The importance of developing Sustainability Reporting Standards for the Public Sector
As the private sector finalizes its baseline for sustainability reporting, attention has turned to addressing the specific needs of the public sector. The UN Sustainable Development Goals (SDGs) provide a framework for governments' sustainability efforts. While the private sector has made notable progress in setting and measuring sustainability targets, the public sector has only recently intensified its focus in this area. This shift is crucial in the face of the global climate emergency. With its substantial operations and significant financial and regulatory influence, the public sector plays a pivotal role in driving real progress.
Representing over a fifth of the global workforce and with governmental spending exceeding 40% of GDP in many countries, the public sector often serves as a linchpin in national economies. Moreover, it sets the sustainability agenda through policies, regulations, and incentives. Without a structured approach to tracking these policy activities, assessing the effectiveness of governmental strategies becomes challenging.
Similar to the private sector, the public sector requires appropriate sustainability reporting standards. These standards are essential for informed decision making, holding governments accountable for their environmental impact of their interventions and fostering trust in the public sector's sustainability efforts.
While progress in this area is still uneven, there is promising momentum from the International Public Sector Accounting Standards Board (IPSASB). In June 2023, IPSASB announced the development of international sustainability reporting standards tailored to the public sector's unique requirements, starting with Climate-related Disclosures.
Targeted frameworks produce results
In recent years, the private sector has made substantial progress in improving the sustainability of its activities. By June 2022, more than one-third of the world's largest publicly traded companies had committed to achieving net-zero carbon targets, a notable increase from about one-fifth in December 2020. Furthermore, a record number of US businesses appointed their inaugural chief sustainability officer in 2022. Much of this progress can be attributed to the widespread adoption of standardized metrics for sustainability reporting, which has driven organizational actions and priorities.
Standardized sustainability reporting is important because it enables organizations to hold themselves accountable in meeting their climate-related targets. It also allows external stakeholders to compare relative sustainability performance. International standard setters, including the International Sustainability Standards Board (ISSB) and the International Audit and Assurance Standards Board have recently made enormous strides in developing standards that will support these efforts.
Public sector action is critical
Despite the public sector not experiencing the same level of pressure from investors and consumers as the private sector, the financial ramifications of neglecting sustainability goals are becoming clear for governments. Sovereign bonds account for about 40% of the global $100 trillion bond market, and a 2021 study indicated that by 2030, countries failing to meet emission targets could incur debt downgrades costing between $137 billion and $205 billion. And interest in government efforts is growing - when the European Union launched its first green bond in 2021, it drew record demand from prospective investors.
Therefore, IPSASB's initiative is timely and crucial. By developing tailored sustainability reporting standards for the public sector, transparency will be enhanced, governments will be held accountable for their environmental footprint, and decision-making on climate change will be sharpened. Improved accountability also stands to enhance global trust in governmental decisions and actions by making their impact measurable and comparable.
Strong foundations are already in place
Public entities navigate a diverse stakeholder landscape and often have more intricate budgeting, accounting, and performance structures than private firms.
Fortunately, there's no need to start from scratch. A decade ago, in 2013, the organization I chair, the IPSASB, released the first of three Recommended Practice Guidelines (RPGs). Two of these provided guidance on topics still not addressed in the private sector - addressing long-term fiscal sustainability and service performance. Based on feedback, In May 2023 we issued further guidance that clarifies the application of RPGs 1 and 3 to sustainability reporting.
The recent advances in the private sector also offer valuable insights for the public sector. When developing international public sector sustainability reporting standards, we will be able to leverage guidance from the ISSB and the Taskforce for Climate-related Financial Disclosures, as well as the existing Global Reporting Initiative (GRI) standards.
However, public sector reporting comes with unique challenges. The ramifications of policy decisions, from regulatory frameworks to tax incentives, must be considered. Additionally, the potential effects of climate change on natural resources need to be addressed. Unlike corporations that cater to specific stakeholder groups, governments serve vast populations with diverse concerns, where GRI standards may prove beneficial.
In May 2022, IPSASB initiated a global consultation to advance public sector sustainability reporting. Global feedback underscored the urgent need for tailored public sector standards, entrusting IPSASB to spearhead this initiative. Fast forward to the present: IPSASB is now developing a public sector specific Climate-Related Disclosures standard.
This will integrate insights from the private sector while catering to the unique demands of the public sector entities. We are collaborating closely with global standard-setters, governments, and policymakers, aiming for universally relevant guidelines to harmonize public sector sustainability reporting, and we are doing so with the support of the World Bank. We plan to release a draft for public comment in October 2024.
Helping the public sector move at speed will benefit everybody
International sustainability reporting standards will help focus public sector investments, aid in sovereign bond issuance, and encourage international development finance. By transparently reporting their adherence to sustainability goals and global climate initiatives, governments can enhance their appeal to investors. Individual countries and the world at large stand to benefit from both public and private sector efforts focused better on achieving real sustainability impacts. With so much at stake, none of us can afford to wait for someone else to take the lead.