Defining the reporting boundary for public sector sustainability

Should public sector sustainability reporting only cover its own footprint?

Sustainability reporting is, by and large, a new endeavour for most of the public sector. While some jurisdictions have some form of environmental reporting, it's often not integrated with other forms of reporting, such as the annual financial statements or an organisation's annual report.

As a relatively recent addition to public sector reporting, a number of fundamental questions need to be addressed regarding how a reporting entity’s boundary should be defined. Specifically, to what extent will the reporting entity’s upstream and downstream activities be addressed by sustainability reports? This could include the impact of everything from activities in an organisation's supply chain to the funding or services they provide. Should both financial and non-financial impacts of the entity should be included?

What is current public sector sustainability practice?

The research undertaken by CIPFA noted a variety of approaches in determining sustainability reporting boundaries. While a minority followed a similar structure as for their annual financial statements, the majority of respondents based the boundary on the administrative structures established by their governing authority. Our research also noted that there was no consensus on whether a report should be prepared for individual entities, consolidated entities, the whole of government, or whole of sector.

This variety of responses can be largely attributed to the similarly-varying purposes to which the sustainability report would be produced. For some, the reports were clearly targeted at debt markets and providers of debt capital, whereas for others there was a more general notion of 'accountability,' either to their governing body or the general public. While accountability was a recurring theme in current reporting practices, some respondents said they were moving to integrate sustainability concepts into their general decision-making and management practices, and trying to address both the financial and non-financial impacts of their activities.

Deciding on sustainability reporting boundaries

Our sustainability research found three key factors which bring to bear on defining the boundaries of a public sector entity's sustainability reporting.

The scale and diversity of public sector organisations

Public sector bodies are large, with numerous entities undertaking a wide range of activities. These entities can vary in size, from very small and simple to much larger and more complex enterprises. Many jurisdictions will also have multiple levels of government that comprise the sector – for example, at the municipal, state or provincial, as well as national, level. In some cases, these different levels are autonomous and do not have any direct relationships of control between them, notwithstanding the potential existence of inter-governmental financial transfers between entities.

Different types of public sector entities

There are many forms of public sector organisations, including consolidated whole governments, ministries, departments, agencies, autonomous entities, programs, statutory bodies, business enterprises, state-owned corporations, trusts, committees, and other bodies with a separate legal or administrative identity. While many will have a distinct presence or identity, some will only exist under the auspice of a larger administrative body.

How public sector entities operate

The manner in which some sectors operate can also contribute to challenges in defining the reporting entity. For example, a central borrowing authority may exist as an independent entity and raise funds from debt markets to fund the sector's activities. This may occur through on-lending activities to other public sector entities, or through a centralised cash management arrangement where all entities use a single treasury concept. In these cases, providers of debt capital will be interested in the consolidated view of the government's activities, rather than the individual operations of the central borrowing authority or individual entities.

Can public sector financial reporting boundaries be used?

One approach to simplify the introduction of sustainability reporting may be to follow the sector's existing financial reporting boundary. Along with eliminating the need to develop a separate boundary, this approach also means that financial and sustainability reports would cover the same aspects of a public sector entity, making it easier to develop links and comparisons.

However, it may not be as easy as simply adopting the existing boundary. Given the two-fold purpose of financial reporting – decision-making and accountability – any sustainability reporting actions will need to align with these purposes. Should the boundary be the same if the main purpose of sustainability reporting is compliance with pre-determined rules? If it's to be used for decision-making, accountability, or both, it would follow that a degree of consistency and alignment between the two reports would be useful, enabling the integration of the financial and non-financial impacts of sustainability including risk.

Elements to consider in determining the boundary

What is the purpose of the sustainability report?

If a sustainability report is to serve as a key accountability mechanism, then understanding who is accountable for what is fundamental. Is it for the governing body to hold management of the entity to account for sustainability performance? Or is it for the public and other interested parties to hold elected or appointed officials to account for the overall impact of public sector activities? If it is to be used for decision-making purposes, what decisions are likely to be impacted, and by whom, will need to be addressed.

Are reports needed for individual entities?

An important consideration for public sector sustainability will be whether reports are produced for individual entities, or whether each should contribute to a consolidated report – either a whole of government, or whole of sector report. This, in part, will depend on accountability mechanisms that exist within a jurisdiction, how accountability will be discharged and to whom it is discharged.

