## Learning Outcomes

After reading this article, you will be able to explain the challenges of measuring performance in public sector and not-for-profit organisations, including the use of sustainability frameworks. You will understand the role of integrated reporting, how to define and apply the six capitals, and how to select and design appropriate sustainability KPIs. You will also be able to assess performance using these measures in line with ACCA APM exam requirements.

## ACCA Advanced Performance Management (APM) Syllabus

For ACCA Advanced Performance Management (APM), you are required to understand and apply sustainability and integrated reporting principles in non-profit and public sector contexts. Revision should focus on:

![Integrated reporting six capitals grouped into financial, manufactured, intellectual, human, social and relationship, and natural categories.](https://static.pastpaperhero.com/images/acca-apm-public-sector-and-sustainability-measures-integrated-reporting-capitals-and-kpis_00.png)

_The six capitals framework in integrated reporting is classified into financial, manufactured, intellectual, human, social and relationship, and natural capital._

- The unique objectives and performance measurement challenges of public sector and not-for-profit organisations
- The principles and uses of integrated reporting, including the role of the six capitals
- Assessing and designing KPIs for sustainability and integrated reporting
- The management accountant’s role in reporting, measuring, and communicating non-financial performance

## Test Your Knowledge

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, look more closely at that area during your revision._

1. Which of the following best describes the six capitals in integrated reporting?
   a) Six forms of financial value assessed for profit.
   b) A model for measuring only economic resources.
   c) A framework for capturing financial, manufactured, intellectual, human, social, and natural resources.
   d) A compliance requirement under all international accounting standards.

2. Public sector KPIs for sustainability most often focus on:
   a) Short-term profitability only.
   b) Environmental, social, and governance outcomes.
   c) Cost reduction at all costs.
   d) Only the number of services delivered.

3. True or False? Integrated reporting requires public sector organisations to report only on economic and financial capital.

4. Explain one reason why measuring value for money is difficult in a public sector context.

## Introduction

Performance measurement in the public sector and not-for-profit organisations poses particular difficulties. Unlike private companies, these organisations often lack a simple financial objective, and their goals are usually broader and multi-faceted. Increasingly, there is an expectation to include sustainability measures, both for transparency and to demonstrate value to stakeholders.

Integrated reporting (IR) has emerged as a core framework, encouraging organisations to consider not just financial results, but also non-financial resources and impacts. This article explains the role of IR, details the six capitals, and shows how to use relevant sustainability KPIs to assess performance in a way that meets current ACCA exam requirements.

> **Key Term: integrated reporting (IR)**
> A structured reporting approach framing how an organisation creates, preserves, or erodes value over time by communicating both financial and non-financial performance, particularly through the lens of the six capitals.
> **Key Term: six capitals**
> The categories of value recognised in integrated reporting: financial, manufactured, intellectual, human, social and relationship, and natural capital.
> **Key Term: key performance indicator (KPI)**
> A quantifiable measure used to assess if specific objectives, including sustainability or public value, are being met.

### Public Sector Performance and Sustainability

### The Challenge of Performance Measurement

Public sector and not-for-profit organisations (NFPs) exist to deliver public benefit rather than shareholder value. Their objectives may be diverse, such as improving health outcomes, reducing inequality, or preserving natural environments. This makes quantifying performance challenging, particularly where outputs are difficult to value.

Financial measures like cost per outcome or budget adherence are common, but limited when benefits are intangible, outcomes are long-term, or effects are cross-cutting.

### Integrated Reporting and the Six Capitals

Integrated reporting has become a global framework for organisations—including the public sector—to demonstrate how they create sustainable value. Central to IR is the focus on six types of capital:

- **Financial capital**: Funds and financial resources available for use.
- **Manufactured capital**: Physical infrastructure, equipment, and built environments.
- **Intellectual capital**: Organisational knowledge, systems, patents, and brand reputation.
- **Human capital**: Employee skills, experience, motivation, and wellbeing.
- **Social and relationship capital**: Stakeholder relationships, networks, and social licence to operate.
- **Natural capital**: Environmental resources (air, water, land, biodiversity).

> **Key Term: value for money (VFM)**
> A principle used to assess whether an organisation achieves its objectives with the optimal balance of economy, efficiency, and effectiveness.

The six capitals approach encourages organisations to move beyond narrow financial reporting, capturing their performance in a more rounded and transparent way.

