of human, natural resources is not always as straightforward as with the Matterhorn. Even when those elements are identified, how do companies account for them?

Currently, there are significant limitations in managing these resources and such limits are reflected in the financial system.



In the last decades, the market value of the companies has been slowly shifting between a valuation based on tangible assets, such as financial and manufactured capital, to one focused mainly on intangible assets, as the human, intellectual and natural capital.

Currently, around 80% of the market value of the S&P 500 companies is determined by intangible elements. These assets are mostly not recognized in their financial reporting standards despite representing the most significant part of the market value.


Under International Financial Reporting Standards (“IFRS”), the most used accounting standards globally, the reference to intangible elements is limited.

For instance, the only accounting standard specifically dedicated to natural resources is IFRS 6 “Exploration for and evaluation of mineral resources”. However, the scope of the standard is limited to mineral, oil, natural gas and other non-regenerative resources.

International Accounting Standard 38 (“IAS 38”) is detailing the cases when an intangible asset, whether purchased or self-created, can be recognised in financial reporting. IFRS 3 Business Combinations is defining the accounting treatment when an acquirer obtains the control of a business (e.g. an acquisition or a merger). In this case, the accounting valuation of the company purchased is relying also on intangible elements as human capital.

Nevertheless, the level of detail provided by IFRS and IAS concerning intangible assets is limited and thus, creating significant difficulties in considering them in current accounting practices.

The difficulty to account for elements as human, intellectual and natural capital is partially built in the standards. For instance, under IFRS, an asset is a resource that is controlled by the entity as a result of past events (for as purchase or internal development) and from which future economic benefits (inflows of cash or other assets) are expected.

The concept of the ability to control the asset is making more rigorous and certain the application of the accounting standards but it is limiting their reach.


Consider the case of a highly qualified workforce. In many occasions, a motivated workforce is the most valuable asset of a company. Still, workers can quit the company whenever they want. Thus, human capital is not recognized as assets under IFRS as it cannot be controlled by the company.

It may seem obvious that a company is not “owning” a worker. Nevertheless, by hiring a person, a company is borrowing his knowledge and capabilities which are lost when the employee is quitting.

The main accounting impact of valuable employees leaving a company can be identified in the variation of the goodwill. The goodwill is an intangible asset quantifying the value of a company including elements as the brand name, good customers and employee’s relations. Still, determining such value in accounting terms is a challenging task and is applicable only in limited cases (e.g. again in an acquisition or a merger).

The failure to account for externalities is another relevant shortcoming. From an economic perspective, an externality is a consequence of an industrial or commercial activity which positively or negatively affects other parties without properly being reflected in market prices.

In this case, externalities can be managed and controlled by companies. Nevertheless, since externalities generally do not have a market price, they are not impacting the bottom line of companies and are not reflected in accounting.



Integrated Reporting was created to provide a framework to close this evaluation gap. The core concept of Integrated Reporting is that the value of a company is determined not only by the financial performance but also by non-financial factors as the reputation, the reliance it has on the environment, human and natural capital and other non-financial resources.


All companies are increasing, decreasing or transforming capitals with their activity. Independently from the fact that the capitals are owned or controlled by the company.

The framework has the objective to substitute financial and sustainability reporting and it requires companies to adopt a new perspective. Where companies are using these types of capitals to transform them into financial, social and environmental ones.

Integrated Reporting is closing this gap as it targets to communicate a clear, concise, integrated story on how such resources, defined as capitals, are being used to create value.

South Africa is leading the way in Integrated Reporting as it is mandatory for companies listed on Johannesburg Stock Exchange since 2009.



Integrated Reporting is not only a tool to be used by finance and reporting functions. It is representing a new way of thinking. The base for Integrated Reporting is integrated thinking as a principle that should be embedded into the organisations.

For companies to be efficiently managed, it is crucial to recognize what are the capitals that are contributing to the value creation process and how such process is taking place.

