Step up on sustainability

The public sector needs to demonstrate leadership on sustainable development, and report on the activities that have the most significant impact.

According to the report Preparing for sustainability reporting and assurance by ACCA, the INTOSAI Development Initiative and the International Federation of Accountants, sustainability reporting needs to be useful for decision-making and subject to effective audit and assurance arrangements in order to help build public trust.

The report, which draws on roundtable discussions with professionals involved in reporting and audit in the public sector around the world, highlights what sustainability reporting and assurance mean for the public sector, and outlines the key principles for governments, other public sector bodies and supreme audit institutions (SAIs) to consider.

The case for reporting

The report, which was launched to coincide with ACCA’s Virtual Public Sector Conference in November, and to tie in with COP28 this month, sets out the reasons why sustainability reporting is important.

For example, public spending represents a significant part of the global economy – almost half of GDP among OECD countries in 2021 – and the public needs to be able to hold governments and organisations to account. Plus, with sustainability reporting being adopted by the private sector, reporting by the public sector will enable a better economy-wide understanding of the impact of public spending on sustainable development.

In addition, investors in sovereign bonds, as well as bodies funding development initiatives, require information about the climate risks and opportunities facing governments. Transparency on this helps attract investment and donor funding to put these goals into action and builds public and investor trust.

Sustainability-related information also supports better informed policy, budget and investment decisions made by those working in the public sector.

Key principles

The concept of sustainable development includes not only environmental considerations, but also the social and economic impacts of human activities. The potential breadth of sustainability reporting for the public sector could therefore be huge – and differ significantly from country to country depending on the individual operational structures. The report identifies four key principles here:

• Entities cannot realistically report on every element of their impact on sustainable development. Each one needs to review its remit and identify where it has the most impact on sustainable development. This is a ‘materiality assessment’.
• The reporting structure should be consistent with the goals outlined in the entity’s sustainability strategy and, where possible, aligned with the approach the national government takes to sustainable development.
• The public sector should aim for the same levels of transparency in sustainability reporting as required in the private sector.
• Entities should identify a suitable framework for sustainability reporting: for example, the UN’s Sustainable Development Goals, the International Sustainability Standards Board’s standards, the Global Reporting Initiative Standards or the forthcoming International Public Sector Accounting Standards Board standards. This will also enable assurance to be conducted more easily.

Providing assurance

External assurance of sustainability disclosures will become increasingly necessary for building trust in the information. The roundtable participants believe that supreme audit institutions (SAIs) should take the lead in providing this independent oversight.

Recognising that external assurance of this information in the public sector is at an early stage, the participants identified the following key elements for SAIs and other providers to consider when developing their approach to assurance:

• Identify the purpose of the audit of sustainability information to determine how it should be conducted. For example, if the focus is on the accuracy of the information disclosed, such as reporting on greenhouse gas emissions, an approach similar to a financial audit is likely to be required. If the purpose is to assess the effectiveness of a particular public sector organisation’s sustainable development policy, a performance audit approach would be more appropriate.
• Establish the appropriate level of confidence and assurance. Assurance of sustainability information can be carried out either through an engagement, which provides an opinion on the level of assurance; or by the auditors providing the client with appropriate confidence. In choosing the most suitable approach, consider the type of audit being conducted, the risk of material misstatement, and the time and effort required to obtain assurance.
• Support the development of frameworks for the public sector. In some countries, SAIs set accounting and auditing standards for the public sector; in other countries, other organisations set these requirements. SAI engagement in establishing frameworks for sustainability reporting will help ensure that disclosures are based on clear reporting frameworks that enable ‘assurability’. SAIs should engage with a wide range of stakeholders, as this can highlight potential difficulties and challenges in the auditing of information.

Role of professionals

As many organisations are at the start of their sustainability reporting journeys, the accountancy profession has an opportunity to demonstrate leadership in sustainability reporting and assurance, according to the report.

Their knowledge and experience of reporting processes, systems and controls, regulatory compliance, adherence to standards, and internal and external assurance, are vital in establishing and embedding sustainability reporting and assurance in the public sector.