Against the backdrop of the significant impacts of climate change, there is a compelling and urgent need for public sector investment in sustainable development. It extends beyond mitigation, encompassing the achievement of the United Nations’ Sustainable Development Goals and the forging of an inclusive and resilient global economy.
In attempting to deliver investment on such a scale, governments around the world face a massive, complex and demanding task that can only be achieved through best practice in public financial management (PFM). Yet PFM assessments carried out as part of the multilateral Public Expenditure and Financial Accountability (PEFA) programme paint a mixed picture of global PFM, with opportunities for significant improvement in some countries but also potential quick wins in others.
‘Public sector investment is incredibly important for achieving sustainable development’
Despite the challenges, public sector investment has a pivotal role to play in realising sustainable development. ‘We know from the work of the PEFA secretariat – an initiative of the IMF, the World Bank, the European Commission and other partners – that public sector investment management underperforms globally,’ said Alex Metcalfe, ACCA’s head of public sector, speaking at an event hosted by ACCA at the United Nations’ World Investment Forum (WIF) in Abu Dhabi. ‘But at the same time, public sector investment is incredibly important for achieving sustainable development and a just transition to net zero.’
ACCA at the World Investment Forum
Alongside the session ‘Delivering Public Sector Investment for Sustainable Development’ at the United Nations’ 2023 World Investment Forum in Abu Dhabi, ACCA co-hosted a central symposium on developing public sector sustainability reporting standards, in collaboration with the United Nations Conference on Trade and Development (UNCTAD).
Delivering the required investment demands disciplined action on a number of fronts. A key challenge is limited resources, which require governments to prioritise sustainability projects for investment and to make strategic choices about the value of competing schemes. ‘The idea of value is evolving within the current context of public sector finance – we’re seeing a reframing of what value really means,’ said Maggie McGhee, executive director at ACCA, speaking at the WIF event. ‘Making the right choices that provide a legacy in respect of sustainable investment is absolutely critical.’
Ali Mohsin Al Hosani, director of internal auditing for Abu Dhabi’s Department of Economic Development, agreed. ‘We need to be disciplined when it comes to public finance expenditure,’ he said. ‘And at the same time, we need to manage public debt properly.’
Private sector role
The public sector cannot fund and manage this level of investment alone, and private sector involvement will be critical. ‘Governments need to collaborate with the private sector to achieve the scale of investment required to deliver on the UN Sustainable Development Goals,’ said Srinivas Gurazada, head of the PEFA secretariat and global lead in public finance at the World Bank.
Consideration should be given to how public sector projects can be made more attractive to private investment. If profit-seeking private investors are to have confidence in the viability and robust design of public sector investment projects, governments must establish robust infrastructure governance with transparent processes for project selection and approval.
‘The evaluation of a project must be done agnostically, irrespective of whether it is a government or private sector project,’ Gurazada said.
‘The right governance arrangements can maximise a win-win relationship for the public and private sector’
Governance and assurance
Infrastructure governance also requires transformative change. Effective governance arrangements and risk allocation mechanisms must be put in place to foster mutually beneficial collaborations between the public and private sectors. At the event, Metcalfe stressed the importance of a comprehensive assessment encompassing projects’ economic, social and governance aspects with meticulous project selection, proper maintenance and effective oversight.
Proposed best practices include transparent national infrastructure strategies, independent regulatory frameworks and competitive procurement processes. These structures not only mitigate risks but also create an environment where public and private sectors collaborate for a shared sustainable future. ‘The right governance arrangements can maximise what should be a win-win relationship for the public and private sector,’ said McGhee.
A complementary avenue for achieving this goal is strengthening the assurance approach. Here, supreme audit institutions could play a crucial role in ensuring effective control systems, providing assurance for private investors. ‘Supreme audit institutions are absolutely critical in ensuring that investments are properly delivered and provide value for money for citizens,’ said McGhee.
This assurance extends to the realm of strong PFM systems, comprising the budgeting, accounting, auditing and procurement processes and procedures that governments employ to manage public funds. Effective PFM systems are indispensable for ensuring the efficient and effective utilisation of public funds. ‘There’s a strong role for assurance providers, looking at supreme audit institutions to make sure that they’re adequately supported,’ said McGhee.
The true rewards often extend beyond conventional political cycles
Governments also need to demonstrate the full range of value that infrastructure projects can provide to society, including economic, social and environmental benefits. The consideration of the full range of value provided by infrastructure projects, extending beyond economic impact to encompass social and environmental benefits, emerges as a crucial component. A comprehensive evaluation is needed that includes improved access to essential services, poverty reduction, social cohesion, environmental sustainability and resilience to climate change.
Governments should expect to make long-term investments in sustainable development, even when the benefits may not be immediately apparent. The true rewards from public sector investment in sustainable development often extend beyond the conventional political and budget cycles of three to seven years.
For Gurazada, the event underscored the essential relationship between public financial management and sustainable public investment. Good public financial management practices are needed to optimise public investments and ensure that funds designated for capital investments are properly directed, thereby promoting long-term sustainability and citizen welfare.
Watch on-demand sessions from ACCA’s virtual conference ‘Accounting for the Future’, including ‘Preparing for sustainability reporting’ and ‘Ethical dilemmas in an era of sustainability reporting’. All the sessions offer free CPD units and are available for three months.
See also ACCA’s latest report Sustainability reporting: the guide to preparation