Sustainability reporting: the public sector as regulator and reporter

Is it possible — or even necessary — to distinguish the public sector's regulatory role from its reporting when it comes to sustainability?

The public sector is multi-faceted, combining many roles underneath the ultimate 'control' of a jurisdiction's governing authority. These can include making and enforcing laws, providing public services, providing market-based goods and services, undertaking infrastructure development, or operating said infrastructure for the benefit of the community. The sector's role as a regulator is to make and enforce the laws for the conduct of activity in different areas across the whole economy. Typically, governments establish a regulatory framework and provide resources to any public entity charged with such responsibility.

Sustainability research undertaken by CIPFA noted that governing authorities in the public sector often take on dual roles. On the one hand, they have a responsibility to establish regulatory arrangements for sustainability reporting (similar to the establishment of regulatory arrangements for financial reporting). They may also set arrangements for all parts of the economy, not just the public sector. On the other hand, they will potentially be a reporter of sustainability information themselves, in accordance with the arrangements established for their jurisdiction (either for individual entities or a consolidated report).

One question that will need to be addressed, from a regulatory perspective, is what the necessary arrangements are for public sector sustainability reporting. Should they be separate to those followed by private sector organisations, or should the same apply irrespective of sector?

Regulator vs reporter: responsibilities at different levels of government

While each jurisdiction within the public sector has similarities, the allocation of responsibilities between different levels of government will rarely be the same. There is no single approach, with individual jurisdictions tailoring their approach based on their specific circumstances.

Broadly speaking, there are three main levels of government: local/municipal, state/provincial and national. Their differing responsibilities can impact sustainability reporting in a number of ways. For example, the extent to which a particular level of government may be responsible for infrastructure (such as road, bridges or dams) will impact on the services that they then provide and how they provide them. Such assets often require significant investment and maintenance, resulting in the use fossil fuels by the public sector – as well as having an impact on how society at large uses fossil fuels. Other parts of government may have more administrative responsibilities such as tax collection, which could be less asset-intensive, and have a greater reliance on technology.

Irrespective of how jurisdictions organise the delivery of their goods and services it is often the case that governments determine the regulatory arrangements that apply to its own activities at the national level. Lower levels of government may not have that type of regulatory power. These regulatory and reporting roles will impact the extent and potentially the type of reporting carried out at different levels of government.

Reporting by individual entities largely focus on their mitigation and adaptation actions, as well as whether that entity is meeting its objectives. However, from a jurisdiction perspective, a regulator is more likely to focus on reporting on the effectiveness of the policy interventions resulting from regulation across all sectors of the economy, and whether they are meeting the sustainability objectives that have been set. This would not only include the impact by the public sector, but also by private and non-profit sectors too.

Due to these varying roles, public sector entities will have different adaptation and mitigation actions to report. For some these may be substantial, whereas others may find them less intensive, with less onerous actions to undertake. For organisations that are regulators, it will be on the overall effectiveness and impact of the policy interventions and the ability of the public sector to fund the range of interventions required. It is likely that the public sector overall will need to provide significant financing to enable a jurisdiction to meet its sustainability goals. In addition to effective regulation of the private and non-profit sectors, ensuring that the regulatory arrangements enable the broad range of activities in the public sector to be properly reported will be essential for the public sector to be able to demonstrate its contribution to achieving public policy objectives on sustainability.

The risk in the public sector’s role as regulator and service deliverer

In some circumstances an individual public sector entity may be both a regulator in establishing the reporting framework for the public, private and non-profit sectors, as well as a reporter in the public sector, using the framework it has established. Holding both these roles simultaneously could therefore potentially create conflict, since governing authorities (particularly sovereign governments) may set requirements that do not provide an objective view of performance but instead provides a more favourable reporting framework that can showcase good, and mask poor, sustainability performance.

This risk can be mitigated by ensuring that there is appropriate separation of the roles. Adopting international guidance, or using it as a basis for local standards , will also help. Jurisdiction-level reporting for economic and accounting information is often guided by international arrangements, so it's reasonable for sustainability reporting to follow a similar model. Understanding the different levels of reporting for both entity-level reporting and jurisdiction-level reporting, and what 'accountability' means at each, will be a necessary part of any framework that is implemented.

In addition to entity-level reporting, outcomes at the jurisdiction level that show the effectiveness of regulation, as well the effectiveness of the public sector’s own actions, will be an important part of sustainability reporting. The focus of jurisdiction level reporting on broader economy outcomes and the effectiveness of policy interventions is crucial. Where non-compliance in reporting against a framework becomes evident, it can be difficult to reconcile the roles of regulator and public sector reporter. In the event of non-compliance or underperformance against targets, how can a regulator hold an entity it's part of accountable?

While the regulatory and service delivery roles of the public sector might not sit within a single individual entity (thus mitigating the reporting risk for the individual entity), the preparation of any consolidated sustainability reports will invariably contain data for both regulatory and service delivery agencies. Where this is the case, who should bear responsibility and accountability for any non-compliance issues that arise? Furthermore, how can there be confidence that the regulatory arrangements that are established are objectively independent and fit for purpose?

Our conclusion

It is unavoidable that the public sector has a dual role in sustainability reporting. Therefore, consideration should be given to how the regulatory arrangements are developed for both the private and public sectors, to ensure they are credible, legitimate, and provide an unbiased view of performance. This is important for ensuring the arrangements that apply to the public sector for sustainability reporting purposes are fit for purpose.

In circumstances where impartiality in decision-making is required, some jurisdictions establish regulators that are independent of the government. This occurs in many countries where economic regulators are established with operational autonomy, removing any perception of bias or favouritism from the regulator's activities and decisions. This may be a model that can give confidence in the credibility of public sector sustainability reports, and could operate at the entity level as well as for jurisdiction-level reporting.

Ultimately, it will be up to each individual jurisdiction to establish the regulatory arrangements for the public sector. CIPFA thinks the establishment of a broad international reporting framework that individual jurisdictions could use to shape their regulatory arrangements, including guidance on reconciling the role of regulator and reporter, would be a useful tool to facilitate the development and implementation of sustainability reporting frameworks.