You cannot manage what you cannot measure

The ability to fully understand the value creation process for all the different types of capital considered is bringing the following advantages at the corporate level:

  • Breaking-down the silo between the different departments and providing a more comprehensive way of thinking at the different levels of the organisation
  • Better internal monitoring, understanding of the business and greater clarity at a strategic level
  • Enhanced management of stakeholder relations and ability to satisfy their interests

A significant challenge can be identified from finance professionals. It relates to the need to guarantee comparability in standards and measures to monitor the performance concerning intangible capitals.

The existing accounting standards have the objective to limit such variability in the evaluation and ensure comparability between different companies and industries. To subsequently being able to identify relevant KPI’s allowing to provide companies with a compass to define the direction to follow.

From this perspective, an increasing number of initiatives and standards are being set-up to provide a frame of reference for the evaluation of intangible elements in the reporting practice.

Relevant examples are GRI (Global Reporting Initiative), SASB (Sustainability Accounting Standards Board) or the Natural Capital Protocol. Offering the possibility to be included into Integrated Reporting and with the aim of providing a frame of reference to efficiently manage, account and report for such elements.



The first step is related to internal and external stakeholder engagement. It is required to understand the different capitals, the existing interdependencies between them and how they contribute to the value creation process of the company. Awareness creation is a first important step that has the potential to bring significant improvements.

The focus is on material elements for which the impacts are deemed to be more relevant for the company. This is taking into consideration also the perceptions as they may have a significant business consequence (e.g. decrease in customer demand).

The concept of materiality is representing one of the very few occurrences in which finance and sustainability professionals are relying on a similar vocabulary. Despite slightly different perspective and nuances, the term refers to both classes to the need to focus on the most impacting elements.

The ability to find analogies and define a common vocabulary is representing a crucial challenge to gain internal traction in Integrated Reporting and sustainability initiatives in general.

A descriptive assessment of the capitals used is representing the base to subsequently quantify and qualify the impacts of the activities of the company on the capitals. With the objective to identify relevant KPI’s that can be integrated into the corporate decision-making process.

The last step is related to the monetization of the capitals and impacts. This is allowing to define a bottom line that is considering the use of the different capitals and thus, externalities.

Such approach represents also a risk management tool allowing to monetize the potential financial impacts of new compliance requirements (e.g. related to climate change).

The choice between descriptive, qualitative, quantitative or monetary analysis is highly dependent on the type of capital being considered. Starting from a descriptive narrative, the objective is to progress with an increasing internal level of maturity in the integrated thinking process.

To subsequently manage to perform qualitative, quantitative and when possible, monetization analysis related to the stock and flow of the different capitals.



As an example, consider the case of a company that after stakeholder engagement identifies the following material capitals which are crucial for its value creation process.

Financial and manufactured capital are not included in the example due to the fact that the current accounting standards and industry KPI’s can be used.

How do companies manage to define relevant measures to monitor such capitals and integrate them into their decision-making process?

  • Human capital

The cost to replace an employee is representing a valid approximation that includes all the direct and indirect costs incurred to find a substitute. Direct costs are the recruitment cost necessary to find a replacement. Indirect ones relate to the cost of the on-the-job learning and the time spent to acquire the knowledge to reach full autonomy and potential of the employee. KPI’s: turnover, absence rate and employee satisfaction

  • Natural capital

CO2 Life Cycle Analysis and accounting software are allowing to determine the emissions associated with different activity levels. High emissions have the potential to financially impact companies for lower customer retention, decreased brand-value and compliance risks (e.g. carbon emissions credits). KPI’s: energy efficiency, waste production and use of renewable sources.

  • Intellectual capital

For innovating industries the patents are possibly the most important element with a direct impact on sales and brand value. KPI’s: spending in R&D, employee retention, new products developed.


The degree of complexity to account for each capital is significantly different. Yet, currently, such elements are not accounted for despite representing the most relevant part of the market value of the companies.

The approach used may have limitations and significant variability. Depending on the approximation used and the assumptions made. Nevertheless, it is offering the opportunity to integrate such measures in the decision-making process of the companies as in internal controlling and monitoring functions.

Furthermore, as mentioned earlier, an increasing availability of standards and references is existing to account for such elements and to decrease their variability in the evaluation.

“Knowing yourself is the beginning of all wisdom.”


