Sustainability reporting: Time for the public sector to act

Trust is a fragile thing - difficult to build, easy to break. This saying is becoming more relevant in the modern days where investors and other stakeholders expect the business community to play a bigger role in addressing the most pressing issues facing the world today. 

The urgent need to address the unprecedented effect of climate change as well as social issues such as health, safety, diversity and human rights facing our societies have made investors and other stakeholders realise that the traditional pursuit of financial outcomes by organisations is not adequate. Shareholders are now demanding organisations to act more sustainably by embracing a value creation system that adds key sustainability topics, such as environment and social factors in performance measurement.

The PwC global investors survey of 2022 identified that 69% of the respondents want companies to disclose information about the relevance of sustainability factors to the company’s business model, while 66% of the respondents want to see disclosures about governance and oversight over sustainability risks and opportunities. These results indicate that to build trust in the current environment, organisations must reorientate their businesses and redefine their measure of performance to consider wider factors such as sustainability performance metrics, climate risks and social factors into their strategy, planning, business model, monitoring and reporting.

Whilst many ongoing conversations about sustainability risks, strategies and reporting seem to target the private sector, the public sector has a big role to play in addressing sustainability issues. Being one of the biggest contributors to the country’s economy and engine to sustainable development, the public sector is uniquely positioned to take a lead in driving the sustainability agenda. This is important especially because the key objectives of public sector (i.e, promote economic growth, provide essential goods and services to the public, promote fair distribution of income, and ensure security and wellbeing of the society) are fundamentally linked to public interest. 

Governments across the world have signed up to various global initiatives aimed at contributing to the achievement of sustainable development such as the United Nations Sustainable Development Goals (SDGs) and the Paris Agreement. For these Governments to fulfil their responsibilities under these agreements, all players in the public sector need to act and commit to transparency and accountability to stakeholders.

Part of addressing sustainability issues is to ensure transparency in setting targets, monitoring and reporting of sustainability information. It is critical that public sector organisations adopt international renown sustainability reporting practices that will communicate how they monitor and manage performance against the set sustainability targets as well as their progress towards achieving these sustainability goals.

PwC has identified five megatrends shaping the world today - climate change, technological disruption, demographic shifts, fracturing world and social instabilities. These megatrends were characterised as deep and profound trends, global in scope and long-term in effect, touching everyone on the planet and shaping our world for many years to come.

In the 2030 Agenda for Sustainable Development, UN Member States express their commitments to protect the planet from degradation and take urgent action on climate change. The agenda identifies climate change as “one of the greatest challenges of our time” and raises concerns that its impact may undermine the ability of various countries to achieve sustainable development. Climate change has led to a range of sustainability issues and challenges such as food security due to extreme weather events, increase in cost of living, healthcare risks, supply chain disruption, resource scarcity, increase in global temperature, and sea level rise.

Whilst technology has led to significant capacity enhancement enabling people to achieve more with less effort resulting in huge value creation, it has also led to harmful consequences that are increasingly becoming difficult to mitigate. These include increasing disinformation and misinformation, growing mental health issues, loss of privacy, increased cyber risk and massive disruption of work.

Demographic shifts: the world is experiencing a dramatic shift in demographics where some societies are ageing rapidly, and their workforces are shrinking while others have a younger demographic which create younger labour force. This demographic change has several implications including massive youth unemployment, unaffordability retirement leading to poverty, shortage of essential services, lack of relevant skills in the workforce and urban migration.

Fracturing world: geopolitics, uncertainty and a fracturing world have become the realities of our time. The world is experiencing rising geopolitical risks as more nation states compete for influence. This has led to a number of challenges such as disruption of global supply chain, safety and security concerns, increase in human rights abuses and difficulties in doing business in some countries.  

Social instabilities: there are growing concerns about the social issues affecting the world today such as human rights, equal opportunities for all, and access to basic human needs such as education, health and shelter.

Citizens and taxpayers not only expect public sector organisations to take deliberate actions to address these challenges, but to ensure transparency in communicating their plans, priorities and performance related to key sustainability issues. Reporting on these issues provide organisations with the opportunity to demonstrate how they are addressing the social, economic and environmental challenges facing the world today.

The sustainability reporting landscape is evolving. There are a multitude of frameworks related to sustainability reporting, each with their own approach. Of these frameworks, few relate directly to the public sector. Therefore, the key differences between the private and public sectors on their purpose and responsibilities should be considered when adopting these frameworks and preparing sustainability reports for public sector organisations (i.e., Central Government, Ministries, Local Governments, Parastatals, Civil Societies, and NGOs etc).

Some of the common sustainability reporting frameworks that are useful to the public sector include Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Task Force on Climate-related Financial Disclosures (TCFD) and the upcoming International Sustainability Standard Board (ISSB) and International Public Sector Accounting Standard Board (IPSASB) sustainability standards. It should be noted that these frameworks are largely principles based, which means significant efforts will be needed by organisations to align their internal systems, procedures, strategy and business model with their sustainability objectives, priorities and reporting requirements. 

Sustainability reporting should not be approached as a mere reporting exercise. There are significant implications in the entire organisation that need to be carefully considered. Firstly, organisations should ensure that they possess the required staff capacity and capability which are essential in implementing effective sustainability reports. The impact on the existing systems, processes, controls and data capabilities should also be assessed, enhanced, and customised to specific reporting framework.

Furthermore, cross-functional/department collaboration is key to ensure effective implementation of sustainability strategies and reporting. For example, the finance profession can play a key role in the establishment of controls and systems for the collection and reporting of data to be included in sustainability reports while the external public relations team should take a lead in identifying sustainability priorities for the organisation through various internal and external stakeholders’ engagements.

To ensure credibility, sustainability reports should be subject to some form of third-party assurance which could be supplemented by internal audit or other internal resources. Indeed, there are challenges to enforce this type of assurance due to lack of regulatory mandate for sustainability reporting and a lack of specific auditing standards for these reports. However, with the growing importance placed on sustainability reporting by stakeholders this is expected to evolve. It cannot be overemphasized; sustainability reporting is a way to strengthen organisational long-term strategy. In actual fact, sustainability reporting gives an overview of the entity’s economic, environmental, and social impact and help it to measure, understand and assess its performance.

Finally, it is important to recognise that achieving successful outcomes in sustainability strategies and reporting in the public sector requires strong commitments from the entity’s Governing Council/Bodies/Trustees, executive management team and staff. All departments should take part in embracing good practices in transparency, reporting, and accountability. The governing body must ensure that it has both the capacity to fulfil its own mandate and capabilities to ensure that there are appropriate strategies, policies, resources and skills to drive positive sustainability outcomes.  

By Howary Kharbush, Associate Director – Assurance Services, PwC Tanzania