Public sector sustainability reporting: harnessing private sector experience to tackle climate change

Climate change is impacting economic stability and growth in many countries. The World Bank, with development partners, have compiled data that highlight potential risks and impacts of climate change at the country level. Many governments are still unsure if and how to act, without further elevating fiscal risks. They need reliable data and evidence to inform decisions on laws and regulations, provision of public goods and services, subsidies and guarantees, etc.

Sustainability reporting captures how actions impact populations and the environment

Sustainability reporting provides qualitative and quantitative information on environmental, social, economic, and governance issues. It shows where an entity has (or can have) a significant impact in these areas. Companies use it to identify and mitigate risks and pinpoint opportunities that may affect long-term performance. It can help reduce climate impact and increase cost savings and also improve transparency and enhance their image.

Increased sustainability reporting in the private sector reflects demand to be better informed from market participants, capital markets, consumers, and regulators. The European Union now requires large companies, as well as listed SMEs, to report on sustainability following the Corporate Sustainability Reporting Directive (CSRD). The International Sustainability Standards Board (ISSB) has developed a global minimum baseline for the corporate sector.  The International Public Sector Accounting Standards Board (IPSASB) is in the process of developing standards on climate related disclosures to be issued in 2025.

Governments feel the greatest impact of climate change so need to take the strongest lead  

Governments need to be at the forefront of action on climate. As the largest economic entities, regulators, and financiers - governments are directly impacted by change and the accompanying fiscal risks. Governments must define how their country responds to climate change and ensure they are effectively regulating and supporting the private sector’s sustainability efforts. It is now time for governments to catch up with the private sector and introduce sustainability reporting that will help to:

• Inform decisions and allow meaningful comparisons with regional/global peers.
• Increase revenue from economic growth following market shifts or the development of new technologies.
• Target responses to direct and indirect impacts from climate change (subsidy programs, health care cost, rebuilding infrastructure).
• Reduce fiscal risks on future spending.

Sustainability reporting builds trust

Delivering sustainable solutions while maintaining fiscal balance requires governments to create strong partnerships including with companies, citizens, investors, and international lenders. Sustainability reporting by the public sector will contribute to building trust. It helps level the playing field between governments and companies. It demonstrates to citizens how taxes are used to address sustainability challenges. It encourages investors and lenders to offer cheaper borrowing for governments.

So, where should governments start?

First, START. As the Chinese philosopher Lao Tzu said, “the journey of 1,000 miles begins with one step”. For governments, that first step could be to educate themselves and open a dialogue on sustainability reporting.

Second, LISTEN. Engage stakeholders about their role in sustainability and what it can do for them. Understand existing sustainability reporting standards and what compliance involves. Learn good practices in sustainability reporting and access skills and knowledge, including on how to use it for informed decision making. Take advantage of the private sector experience and lessons learned.

Third, READ. There are many frameworks, standards and reports that can be useful (depending on the context). For example, the TCFD, ISSB, ESRS, GRI, PULSAR. IPSASB is expected to issue new standards in 2025.

Fourth, WRITE. Develop initial guidance and then expand and improve it. Collect feedback from stakeholders, including from Supreme Audit Institutions, to use in the future design, adoption, and implementation of formal sustainability reporting. Prepare to introduce global good practice and international standards.

Governments and the private sector play important and complementary roles in the response to climate change. Sustainability reporting by governments can be a gamechanger to identify climate related risks and opportunities, but governments need to act now. Working alongside the private sector will help speed up the process and support governments to develop and communicate policies that manage finances, protect services, and support the wellbeing of citizens, businesses, and the economy.