Managing an asset like the Matterhorn may not seem possible. Even so, it can’t be denied that the success of Zermatt is strongly correlated with the presence of an amazing intangible: the Matterhorn itself.

In other situations, the existence of valuable capital is not so easy to determine. As it is the case with different types of capital, as human, relationships, or other natural capital. Which are the ones that are ultimately responsible for the existence and the success of companies?

Business life should be regulated by the same principles of personal development. What are the distinctive qualities and traits that are making you successful (or not)?

The effort to understand yourself, your strengths and weaknesses and the relation with the context in which you operate is one of the best investment you can make.

After all, would you be confident in managing yourself when you are not aware of most of the variables that are determining your success?



Michele Soavi is an independent consultant supporting companies in creating value and innovating from a financial, social and environmental perspective by leveraging on the analysis of their business model, financial information and data




Everybody is talking about Blockchain but very few are understanding what it actually is. In essence, a Blockchain is a register. Correct, but a lot more than that.

What about taking as a starting point the following question: how can you leverage on the possibility to instantaneously perform any kind of transaction on a decentralized, secure, immutable register? Easier said than done.

Conceptually, it may take a while to fully grasp the concept, the risks and opportunities associated with it. Reading different articles or videos providing each a diverse perspective is really helpful.

To understand Blockchain, you have to understand it at first as a new way of thinking. The technological questions are for later.

Knowing that if you have difficulties explaining it, probably the concept is not clear enough for you. Einstein said: “if you can’t explain it simply, you do not understand it well enough”.

Generally, the main opportunities are related to transparency, traceability, trust and cost-reduction. But the opportunities can significantly change depending on the business model it is applied to.

Knowing that a Blockchain can be public or private depending on whom you decide to include in it. A bit like differentiating between Internet and Intranet. The parallel with this technology can be used for a different perspective: Internet connects information whereas Blockchain connects transactions.

A starting point

The following questions can be useful for you to ask about your company once you understand conceptually a Blockchain:

  • How could a Blockchain impact the business model of your company or industry? Payment methods based on Blockchain and not requiring an intermediary (e.g. banks) already have widespread use
  • What are your problems that could be solved with this technology? Walmart managed to trace in a Blockchain pilot the origin of the mango available in the supermarket in 2.2 seconds against a standard of approximately 7 days. Imagine the potential for cost-reduction in the supply chain.
  • Would you be prepared to run your business in full transparency and traceability? In this sense, the choice between a public or private Blockchain is crucial.
  • Is Blockchain the best technology for your business model?  In many occasions, a better use of the existing technologies (e.g. Internet) is more than sufficient

Blockchain and the society

The analysis of the possible impacts of the Blockchain clarifies, as well, the possible negative consequences on the society at large. As with every technology, the positive impact of the technology is depending on the use it is done of it. The Blockchain could change the world. For good or for bad? It has still to be defined.

Frequently the focus is only on the positive consequences associated with the introduction of an innovating technology. Again, the similarity with the Internet can be helpful. What are the negative consequences of the introduction of the Internet? Are we more connected or more disconnected? Which consequences could be avoided if considered in the implementation phase of a Blockchain? The magnitude of the impacts of a widespread use of the Blockchain could be similar to the ones we are now living with the Internet.

The way forward

The potential impact of the Blockchain is immense, as the uncertainties related to the effective implementation of it. The underlying technology is new, complex and continually evolving. So much that it will be difficult to predict which form it will take or if it will eventually work on a large scale. Still, it is important for companies to understand how their business model could be disrupted by it and explore opportunities associated with the technology.

Without starting technical discussions, the possibility to understand how your business could be working with a Blockchain is very relevant and does not necessarily requires considerable time and monetary investments. An introductory presentation followed by a workshop on envisioning a Blockchain business model for your business can do a lot. To start generating internal awareness and helping in choosing whether to continue investigating or not.



Michele Soavi is an independent consultant supporting companies in creating value and innovating from a financial, social and environmental perspective by leveraging on the analysis of their business model, financial information and data. 