### Sustainability KPIs in the Public Sector

A sustainability KPI in this context is any quantifiable measure that tracks progress toward a sustainability goal—environmental, social, governance, or economic. Public sector organisations must select KPIs that reflect outcomes aligned to their mission, not just financial input.

#### Examples by Capital

- **Natural capital**: CO₂ emissions per project, waste to landfill, water usage
- **Human capital**: Employee training hours, diversity ratios, workplace safety incidents
- **Social and relationship capital**: Number of community engagement forums held, stakeholder satisfaction ratings
- **Intellectual capital**: Number of innovative processes implemented, public patents applied for
- **Manufactured capital**: Percentage of infrastructure assets meeting desired condition levels
- **Financial capital**: Percentage of budget spent on sustainability initiatives

KPIs must be relevant, measurable, balanced, and consistent over time to track performance and enable benchmarking.

### Measuring Value for Money and Effectiveness

Applying the **3 Es**—economy, efficiency, and effectiveness—is standard practice when assessing value for money in the public sector:

- _Economy_: Are resources procured at least cost for quality?
- _Efficiency_: Are outputs maximized for each input?
- _Effectiveness_: Are desired outcomes achieved?

KPIs aligned to the 3 Es could include:

- Unit cost per service delivered (economy)
- Resource utilisation rates (efficiency)
- Target outcome achievement percentages (effectiveness)

> **Key Term: stakeholder**
> Any individual or group with an interest or expectation in the actions or performance of an organisation.

### Worked Example 1.1

**Scenario:** A local authority operates a waste collection service and is preparing an integrated report. It wants to select relevant KPIs for each capital.

**Question:** Suggest a suitable KPI for at least three of the six capitals and briefly justify each.

> **Answer:**
>
> - **Natural capital:** Tonnes of waste recycled as a proportion of total waste collected. (Assesses environmental impact and resource management.)
> - **Human capital:** Number of health and safety incidents among collection staff per year. (Monitors staff welfare and training effectiveness.)
> - **Financial capital:** Cost per household served by the collection service. (Measures spending efficiency and allows benchmarking.)

### Selecting and Reporting KPIs

The choice of KPIs should be driven by strategic objectives defined through consultation with stakeholders, an assessment of material impacts, and regulatory requirements. Public sector organisations should disclose both positive and negative performance, presenting a balanced picture.

A transparent **integrated report** links narrative, capitals, and KPIs, providing context for trends and targets.

### Worked Example 1.2

**Scenario:** A government-funded hospital chooses to report against the six capitals in its next annual report.

**Question:** List a KPI that could demonstrate performance against social and relationship capital, and explain its relevance.

> **Answer:**
> An appropriate KPI is “percentage of patients reporting satisfaction with care received.” This directly measures the quality of stakeholder (patient) relationships and the ability of the hospital to meet public expectations.
>
> **Exam Warning:**
> In the ACCA APM exam, be wary of suggesting generic or irrelevant KPIs. Always link KPIs to specific organisational goals and the relevant capital. Over-reliance on financial KPIs for public benefit organisations is a common mistake.
>
> **Revision Tip:**
> When designing or recommending KPIs, consider: Is the KPI SMART? Does it align with organisational purpose, the capital being measured, and the expectations of stakeholders?

## Summary

Public sector and sustainability performance measurement requires a broader approach than traditional profit-focused models. Integrated reporting and the six capitals framework allow for a comprehensive view, capturing value created and preserved for society and the environment. Selecting relevant, capital-aligned, and measurable KPIs is essential for transparent reporting and robust performance assessment.

## Key Point Checklist

_This article has covered the following key knowledge points:_

- Define the unique challenges of public sector and sustainability performance measurement
- Explain the purpose and structure of integrated reporting and the six capitals
- Identify and recommend meaningful KPIs for each capital in public sector settings
- Apply the principles of value for money using the 3 Es for performance assessment
- Recognise the importance of balanced, transparent reporting in sustainability measurements
- Ensure KPIs are aligned to organisational objectives, stakeholder needs, and the relevant capital

## Key Terms and Concepts

- integrated reporting (IR)
- six capitals
- key performance indicator (KPI)
- value for money (VFM)
- stakeholder


Public sector and sustainability measures - Integrated reporting capitals and KPIs