By CPA Reuben Orwaru
Purpose, Scope and Fundamentals
Sustainability reporting is a process of measuring, disclosing, and communicating an organization’s social, environmental, and economic performance.
It typically involves reporting on a range of indicators related to sustainable practices, such as energy use, carbon emissions, waste reduction, water usage, and employee health and safety. The goal of sustainability reporting is to provide transparency and accountability to stakeholders and demonstrate an organization’s commitment to sustainability.
For the public sector, sustainability reporting can be particularly importantas government agencies often have a significant impact on the environment and society. By reporting on their sustainability performance, public sector organizations can provide important information to citizens, policymakers, and other stakeholders on their efforts to promote sustainability and reduce their environmental footprint. This information can be used to inform decision-making, encourage accountability, and foster public engagement around sustainability issues.
Let’s address some of the commonly asked questions on sustainability reporting in the public sector:
What makes the public sector unique from the private sector? Does the unique nature of the public sector mean that a separate sustainability reporting framework is necessary?
The public sector is distinct from the private sector in several ways. Firstly, the public sector is responsible for providing services that are essential to the wellbeing of society, such as healthcare, education, public safety, and infrastructure. In contrast, the private sector focuses on generating profits by providing goods and services to customers.
Another important difference is that the public sector is accountable to the public and operates under a system of democratic governance. This means that public sector organizations must be transparent in their decision-making processes and accountable for their actions to the public.
The unique nature of the public sector does suggest that a separate sustainability reporting framework may be necessary. Public sector organizations have a unique role in promoting the sustainable development of society, and they face different challenges and opportunities in achieving sustainability compared to private sector organizations.
Public sector organizations also have different stakeholders than private sector organizations, including citizens, elected officials, and other public sector organizations. These stakeholders have different priorities and expectations than the stakeholders of private sector organizations, and sustainability reporting frameworks need to reflect these differences.
Overall, while some aspects of sustainability reporting may be similar across the public and private sectors, a separate sustainability reporting framework for the public sector may be necessary to ensure that the unique characteristics and responsibilities of the public sector are adequately addressed.
Who are the users of sustainability reports for public sector organisations? What are the sustainability information needs of the users? Do these needs differ based on a jurisdiction’s level of development?
The users of sustainability reports for public sector organizations can be diverse and may include:
1. Citizens and communities:
Sustainability reports can be used by citizens and communities to understand how public sector organizations are addressing social, environmental, and economic issues that are relevant to them.
Sustainability reports can be used by investors to evaluate the performance of public sector organizations and their ability to manage risks and opportunities related to sustainability.
Sustainability reports can be used by regulators to monitor compliance with environmental, social, and governance (ESG) regulations and to encourage public sector organizations to improve their sustainability practices.
4. Non-governmental organizations
(NGOs): Sustainability reports can be used by NGOs to hold public sector organizations accountable for their sustainability performance and to advocate for improvements in policies and practices.
The sustainability information needs of these users can vary depending on their roles and interests. For example, citizens and communities may be interested in knowing how public sector organizations are addressing local environmental issues, while investors may be more focused on financial metrics and risk management strategies.
In terms of whether these needs differ based on a jurisdiction’s level of development, there may be some variation. For example, in developing countries, citizens may be more concerned about basic needs such as access to clean water and air, while in developed countries, they may be more focused on issues such as climate change and social equity. Similarly, investors in developed countries may be more interested in sustainability reporting to manage risks and meet ESG expectations, while investors in developing countries may be more interested in sustainability to support economic development and poverty reduction. However, these differences are not always clear-cut, and sustainability reporting can be important for all jurisdictions regardless of their level of development.
Should the reporting requirements focus solely on the risks and opportunities from sustainability on the entity (“outside, in”), or also consider the impact of the entity on broader society and sustainability goals (“inside, out”)?
Reporting requirements should consider both the risks and opportunities from sustainability on the entity (“outside,in”) as well as the impact of the entity on broader society and sustainability goals (“inside, out”).
For the public sector, sustainability reporting can be particularly important as government agencies often have a significant impact on the environment and society. By reporting on their sustainability performance, public sector organizations can provide important information to citizens, policymakers, and other stakeholders on their efforts to promote sustainability and reduce their environmental footprint. This information can be used to inform decision-making, encourage accountability, and foster public engagement around sustainability issues.
While it is important for companies to understand and disclose the risks and opportunities that sustainability presents for their own operations and financial performance, it is equally important to consider the impact of the company’s actions on the environment, society, and the economy. By looking “inside, out,” companies can better understand their role in promoting sustainable development and contribute to achieving broader sustainability goals.
In recent years, there has been increasing recognition of the importance of sustainability reporting that goes beyond traditional financial metrics. Many stakeholders, including investors, customers, employees, and regulators, are interested in the social and environmental impacts of companies, as well as their financial performance. Reporting on both the external and internal aspects of sustainability can help companies build trust, enhance their reputation, and create long-term value for all stakeholders.
Should the IPSASB prioritise climate reporting first because of the urgency of this topic? If so, how should broader SDGs feature (e.g., reporting related to non-environmental sustainability and governance) in developing public sector sustainability reporting guidance?
The International Public Sector Accounting Standards Board (IPSASB) has recognized the importance of sustainability reporting for the public sector. In 2022, the IPSASB published a consultation paper on sustainability reporting for the public sector, which identified climate change as a priority area for reporting.
Climate change is a pressing global issue that requires urgent action, and it has significant implications for the public sector, including governments, public utilities, and public institutions. Therefore, it is essential for the IPSASB to prioritize climate reporting in the development of sustainability reporting guidance for the public sector.
However, broader SDGs, such as reporting related to non-environmental sustainability and governance, should also feature in the development of public sector sustainability reporting guidance. The United Nations 2030 Agenda for Sustainable Development, which includes the SDGs, provides a comprehensive framework for sustainable development, and it is important to consider all aspects of sustainability in reporting.
The IPSASB should develop a holistic approach to sustainability reporting for the public sector, which integrates environmental, social, and governance (ESG) factors. This approach would enable the public sector to report on its sustainability performance in a comprehensive and transparent manner, which is essential for accountability, stakeholder engagement, and informed decision-making.
In summary, while climate reporting should be a priority area for sustainability reporting in the public sector, broader SDGs should also feature in the development of guidance.
The IPSASB should adopt a holistic approach that integrates ESG factors to provide comprehensive sustainability reporting guidance for the public sector.
Should the focus of international standards be on comparability (i.e., providing universal reporting requirements) or providing information of relevance to the entity (i.e., allowing for reporting flexibility)? Should there be allowances for differential reporting (e.g., different information at whole of government level vs subnational)?
The focus of international standards should be on a balance between comparability and providing information of relevance to the entity. While universal reporting requirements can facilitate comparability between entities and countries, it is important to recognize that different entities have different information needs based on their unique characteristics and circumstances.
International standards should, therefore, provide a framework that allows for reporting flexibility, while still ensuring that key information is disclosed in a consistent and comparable manner. This would involve setting out minimum disclosure requirements that are relevant to all entities, while also allowing for additional disclosures that are relevant to specific entities.
There should also be allowances for differential reporting, particularlyat the subnational level. Subnational entities may have different information needs than the whole of government, and requiring them to report the same information as the whole of government may be burdensome and unnecessary. Allowing for differential reporting can help ensure that reporting requirements are proportionate and relevant to the specific entity, while still maintaining consistency and comparability at the overall government level.Top of Form
The writer is a Public Sector Lead at the Pan African Federation of Accountants [email protected]