As the dust settles on COP 27 in Egypt and the first tentative drafts start to emerge on the key decisions to come out of the United Nations (UN) climate talks, there’s a growing sense of urgency about the need to address the huge environmental, social and economic challenges facing our planet and people to ensure a sustainable future.
Back in 2015, the UN launched its Sustainable Development Goals (SDGs) to focus the work of sustainability on 17 key areas to help end poverty, improve health and tackle climate change.
“We have decarbonised more than any other advanced economy,” the UK’s Voluntary National Review announced with a fanfare when it was published in June 2019. It also warned that it was “imperative we strive harder and faster to tackle climate change, to protect our planet for future generations”.
The good intentions are to be applauded, but with less than eight years to deliver on the Agenda 2030, the onus is on organisations to provide rigorous data to show key stakeholders that their commitments are backed by tangible action and they are not merely paying lip service to the SDGs in their reports.
In central government, Sustainability Reporting Guidance (SRG) guides departments and other central government entities on what to report in their annual reports and accounts (ARAs) in respect of sustainability. The SRG is linked to the Greening Government Commitments managed by DEFRA, a formalised reporting framework that exists outside of the ARAs that set out the actions that government departments and their agencies will take to reduce their impacs on the environment.
At the 2020 Spending Review, the government published provisional priority outcomes for each UK government department, called Outcome Delivery Plans (ODP). Since then, these priority outcomes and metrics have been further refined and also set out how departments are working towards becoming more sustainable and how work contributes to the delivery of the SDGs. The 21/22 Financial Reporting Manual required departments to include a summary of the priority outcomes agreed at the latest Spending Review, including an outline of progress made towards achieving those outcomes.
Henning Diederichs, manager in ICAEW’s public sector team, supports the inclusion of ODPs in the annual reports. “Information contained in the annual reports will always get more exposure and scrutiny,” he says. “I am a big fan of the principles behind ODPs because only when you have agreed the objectives and outcomes can you start measuring progress and success. I think they need to sharpen up since not all the outcomes are very clearly articulated, which makes it more difficult to hold those responsible to account.
“The annual report can’t contain all the information that users might wish to see and separate reports could then include additional data that might not be key to the department, but are important to show the department’s overall direction and progress to meeting specific strategy,” he suggests.
However, Carol Adams, Professor of Accounting at Durham University Business School, is concerned that the ODPs are falling short of their objectives. In particular, she says the inefficiency of different departments in developing their own metrics is a source of immense frustration.
“There is a set of indicators that is being used by 10,000 companies around the world – the GRI standards – and they're appropriate for the public sector, so why not just use those instead of each department developing them slightly differently?” Adams asks.
She is also critical that current public sector reporting on SDG tends to focus on the cost of initiatives rather than tracking outcomes. “From a sustainable development point of view, cost has pretty much no relevance. “This is where I think the ISSB (International Sustainability Standards Board) is no good for the public sector as a starting point because it would take attention away from the impacts entities have on the environment,” Adams says.
While the ISSB looks at the effect of the environment on an entity, GRI also looks at the impact the entity is having on the environment.
“If you think about what a government department or a public agency does, they’re developing policy – and considering the impact of those policies on the environment and reporting on those impacts,” she says “The GRI reporting is the foundation from which the impacts of policies on the environment can be assessed by the application of relevant key performance indicators. The GRI indicators might not be enough for some areas, but they are more than what a lot of public sector organisations are currently reporting and they are a starting point to build upon.”
Adams is the author of the Sustainable Development Goal Disclosure recommendations (SDGD), an attempt to establish a best practice for reporting on the SDGs and enable more effective and standardised reporting and transparency on climate change, social and other environmental impacts.
According to the SDGD recommendations, if reporting is to be meaningful and have credibility it should include details of strategy, management approach (disclosures around the process of integrating sustainable development thinking), governance, and performance and targets (in other words, the impact of the organisation on sustainable development).
“If you’re not reporting how you're engaging with stakeholders, how you’re determining what the main sustainable development issues are, where there might be opportunities and the approach you're using to determine all that, the report lacks credibility,” Adams says.
Conrad Hall is Corporate Director of Resources at London Borough of Newham, which has set a target for the day-to-day operations of the borough to be net zero by 2030. He hits back at claims that skills and capacity issues are holding back progress on sustainability reporting.
“We’re used to loads of reporting requirements; it's quite a regulated area. Do we know what sustainable reporting looks like in every aspect of our business? Absolutely not, but no sector knows that so I don't think that's anything unusual there,” Hall says.
“I don’t really understand this label of ‘it’s too hard, it’s too complex’,” Adams agrees. “They will be collecting much of the data already.”
Despite some harmonisation of sustainability frameworks and the emergence of some front runners, the landscape for SDG reporting remains complex and uncertain. The Treasury’s Financial Reporting Advisory Board has established a subcommittee to consider the public sector implications of sustainability reporting developments. A lot hinges on which framework the Treasury will back for central government reporting, Diederichs says.
“The UK public sector has traditionally aligned with private sector reporting, which is now starting to apply TCFD (Taskforce on Climate-Related Financial Disclosures). It would be a logical conclusion for the public sector to look at TCFD, but some adaptations are most likely required for application in the public sector,” Diederichs says.
Meanwhile, at a local authority level, Hall is adamant that the appetite for sustainability information is growing. Internally, there’s a recognition that many of the fixed assets that are relevant to the decarbonisation and net-zero agenda – things like housing stock, roads and refuse/recycling – are most abundant at the local authority level.
“There’s also a huge amount of local interest in what we do. We all know that local authority accounts are not a good way of engaging with the local population and that has been exacerbated by the recent delays in the audit and reporting cycle,” Hall says.
For that reason, the ability to plug into an existing audit framework is incredibly important, Hall believes. “If you can say that financial statements are integrated with net-zero plans – this is how we’re going to try and achieve it, this is the cost and these are the risks – that’s a terrific opportunity to address the current lack of engagement in local authority financial reporting.”
Newham Council uses the ClimateView tool, developed in Sweden, to provide an evidence-based methodology to link information about assets and spending plans with their contribution to decarbonisation. However, Hall says that more generally across local authorities, success in providing linkages between financial statements and performance reports remains a mixed bag.
Nonetheless, robust sustainability reporting is one of the important checks and balances of the political process, Hall says. “This is no criticism of Newham’s politicians, but I am aware of the perception that local authority finance directors elsewhere may have been placed under pressure to report things that are favourable to the political administration of the day.
“There is an opportunity to bring it all together in a much more structured way rather than having different local authorities reporting on their own activity in a way that may be seen to suit them. There’s a huge amount more work to be done, but I don’t think we’re starting from no base at all.”
Join the Public Sector Community
For accountants and finance professionals working in and advising the public sector, this Community is the go-to for the key resources and guidance on the issues affecting practitioners like you. With a range of dynamic services, we provide valuable tools, resources and support tailored specifically to your sector.
The future of tax and public spending
The nature of paid work, the rise of the digital economy, the climate crisis, have led to a re-examination of the role that the state can play. This series examines these trends and what they might mean for future tax and public spending policy.Find out more
Membership of the Financial Reporting Faculty gives you exclusive access to a suite of online factsheets, the faculty’s webinar programme, eIFRS and much more. Membership is open to everyone.
Find a range of resources on non-financial reporting matters including the strategic report, energy and carbon reporting, and TCFD disclosures.