Sustainability reporting – the new “it” phrase. But what does it mean, and is the public sector ready for it?
Sustainability reporting is not a new phenomenon. Investors and others recognised long ago that entities’ value cannot be fully measured by financial metrics alone. There is also an increasing awareness among the investor community that entities have an impact on various aspects of society – both positive and negative. It is for this reason that “sustainability reporting” emerged to focus on how entities affect the environment and society, and how these issues are governed.
National and international organisations have – for many years - published guidance on sustainability reporting or aspects of it. The result was a fragmented approach to reporting with disparate reporting between entities and jurisdictions. Investors want comparable information about entities – whether financial or other information.
At the time of COP26 and the UN summit on climate change in November 2021, the IFRS Foundation announced that it established the International Sustainability Standards Board (ISSB). The IFRS Foundation, through the ISSB, aims to provide global financial markets with high-quality disclosures on climate and other sustainability issues. The ISSB recently issued two proposed International Sustainability Standards for comment.
As the public sector is a significant player in the global financial markets, a significant employer, and a significant consumer of goods and services, questions have been raised about if, or how, sustainability reporting should be applied by the public sector. The International Public Sector Accounting Standards Board (IPSASB) issued a Consultation Paper on whether it should fulfill this role for the public sector, and if yes, where it should focus its efforts. As the ASB aligns its work closely to the IPSASB, this is an important development requiring discussion locally.
As we start this debate locally, I have several questions that I believe are worth discussion. Let me start by saying that I don’t think there is anyone who would disagree that sustainability should be more prevalent in making decisions – whether as business or the public sector. I am also at pains to say that of course having the right information is important to inform these decisions. But…whatever sustainability reporting could entail, it should not duplicate what is already available; it should enhance cohesion of information already reported; provide information where gaps are identified but most importantly, sustainability reporting should not be reporting for reporting sake.
It is no secret that there is a severe shortage of professional accountants and reporting specialists in the public sector. Before there is any debate on the merits of sustainability reporting, this is an important constraint to acknowledge. However, doing what is right from a reporting perspective should not be constrained by this and other practical limitations. Whether or not sustainability reporting is appropriate for the public sector should be judged on its merits from an information perspective.
So, my questions….
#1 - When we think about sustainability, sustainability for who?
The private sector will initially focus on how sustainability impacts investors’ decisions about entities. So the focus is on the entity, rather than on how the entity impacts sustainability on a global level. As the public sector invests in other entities, and raises capital and debt funding through investment in its own securities, this “entity” focus is relevant. However, it will only be relevant to a small number of entities as most government organisations do not have investment or debt raising mandates.
A far more important focus, particularly at a macro-economic level, is how the government affects sustainability on a broader level through its various activities. As examples, 80% of South Africa’s electricity production relies on coal powered stations, power producers do no adhere to environmental protection laws, many landfill sites are unlicensed, and government policy decisions about exploration for mineral resources whether on land or sea could have detrimental effects on the environment.
#2 - What does sustainability look like for a government?
As the South African government, we subscribe to the United National Sustainable Development Goals. There are seventeen sustainability goals, and climate is just one of them. The initial focus in the private sector will be on climate related issues. Consideration will only be given to other issues at a later stage.
As a developing economy, there are – at least in my opinion - more important goals such as no poverty, zero hunger, good health and well being, quality education, and a range of other sustainability goals that take priority given the tangible impact these could have on the lives of people today.
If these goals are important to me as a citizen, they should be important to government. Sustainability reporting and all it entails should focus on the goals that matter most, not the ones that are “easy” wins from a reporting perspective because of work done elsewhere.
#3 - How much information on sustainability do we already provide?
Governments’ reporting responsibilities extend far beyond financial statements. While the financial statements are important, it is at least the smae, or more important, to understand what governments did with the resources provided to them, i.e. what services did the provide, what infrastructure did they build, etc. This is provided in performance information. In South Africa (and many other jurisdictions) this accompanies the financial statements.
The overall targets set out in government’s scorecard for South Africa by the Presidency are aligned with the UNSDGs. It seems that some of this information may already be available. It may be matter of (a) understanding how it links with the budget, financial statements, other resources available to government, and (b) improving how it is reported.
There are already documents, like the IPSASB’s Recommended Practice Guideline on Reporting Service Performance that explain how to report performance information to users of financial information. It is important that we should not duplicate what already exists – it should merely be enhanced.
#4 – Can reporting drive change on its own?
There is a misconception – at least from a climate perspective – that reporting will substantively turn the tide on climate change. Reporting merely communicates the actions taken by people and organisations on the various policies, initiatives, to achieve sustainability goals etc. To make a change, appropriate action must be taken based on credible, relevant information. |
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