The boundary question becomes more complicated if a jurisdiction's approach requires individual reporting entities to prepare their own general purpose financial statements or reports. In these circumstances, the financial statements are consolidated because they are controlled, and this can have a potential knock-on impact on general purpose financial reports. It's more difficult to determine control and benefits if the focus of reporting is on sustainability impacts – where the benefit is broader than the individual or consolidated entity, and the level of control is not as clear cut as it is for financial reporting.

Is it necessary to define a user group for sustainability reports?

Financial reporting focuses on the existence of users (either service recipients or resource providers) to determine whether general purpose financial reports (GPFRs) should be prepared. If the focus in sustainability reporting is on impacts and compliance with pre-determined objectives, there is arguably no need for a user group to be defined, as reporting metrics will most likely be defined by the jurisdiction's governing authority.

In instances where such reporting is mandated by legislation, it's likely that the data that is reported will be available for general use. This would mean the focus of the report shifts to the impacts resulting from activities undertaken by the public sector entity, and how the organisation complies with the requirements set for it. However, where the public sector is engaging with debt markets, there may be a need to consider how sustainability impacts effect the entity's overall financial position and potential risks. In this case, the focus would be more on the organisation's performance, rather than mere compliance with pre-determined rules or metrics.

For other entities, there may be no identifiable service recipients or resource providers, but they may be a large consumer of resources or emitter or greenhouse gases. In the absence of user groups, should these entities report based on the level of resources they consume, or the impact they have on sustainability metrics? From an environmental reporting perspective, it is the impact that individual organisations have based on how they deliver their functions that is likely to be more meaningful, rather than the impact on their assets, and liabilities from climate risks.

Given the diversity that exists in the public sector, there are likely to be a number of specific user groups that have an interest in sustainability information that could be broadly categorised as either resource providers, service recipients, or other members of the community. This could include:

  • providers of debt capital who may be concerned with the impact of climate risks on the assets and liabilities of the entity, as well as the risk to the repayment of principal and interest
  • those to whom accountability is served, which involves the entity reporting on the impacts that its activities have had on the achievement of sustainability goals
  • those with a broader interest in the performance of public sector entities, which involves the relative performance of entities within and between sectors as well as the ability to use that data to enable the development of public policy
  • concerned citizens and members of the community, which involves the communication and use of public sector reports to inform those citizens and members of the community of the public sector's activities

Each of these user groups have a different perspective on performance, and each is arguably important in its own right. Therefore a better question may be not whether there are users who have an interest in assessing the enterprise value of the entity, but users that have an interest in assessing the entity's financial and non-financial performance. This would facilitate an assessment of whether the entity is achieving its sustainability goals and whether that performance presents any risks to the financial position or financial operations of the entity.

Does a separate topic boundary need to be defined?

A further consideration will be then need for a specific topic boundary, which determines whether specific upstream or downstream activities are included within a report. This typically relates to issues such as the supply chain, for goods or services procured by the public sector entity, or the manner in which funding, goods, or services are used by recipients of public sector funding/services.

Should public sector entities draw the boundary at only their direct impacts, or should they also cover both these upstream and downstream activities? Doing so would mean that it is not just the boundary of the public sector entity and what it controls, but also the boundary of the activities that it undertakes and the extent to which these are included in the report. There is already such activity occurring in many jurisdictions, such as greening procurement or vehicle fleet operations, implying they should be included in sustainability reports.

Given the large impact indirect activities can have on the achievement of climate goals, it is essential that this question is addressed as part of considering the entity boundary and the user groups that have an interest in sustainability reports. This could present a number of practical challenges for the sector, including the capacity to measure some of the impacts.


In defining the boundary for sustainability reporting for public sector entities, there will need to be clarity on the purpose of the report: is it to measure the impact of sustainability factors on an organisation's financial risks and opportunities, or the impact its activities has on the environment?

Not only will the boundary need to be defined in terms of what an entity controls, there will also need to be a topic boundary, which would facilitate a consistent approach to reporting and enable the comparison of performance between public sector entities.

CIPFA thinks that public sector sustainability reporting should be focused on the users of this information, and therefore include both upstream and downstream content.