IPSASB pushes sustainability

Amid concerns that progress on sustainability reporting lags behind the private sector, standard setters have been working to advance a climate-related disclosure framework for government and other public sector entities.

The International Public Sector Accounting Standards Board’s (IPSASB’s) Exposure Draft consultation period opens in October, and there is an ambitious timetable to bring the standard into adoption. IPSASB is targeting the second half of 2025 for approval followed by a roll-out of the standard.

Mark Johnson, ACCA’s senior subject matter expert, public sector, says that for bodies adopting the standards, implementation would be phased, with first-period exemptions for the first year. The standard would be implemented in full thereafter, although IPSASB recognises that it is for individual jurisdictions to integrate the standard into their public sector reporting frameworks.

Standard’s scope

In terms of public sector reporting, IPSASB’s approach has been to construct a standard that aligns with International Sustainability Standards Board’s IFRS S2 – which implies building on the legacy of the Task Force on Climate-related Financial Disclosures (TCFD) – as well as Global Reporting Initiative (GRI) standards. The aim is to create a standard that focuses on organisations’ day-to-day activities and the risks and opportunities they face around sustainability.

Also falling under the new public sector standard would be governments’ wider activities designed to mitigate climate change, which might include subsidies or policies aimed at cutting greenhouse gas (GHG) emissions, for instance.

The UK’s Greening Government Commitments would be a case in point, says Johnson, insofar as it sets measurable targets such as reducing buildings emissions or committing public sector bodies to adopt electric vehicles. Such initiatives lend themselves readily to this paradigm, since they can be measured and monitored against targets.

Preparers will be hoping that the eventual IPSASB standard will include worked examples, along with a wide variety of scenarios that might require reporting under the resulting sustainability disclosure framework.

Building on experience

Preparers looking to get onto the front foot ahead of a finalised standard next year should take comfort from the fact that the emerging standard – although public sector specific – will rest on ground already broken in the form of existing private sector sustainability frameworks such as GRI and TCFD.

And while the Public Company Accounting Oversight Board (PCAOB) acknowledges there will be challenges in adapting private sector frameworks to the diversity of the public sector world, it also argues there are advantages to be had – such as increased interoperability with those frameworks.

Preparers can also count on broad agreement and buy-in around priorities. The PCAOB’s consultation gained insight from constituents and accordingly prioritised its work around climate change (versus, say, biodiversity targets).

Climate-first approach

Preparers can potentially take advantage of the work of some early public sector adopters of sustainability reporting frameworks, such as the City of Toronto. In the city of three million people, Toronto’s public authority employs 30,000 people and provides most of the municipality’s public services including policing, emergency services, health and social services, housing support and public transportation.

On the investment side, the city has a green and social debenture programme, and issued its first green bond in 2018. The city uses green bonds to finance capital projects that contribute to environmental sustainability.

Its 2024 Environmental, Social & Governance Performance Report is the city’s fourth such publication. It takes a climate-first approach and reiterates Toronto’s publicly stated goal of achieving net-zero emissions by 2040 or earlier.

The report sets out corporate priorities (fostering financial sustainability and running its facilities well) alongside four strategic ones: affordable housing, accessible public transportation, improving and investing in its neighbourhoods, and tackling climate change.

Mitigating factors

Toronto also records climate mitigation activities. For instance, in 2023 the city launched a climate hub to enhance its employees’ knowledge around climate change and impacts. It also endorsed an accountability system to enable it to measure and monitor change around GHG emissions.

This new carbon accountability system enables the city to plan and prioritise climate action using emissions budgets. ‘The carbon budget is managed through limited units of GHG,’ says the report. ‘As a result, the system supports actions across the city government to reduce GHG emissions in the community and from the city’s own operations.’

In its 2023 financial report, meanwhile, the City of Toronto details climate-related risks and opportunities. Its disclosures include higher temperatures and increased incidents of poor air quality, along with the expectation of increased flood risk with attendant infrastructure and emergency services impacts. Greater climate volatility over the longer term is likely to result in ongoing challenges to service provision and frontline employees, and a knock-on effect on capital spends. These factors may impact investment requirements, the report notes.

At the time that Toronto began to develop its own approach to sustainability reporting, public sector-specific sustainability measurements were thin on the ground. For its own reporting, the city received external validation in the form of measurement against ISO 37120, Sustainable development of communities – Indicators for city services and quality of life, provided by a law firm.

While the public sector is highly diverse and encompasses a huge variety of political and cultural factors, Toronto’s leadership on environmental, social and governance reporting and sustainability accounting will no doubt provide invaluable pointers as preparers look ahead to producing sustainability reporting for their own organisations.