Felicity Hawksley, journalist

The private sector has done a great deal of work towards improving the way it reports on sustainability, with the latest development being the publication of the International Sustainability Standards Board’s inaugural standards, IFRS S1 and S2. But what about the public sector?

The public sector signs international treaties on climate change, it makes national commitments, and it makes the policies and regulations for the private sector to meet. And yet currently there is no internationally recognised public sector reporting framework for sustainability-related disclosures.

IPSASB aims to develop a ‘global baseline for comparable public sector climate-related disclosures’

Standards created for the private sector cannot be ‘lifted and shifted’ to the public sector; they are radically different in a number of ways, not least their role, aims, stakeholders and operation. Additionally, the public sector comprises 40% of the global bond market and is, in Europe at least, responsible for approximately half of GDP, making it a huge buyer. The sector globally should be leading on sustainability reporting ­­as, without its involvement, addressing the huge challenges of climate change will be impossible.

Standards on the way

The International Public Sector Accounting Standards Board (IPSASB) hopes to solve this problem by releasing public sector-specific sustainability reporting standards. It has recently undertaken a consultation process with its stakeholders to assess the need for a global standard for, to begin with, climate-related disclosures.

IPSASB will not address financial reporting issues as part of this project

Following that successful consultation, it has now released an approved project brief describing how it will work on the exposure draft of a new standard.

The IPSASB project aims to develop a ‘global baseline for consistent and comparable public sector climate-related disclosures…to meet the needs of users of public sector sustainability reports’. IPSASB’s goal is that the new standard will ensure better transparency and accountability, and enable improved decision-making.

To develop its standard, IPSASB will build on IFRS S2. That standard is itself based on the Task Force on Climate-Related Financial Disclosures (TCFD) pillars of governance, strategy, risk management, and metrics and targets (including greenhouse gas emissions metrics). IPSASB plans to adapt this standard, and Global Reporting Initiative standards, for the public sector. And while it expects climate-related issues to have an impact on financial reporting, it will not address financial reporting issues as part of this project.

IPSASB’s scope is to develop climate-related disclosure requirements for public sector entities that cover: climate-related impacts the entity has on the economy, environment and people; climate-related risks to which the entity is exposed; and climate-related opportunities available to the entity.

Once IPSASB is finished with its work on climate disclosures, it expects to move onto social and governance disclosures.

Sizeable challenge

While IPSASB hopes to move at pace, and while its project brief makes the job look relatively straightforward, a joint event between Accountancy Europe, IPSASB and the International Federation of Accountants raised some key issues.

Maria-Rosa Aldea Busquets, deputy director general for budget at the European Commission, pointed out that sustainability reporting in the public sector faces three constraints: ‘First, its very broad scope; second, the multitude of actors implementing public budgets; and last, finding the right balance between asking the public sector to be transparent and accountable, while imposing a reporting burden.’ IPSASB’s exposure draft will have to head off these issues.

During a panel session at the same event, others raised more issues, namely that IPSASB will need to consider what the public sector will need to facilitate the adoption of the standards, including whether they will need incentives.

‘The public sector is a machine to produce positive externalities, and we should not forget that’

Resource constraints

Additionally, panel members raised the complication that IPSASB will have to bear in mind that there is a severe constraint in the public sector on capacity and resources in both developed and developing economies, and that any standard will need to work with this reality. If the reporting they require is too detailed, too broad or too demanding, the public sector will fail to deliver decision-useful information, thus making change patchy at best, unlikely at worst.

There was also an agreement between attendees that IPSASB will have to develop standards that are decision-useful and drive change, that resonate with their very varied users, and are flexible and scalable enough to allow national specificities (such as the different data-collection capabilities across nations) and differential reporting – but not so differential as to render comparison impossible.

Without the public sector, there is no hope for a green transition. As Olivier Boutellis-Taft, CEO at Accountancy Europe, put it, ‘The public sector is a machine to produce positive externalities, and we should not forget that.’

But without its own reporting standards, it will not be able to allocate resources, make meaningful, informed policy and drive the behavioural change that’s badly needed.