How do we begin developing a consistent framework for sustainability reporting?
Our sustainability research noted the multitude of reporting frameworks currently available for public sector entities — meaning different organisations rarely use the same framework. This inconsistency means it's impossible to make accurate comparisons within and between differing jurisdictions and sectors. A consistent reporting framework is needed, perhaps following the approach used for setting financial reporting standards. Of course, it's up to individual jurisdictions to set their own arrangements. Are there lessons that can be taken from the approach used for setting financial reporting standards for the public sector?
Why are international standards needed?
The public sector has a large impact from a regulatory, economic and sustainability perspective. It therefore needs to be transparent in what it does and accountable for its actions. There needs to be confidence that the reporting arrangements that are put in place for the public sector are fit for purpose and that they aid in the decision-making and accountability processes for public sector organisations.
The use of international standards is one way to ensure reporting arrangements are fit for this purpose: they're based on recognised, credible practice, are used across the world, and are proven to offer the best technical approach. Such standards should also have their own appropriate accountability and due process arrangements. The use of recognised international standards therefore reduces the risk of 'greenwashing' – a jurisdiction developing its own approach could mean its reports performance in a favourable light, rather than an objective one.
The Global Reporting Initiative (GRI) was established in 1997 and has a long history of providing guidance on sustainability reporting. Since issuing its initial guidance, it has continually been updated. In 2016, the GRI transitioned its guidance to standards, with a focus on reporting the impacts organisations have on economic, environmental, social and governance issues.
The International Sustainability Standards Board (ISSB) was formed in 2021 in response to increasing global demand for high quality, transparent, consistent and reliable reporting on companies' environmental, governance and social activities. It aims to develop sustainability disclosure standards to provide investors and other capital market participants with a common baseline of information on sustainability related risks and opportunities, building on the work of other investor-focused standard setters to become the global standard setter for sustainability disclosures for financial markets. The approach being taken by the ISSB draws on the IASB's development of financial reporting standards for use in individual jurisdictions.
The IFRS Foundation and Global Reporting Initiative (GRI) recently announced a collaboration agreement where they will seek to coordinate their work programmes and standard-setting activities.
Are there parallels with financial reporting standard setting arrangements?
International standards are voluntary, requiring a local mechanism to bring them into effect. There are a number of existing mechanisms for financial reporting using international standards as a base for the implementation of local standards. Given the increasing emphasis on ensuring that reports are integrated, it would seem sensible to leverage these existing arrangements in developing sustainability standards.
The IFAC/CIPFA Financial Accountability Index found that 165 organisations had a sector-specific financial reporting framework that referenced IPSAS as the international standard — either using IPSAS directly, or basing their public sector reports on it.
| Framework | 2020 index | 2025 forecast |
| IPSAS with no modification | 40 | 43 |
| IPSAS modified for the local context | 16 | 28 |
| National standards referenced to IPSAS | 37 | 50 |
| National standards based on IFR | 3 | 3 |
| Own national standards | 69 | 41 |
Source: IFAC/CIPFA Financial Accountability Index 2021 Status Report
The prevalence of financial reporting frameworks that rely on a public sector framework is clear. There is undoubtedly a preference for a framework that accommodates public sector characteristics and captures the economic impact of organisations' actions. In practice there is significant alignment between IPSAS and IFRS, because some private sector guidance is fit for purpose. IFAC has opined that international sustainability standards can be made local by adding jurisdiction-specific requirements through a local mechanism.
As an additional step, public sector entities would need to address further sector-specific modifications. However, inconsistencies would soon arise if these adaptations were left to individual jurisdictions — another important reason to establish international standards, ensuring the greatest alignment with ISSB standards while addressing public sector specific issues.
Furthermore, IFAC has that the IPSAS board has an important role to play in monitoring developments in sustainability reporting, considering the potential applicability of any guidance and whether it needs to be modified for the public sector.
Maintaining alignment between standards
From a public interest perspective, minimising unnecessary differences can help reduce costs of preparation, aid comparability of reports, and facilitate professional exchange between sectors with similar requirements. It can also assist readers of sustainability reports, who may have an interest in both private and public sectors.
Understanding the key differences of the public sector will also help identify when a sector-specific modification may need to be made. This can help address the differing roles of the sector – from regulator to service provider to state-owned enterprises – and ensure that the reporting of individual entities is fit for purpose and meets the objectives of sustainability reporting.
Conclusion
CIPFA strongly supports sustainability reporting for the public sector: it's as important as financial reporting, and so should have a common base for individual jurisdictions to use. A sustainability disclosures framework based on sector-specific characteristics would seem to have a greater level of relevance and usefulness.
The role the public sector plays in regulating activity within an economy will also be relevant for the reporting of sustainability outcomes. Reporting at the individual entity level may focus on specific impacts, and local adaptation and mitigation actions. Reporting at the jurisdiction or country level, meanwhile, is more likely to focus on the overall impact of government policy interventions across all sectors of the economy.
For this reason, CIPFA thinks that sustainability standards for the public sector will need to be cognisant of the dual roles that the public sector plays — particularly at the national, government level — in both setting requirements for reporting, and following those requirements in its own reporting.
For sustainability reporting to become widely adopted within the public sector, there needs to be a mandate for reporting with standards that are fit for purpose. CIPFA thinks that leveraging existing mechanisms, similar to how IPSASB addresses financial reporting standards for the public sector, will provide the most efficient and effective pathway for the consideration and approval of sustainability standards for use by jurisdictions around the world.