By MIA Digital Economy, Reporting and Risk (DERR) Team
As sustainability issues gain momentum, there is increasing interest in sustainability reporting. This article looks at the developments driving sustainability reporting in the public sector, the role being played by the International Public Sector Accounting Standards Board (IPSASB) and the role that Public Sector Accountants could take in spearheading the nation’s vision for sustainability.
The Context: Glasgow Climate Pact
Like other nations, Malaysia has committed to climate action. In the recent UN Climate Change Conference in Glasgow, United Kingdom (COP26), 120 world leaders and countries including Malaysia, have agreed to the Glasgow Climate Pact and will deliver their commitments to combat climate change. Among those that are relevant to Malaysia’s interest are:
- To revisit and strengthen their 2030 emission reduction targets next year, to bring them in line with the Paris Agreement goals by enhancing their Nationally Determined Contribution (NDC).
- To achieve carbon neutrality.
- To champion in halting and reversing deforestation.
- To set a collective goal to reduce global methane emissions by 30% before 2030.
Towards Sustainable Malaysia 2030
In Malaysia, the Ministry of Environment and Water (KASA) is leading the efforts towards Sustainable Malaysia 2030. KASA issued a roadmap in 2020 titled Environmental Sustainability in Malaysia 2020-2030, which outlines 30 initiatives. As mentioned by Tengku Datuk Seri Utama Zafrul Tengku Abdul Aziz, Minister of Finance Malaysia in his keynote address at the recent MIA International Accountants Conference 2022, among the key eco-friendly priorities laid out by the 12th Malaysia Plan include:
- reducing greenhouse gas emissions to 45% of GDP by 2030 (to be in line with the Paris Agreement),
- instituting a Comprehensive National Energy Policy – to provide long-term direction on achieving Malaysia’s carbon neutrality aspiration,
- establishing a Voluntary Carbon Market before transitioning to the Domestic Emissions Trading Scheme, and
- establishing the National Greenhouse Gas (GHG) Centre – to improve transparency in climate change data and reporting to boost confidence in low carbon investment.
As the effects of climate change become more visible, organizations are experiencing pressure to recognise and mitigate their environmental impact. Therefore, there is also a growing focus on reporting and disclosing environmental information to investors and the public. As the public sector is the largest sector in the economy and public sector organisations such as KASA also influence the climate through regulation and the provision of public services, sustainability reporting is critical for public sector entities to demonstrate how they address social, economic, and environmental challenges as well as enables them to be held accountable for their actions.
In moderating a recent concurrent session on Public Sector – Catching Up on Environmental Reporting at the MIA Conference 2022, Rasmimi Ramli, Executive Director – Digital Economy, Reporting and Risk of MIA said, “In the private sector, the demand on sustainability reporting was pushed by the investor community. While for the public sector, taxpayers and citizens like us would want to know how public sector organisations are addressing sustainability challenges.”
At the session, Rasmimi was joined by Bonnie Ann Sirois – Senior Governance Specialist, Financial Management, World Bank, Ian Carruthers – Chair of the International Public Sector Accounting Standards Board (IPSASB) and Nor Yati Ahmad – Director, Accrual Accounting Implementation Team, Accountant General’s Department of Malaysia.
Sustainability Reporting Progress in the Private Sector
According to the panellists, sustainability reporting is becoming common practice in the private sector. There has been notable progress towards the development of a global baseline for sustainability reporting in the private sector. Many companies in the private sector have incorporated non-financial information in their reporting which includes the impacts to the environment. In November 2021, the IFRS Foundation Trustees announced the formation of the International Sustainability Standards Board (ISSB) to deliver a comprehensive global baseline of sustainability disclosure standards that will assist in providing information about company’s sustainability-related risks and opportunities that can help with their decision making. The formation of the ISSB will deliver transformative change in sustainability disclosures for the private sector.
Catching up on Sustainability Reporting
However, sustainability reporting in the public sector is still at the infancy stage. During the panel session, Sirois highlighted the reasons why public sector around the world should engage in sustainability reporting. This includes assisting the public sector to attract capital, to hold the public sector accountable and for domestic policy-making purposes. As mentioned in the Sovereign Climate and Nature Reporting: Proposal for a Risks and Opportunities Disclosure Framework published by the World Bank, reporting on climate and nature-related risks and opportunities will ensure that a clear, consistent level of financial and economic risk information is available on an ongoing basis to all types of users, including investors, policymakers, regulators, donors and development finance organisations. “Recently published World Bank research estimates that the collapse of selected ecosystem services provided by nature could result in a decline in the global GDP of US$2.7 trillion annually by 2030, which underscores the strong reliance of economies on nature. Thus, government needs to accelerate investments in adaptation and resilience to climate impacts,” explained Sirois.
In the World Bank’s proposal mentioned above, the World Bank invited the IPSASB to lead a consultative process to gain support for developing global public sector specific sustainability reporting guidance. “The IPSASB has strong standard-setting experience including in applying relevant guidance to the public sector context and is best placed to lead the organisation,” explained Sirois when asked about the rationale for the invitation.
Consultation Paper, Advancing Public Sector Sustainability Reporting
The IPSASB issued a Consultation Paper, Advancing Public Sector Sustainability Reporting in response to the growing demands from its stakeholders for global sustainability reporting guidance for the public sector to contribute to the delivery of sustainable development and to address climate change. The Consultation Paper proposed that the IPSASB:
- serves as the standard setter for global public sector specific sustainability guidance;
- develops initial guidance focused on general disclosure requirements for sustainability-related and climate-related disclosures; and
- develops the guidance at an accelerated pace.
“It’s a comprehensive paper and we are certainly looking for as much feedback as possible from a broader group of stakeholders,” said Carruthers.
According to the Consultation Paper, the breadth of the public sector and its broad range of accountability and obligations to its stakeholders could result in a different focus in the sustainability-related information that users demand, in comparison to the private sector.
Ian Carruthers further added, “Clearly, the nature of the public sector is different. Accordingly, there could be differences in terminology and activities.”
In relation to the proposed approach in developing the guidance, if it decides to proceed the IPSASB would propose to address public sector specific issues and make use of international guidance such as the proposed IFRS Sustainability Disclosure Standards.
The IPSASB welcomes comments on the consultation paper until 9 September 2022.
Role of Public Sector Accountants in Sustainability Efforts
Undoubtedly, public sector accountants will play a leading role in anchoring sustainability efforts, concurred the panellists. “The roles of public sector accountants in sustainability efforts include providing information and advice on sustainability reporting, as well as understanding the entity’s sustainability efforts and issues, and the requirements of sustainability reporting,” emphasised Nor Yati Ahmad.
“Accountants will also need to collaborate with the experts from different fields to comprehend the extent of impacts or damages on the environment,” said Sirois in advocating for a multi-disciplinary approach.