CHAIR THOUGHT LEADERSHIP

Can public sector accountants help save the world? Yes, and here is why

Ahead of COP26, Ian Carruthers, chair of theInternational Public Sector Accounting Standards Board (IPSASB), discusses the critical role of public sector accountants in addressing climate change

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he clock is ticking loudly in the fight to address climate change. According to the Intergovernmental Panel on Climate Change, the “scientific evidence for warming of the climate is unequivocal,” and it is proceeding at an unprecedented rate.

Simultaneously, we are on the countdown to 2030, by which time the 17 Sustainable Development Goals (SDGs) are intended to be achieved.

What should be done to address these critical global challenges, and by whom? Leaders around the world and public companies have made notable commitments.

But back in 2012, Peter Bakker introduced a different contender when he told the Rio+20 UN conference that “accountants will save the world” from climate change. Now – almost 10 years later – I am more convinced than ever his assertion holds true.

Ian Carruthers, chair, IPSASB

The power of the public sector

We should all play a part in addressing climate change and in helping achieve the SDGs. But only governments have the power to enact the macro changes that will propel societies towards more and faster progress.

Public sector expenditure varies widely in its level and composition among countries, but it averages around 40% of GDP, and it employs roughly 20% of the workforce. In short: how and where governments spend money matters. And even more important is government leadership through policy, legislation, and regulation, including how public money is used to incentivise action in other areas of the economy.

The crucial role of the public sector has been powerfully demonstrated by the Covid-19 pandemic. Governments have been able to mobilise record-breaking levels of resources with extremely short notice – providing the public with a tangible reminder of the value that government services bring to their lives.

Strong governance and public financial management are essential

However, where we stand now, public sector resources are scarce. According to the IMF April 2021 Fiscal Monitor, “global public debt climbed to 97.3% of GDP in 2020, a surge of 13 percentage points from the level projected before the pandemic,” with the social and economic effects of Covid-19 expected to be felt for decades to come. Meanwhile, the UN estimates that meeting its 2030 agenda will require annual investments of $5trn-7trn.

Governments therefore face some tough choices and must act consistently in the public interest to ensure they achieve their intended outcomes on climate change. They also require strong public financial management (PFM) frameworks so that their financial resources are planned, directed, and controlled to enable progress.

For governments to refocus on climate change, it is imperative they understand their current financial position – what they own and what they owe – as well as the true economic substance of the transactions they’ve already entered into. Yet, the majority of governments around the world still do not have necessary accrual-based information.

The recent International Public Sector Accountability Index 2021 Status Report shows that as of 2020, only 30% of governments are reporting on accrual – the most fundamental requirement for the strong governance and PFM arrangements needed to deliver the SDGs.

Although 50% of governments are projected to be reporting on an accrual basis by 2025, this is still too few to successfully combat climate change. It is crucial that the upward trend in accrual implementation is sustained. The accountancy profession has a central role to play in supporting these required changes – as advocates, implementers and users.

Momentum towards global reporting frameworks

We know that finance is the key enabler for addressing climate change and the SDGs. Today, there is an active discussion about the need to create a coherent set of non-financial global sustainability reporting standards.

There is strong support for the creation of an International Sustainability Standards Board (ISSB) under the oversight of the IFRS Foundation, to provide transparency and accountability for the activities of listed private sector companies.

Such standards are likely to be relevant in the public sector, and IPSASB is actively involved in preparations for the creation of the ISSB. IPSASB has already provided strong foundations for reporting on programmes addressing both climate change and the SDGs.

It will also play its part in highlighting the importance of sustainability programmes in the public sector context and helping determine how further work in this area should be progressed.

We must act now

Bakker was one of the first people to highlight how real change would come from reconfiguring the millions of decisions that managers in business, NGOs and the public sector around the world make every day.

So yes, public sector accountantscan help save the world - by producing information that decision-makers can use, as well as providing the transparency and accountability that is so urgently needed to rebuild trust in the public sector.

But time is short for both climate change and the SDGs, and we need to act now.