Not having clear objectives in life is one of the best ways to make sure you are not going really far. In the corporate world, focusing on a few financial targets (net profit, gross margin, return on equity) is allowing to rely on significant references and literature that are helping in defining the objectives you may want to achieve.

Taking a holistic approach to manage your company and understand as well your social and environmental objectives to be reached is a more difficult task. How do companies are defining such objectives?

Sustainable Development Goals (SDG’s) are representing a significant framework of reference that can be used in this case. The 17 goals have been fixed by the United Nations in 2015 and are referring to the most pressing social and environmental needs of the world. Each goal has specific targets to be achieved over the coming 15 years.

Such goals are representing as well a significant business opportunity. According to the WEF business could unlock 12 trillion USD in market opportunities by 2030 by reaching the UN’s Sustainable Development Goals while creating 380 million jobs worldwide.

Among the 17 SDGs, number 8 “decent work and economic growth”, is possibly the one that resonates the most in corporate boardrooms and with shareholders as it aims to “promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all”.

Quality growth is the most important requirement

The target of the SDG is to provide at least 7% yearly gross domestic growth in the least developed countries. Thus, it is legitimizing the companies to invest and thrive in such countries through investments that are attractive for shareholders.

However, SDG 8 requires “quality growth”, in this sense growth is meant to improve performance but not to the detriment of the people or the environment. The objective is to decouple growth from the environmental and social degradation. For example, Unilever in 2010 declared the willingness to double revenues by 2020 while halving its impact.

The limits of the current financial models

Contributing to the SDG would be allowing companies to grow while effectively integrating the sustainability perspective into their operational model. According to a recent study, approximately 80% of the market value of companies is represented by intangibles elements such as human and natural capital or reputation.




With the current reporting framework and business models, the ability of companies to identify and monitor their different intangible capital is significantly restricted. This is significantly limiting the ability of companies to understand and manage the different value drivers that are determining their market values.

The growth required by SDG 8 has a “triple bottom line” perspective, where the social and environmental elements are considered together with the financial implications. The social and environmental capital are representing a relevant part of the mentioned intangible assets. Thus, the approach would enhance the ability of companies in managing their market value.

The way forward

To harvest such opportunity, the objective is a vision in which the social and environmental considerations are fully integrated into the operating business model of the companies. Where the social and environmental implications are considered and monitored together with the financial and economic perspective. Because what gets measured gets managed.

What about the other SDG’s?

Opening up the discussion to the 17 SDG’s, the question for the companies is to understand to which of them they could positively contribute. The 17 goals are significantly different and for each of them, different competencies are required. Interested in seeing inspirational stories on how companies were actively engaged in reaching the SDG’s? Check out the following database:

This article was first published on


Michele Soavi is an independent consultant supporting companies in creating value and innovating from a financial, social and environmental perspective by leveraging on the analysis of their business model, financial information and data. 




In the last month, the hype around Blockchain and Bitcoin has been increasing more and more. In spite of this, the present use of the technology is limited to some applications and pilots. The forecasted revolution associated with the Blockchain has yet to come; the technology has still to deliver the (too many?) claims made around it.

Whatever may be the outcome of the technology in the future, the possible applications are virtually unlimited. The Blockchain has the potential to represent a revolution comparable to the introduction of the Internet. Out of the huge quantity of information available on Blockchain and potential applications, I retained a few lessons I learnt as a Blockchain passionate.

The first one is that a Blockchain is a register. As simple as that. Also, a lot more but knowing this is already a good starting point.

Do not confuse Blockchain and Bitcoin

The rollercoaster of the price of Bitcoin and other cryptocurrencies during the last months is invigorating even more the buzz around the Blockchain. Nevertheless, cryptocurrencies and Blockchain should not be confused. Cryptocurrencies are just one of the zillions uses you can make of the Blockchain.

Having a negative opinion of the Blockchain because of the market bubble (?) associated with the market value of such cryptocurrencies is a huge misunderstanding. It is like saying that Internet is bad because your email is full of spam. As for every new revolutionizing technology, the possible applications are limited only by imagination. The negative or positive impact of such technology is ultimately determined by the use people make of it.

History repeats itself?

