Not yet sustainable: the public sector is lagging behind on ESG reporting
Government organisations need to step up on reporting on their sustainability. Nina Johansson sets out what the challenges can be – and how they can be overcome
As with so many chapters in human history, it takes war to facilitate lasting change. It seems that it has happened once again with the tragic events in Ukraine pushing Western nations to reassess their dependence on hydrocarbons and accelerate plans to adopt renewable energy.
The promises made at COP26 last year have already been sped up by many western countries, with plans to switch to green energy rapidly brought forward. Germany has halted Nord Stream 2, the EU has committed to weaning itself off imported Russian energy in the next few years while the UK and US have banned imports of Russian oil. The vacuum could yet end up being filled by alternative supplies from the Middle East, of course, but this current crisis has reinforced the view that in the long term countries need to strive for energy independence by investing in greener solutions.
But it’s not just about fossil fuels or solar panels, it’s also about the impact of wider activity across the sector. At CIPFA, we’d say that understanding the environmental impact of a public sector organisation’s work is even more important. Visibility and transparency is a critical part of the wider sustainability movement – it’s difficult to know where you need to go if you don’t know where you are right now.
In most countries, the public sector is the largest economic sector, which means it has a big impact on the environment. It has a dual role as a provider of essential services, such as the armed forces, healthcare, public transport and waste collection and these inevitably contribute to climate change. But it is also a regulator and standard setter, putting forward a framework of environmental rules. This reality means that the public sector, not just private sector companies, will be instrumental in meeting net-zero targets.
Read more: Evergreen arguments: persuading the public on sustainability
In 2021, CIPFA commissioned ‘Evolving Climate Accountability’, which examined the practice of sustainability reporting in the public sector. Sustainability reporting brings together an organisation’s environmental, economic and social measures to assess what impact it is having on the world. While reporting of this nature has become common in the private sector, where factors such as investor pressure, consumer perception and ultimately profits, force it to recognise and mitigate environmental impacts, the public sector lags far behind.
Public sector objectives are linked to public interest and benefit, so public bodies also have strong incentives to be more transparent about their impact. Public interest in climate change is at a peak, and sustainability reporting enables governments to demonstrate the progress they are making in reducing emissions.
What are the barriers to sustainability reporting
So why isn’t it happening?
Our research identified three main barriers to widespread adoption of sustainability reporting in the international public sector:
- It can have many definitions which influence the scope and focus of any report
- There are too many standards for sustainability reporting, while very few relate specifically to the public sector
- Differences between private and public organisations can impact the way sustainability reporting is conducted
The biggest obstacle to wider adoption of sustainability reporting in the public sector is that currently there is no agreed standard or framework. Our research found 12 different sustainability reporting frameworks that are currently available – none of which relate specifically to the public sector context. This can create uncertainty and confusion among those tasked with producing reports, while making it difficult to benchmark performance against other bodies.
Nearly a quarter of the organisations surveyed in our report that do currently produce a sustainability report said a lack of quality data is a major challenge in them producing one, followed by a lack of political will and agreed framework. Although there was little consistency in the approaches being taken by these organisations, the most common sections which made up their reports were environmental, economic and social impacts.
A lack of specialised climate and ESG experience in organisations can prove to be problematic. Of the organisations who said they already produce reports, only 37% said that they felt they had sufficient skills to do so, while just 34% said that they had the staffing capacity to deliver one.
Read more: Governments urged to end ’empty pledges’ on climate
How to make sustainability reporting mainstream in your organisation
There are also clear problems to be addressed if sustainability reporting is to become mainstream in the public sector. Our report makes some key recommendations to facilitate this:
- Accelerate the adoption and alignment of existing standards, with a view to adopting a framework that is appropriate for the public sector
- Clarity is needed on the definition and scope of what a sustainability report means and aims to do
- There needs to be political will to mandate sustainability reporting throughout the public sector
- Give staff the skills and expertise they need to produce high quality and reliable sustainability reports
- Integration with wider forms of reporting to provide a holistic view of organisational performance
In the UK, new legislation is coming into effect in the UK that will force large companies to report on their environmental impact. This could be a sign of things to come for small and medium sized enterprises too. These new rules will be enforced by the Financial Reporting Council, which will ensure compliance with a set framework, giving companies a uniform way to assess their environmental impact. In another positive step forward, the UK government released updated sustainability reporting guidance for central government departments in November of last year. Despite these developments, the wider public sector is notable by its absence.
Tackling climate change is now high on government agendas around the world. Dire warnings that time to act is running out are finally sinking in. While the war in Ukraine may have shifted Western nations’ focus, it has also intensified the need to become energy independent. This can be achieved by investing in renewable energy sources and establishing new green industries – while creating jobs and opportunities for those in need. Reaching net-zero, levelling up and energy independence do not have to exist in isolation.
Sustainability reporting can help us understand the public sector’s environmental impact and hold it to account. As events in eastern Europe accelerate our plans to ditch fossil fuels, having as much data as possible will help the public sector make informed and transparent decisions in its shift to a greener future – which may be coming sooner than we thought.
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About Nina Johansson
Nina Johansson is the Chartered Institute of Public Finance and Accountancy's sustainability advisor
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I’d say a focus on reporting rather than actually doing the thing that is being reported on is definitely something local Government have expertise in…..
…I’m off to write some reports
Totally agree that harmonizing sustainability reporting standards is crucial to accelerating adoption, in both private and public sectors. In the private sector, the finalization of the ISSB’s draft General Requirement Standard (S1) and Climate Standard (S2) will go a long way to creating a coherent disclosures framework that national governments can mandate for companies through legislation. Although the public sector is some way behind, it is also moving in this direction. The International Public Sector Accounting Standards Board (IPSASB) has been invited by the World Bank to lead a public consultation on standardising international ESG reporting standards for public sector disclosures. This should not only accelerate the adoption of sustainability reporting, but also hasten the adoption of more sustainable policies and practices in the public sector.