Think about the Internet before it became a commonly used technology. How many industries have been disrupted by the introduction of it? The possible implications of the Blockchain are similar. Significant solutions but not the universal remedy. Many companies probably regretted not having understood in time what would eventually be the implications of the Internet. How many companies will regret in 10 years not having understood and invested earlier in Blockchain? Many question marks but few certainties.


Whatever the answer may be, the advice is to start building your knowledge to understand the potential impacts for your industry. How can you take advantage of the possibility to instantaneously perform any kind of transaction on a decentralized, secure, immutable register? How can you integrate that into the business model of companies?

The one question to be considered

The parallel with the Internet helps to understand the potential uses of a Blockchain. Considering the possibility offered by the two technologies to connect everyone and everything in the world. The main question to answer in the 90’s during the Internet revolution probably was: “how can you take advantage of the possibility to instantaneously exchange every kind of information on a common platform?”.

Concerning the Blockchain, the question to ask has many similarities: “how can you take advantage of the possibility to instantaneously perform any kind of transaction on a decentralized, secure, immutable register?”. The difference looks subtle but is not. That is why, in many cases, it is not straightforward to define whether a Blockchain would be disruptive or a better use of the Internet infrastructure would be sufficient.

Blockchain is for Transactions what Internet is for Information

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Michele Soavi is an independent consultant supporting companies in creating value and innovating from a financial, social and environmental perspective by leveraging on the analysis of their business model, financial information and data.



In the first post of my blog, I want to give you the feeling of why I started the journey which led me to Integra(c)tion. Why I believe the current paradigma in business has significant limits. Why we should be working towards a better one.

Over the last years, an increasing number of global issues are getting more common, prominent and urgent to deal with. Problems as climate change and water scarcity are now seriously impacting the world and its populations.  The gale of creative destruction, as described by Schumpeter in the 50’s is getting stronger and stronger. But these days the gale of creative destruction is caused as well by natural (or human-caused?) reasons. In response to these trends, governments and companies are struggling more and more in their effort to navigate the complex environment.

Unprecedented issues are requiring unprecedented knowledge and skills. We cannot solve our problems with the same thinking we used when we created them, said Einstein. In the corporate world, the creation of the sustainability function has represented the tool used to correct this existing misalignment between the financial targets and the need to preserve the environmental and social capitals. New skills and competencies which are allowing to focus not just on the financial performance, but also on the social and environmental with a focus on the long-term.

Nevertheless, the way this approach is implemented sounds puzzling from an external perspective. What is the point of naming part of the sourcing function Sustainable Sourcing? Does it imply that the rest of the Sourcing department declares itself not to be sustainable? The same is valid for every corporate function or activity that is including “sustainable” in it. Indeed, many questions marks to dissolve.

What if in the past we already had the ability to manage the environmental and social capitals but somehow forgot about it? Let’s consider some examples related to typical sustainability concepts. Circular Economy is a regeneration system in which waste does not exist, as it is used as new input for production. But the very self-concept of waste is an invention of the last centuries. “Everything but the oink”, as the old saying goes.  Every part of the pork is used, nothing is eliminated as waste.

“We cannot just add sustainable development to our current list of things to do but must learn to integrate the concepts into everything that we do.” (The Dorset Education for Sustainability Network)

Sustainability requires the ability to perform an activity while maintaining, if not increasing, the financial, social and environmental capitals over time. Crop rotation is the practice of growing diverse types of crops in the same area in sequenced seasons to help maintain soil fertility and avoid erosion. It has been practised since 6000 BC. Thus, around 8000 years before the term sustainability had been coined, people already knew and applied sustainability principles. Such knowledge was integrated into their knowledge of the work, yet they would not call themselves sustainable farmers. They simply wanted to ensure that their sons and daughters could make a living from the same land.

Similar examples can be found in different disciplines and activities. Despite this, we are still unable to manage our resources efficiently. Why have we lost the connection with something we have known for millenniums? Why are we still unable to consider the social and environmental impacts of our actions, even when we are aware we are not doing things correctly? What are the actions that we can take to overcome these limits?

Welcome to my blog and thanks for sharing the journey with me with the objective of trying to reply to these questions.