ADVANCING SUSTAINABILITY

ACCOUNTING AND REPORTING:

AN AGENDA FOR PUBLIC SERVICE
ORGANISATIONS
A DISCUSSION PAPER

AT THE HEART OF
PUBLIC SERVICES
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ADVANCING SUSTAINABILITY
ACCOUNTING AND REPORTING:
AN AGENDA FOR PUBLIC SERVICE
ORGANISATIONS
A DISCUSSION PAPER
ADVANCING SUSTAINABILITY ACCOUNTING AND REPORTING: AN AGENDA FOR PUBLIC SERVICE ORGANISATIONS

Published by:
CIPFA, THE CHARTERED INSTITUTE OF PUBLIC FINANCE AND ACCOUNTANCY
3 Robert Street, London WC2N 6RL. Tel: 020 7543 5600 Fax: 020 7543 5700
www.cipfa.org.uk

© 2004, CIPFA

ISBN 1 84508 029 7

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PAGE ii
 A DISCUSSION PAPER

FOREWORD

This discussion paper, written by Amanda Ball of Nottingham University Business School
(and formerly of Royal Holloway, University of London), is designed to stimulate debate
and thinking on sustainability within the public services. CIPFA commissioned the paper
from Amanda, a leading academic authority on sustainability issues, because the Institute
wanted an independent opinion that would challenge its own thinking and position on
sustainability in addition to challenging the wider public services.

While written by Amanda, the paper has benefited from views received from several
organisations, colleagues and individuals, including:
● The Audit Commission
● Forum for the Future
● The Improvement and Development Agency
● Office of the Deputy Prime Minister
● The UK National Audit Office
● CIPFA Scotland Office
● CIPFA Wales Office
● CIPFA Policy and Technical Directorate

None of these commentators has endorsed the discussion paper, and indeed some
have made it clear that they do not necessarily accept the line of argument, analysis or
conclusions at certain points in the paper. However, CIPFA is grateful for their comments,
which have been provided in the spirit of discussion and from a desire to assist progress on
sustainability within the public services.

In the same vein, the discussion paper should not be read as a statement of CIPFA policy
on sustainability or as representing an official position of Nottingham University Business
School.

Having said that, CIPFA is keen to make a substantial contribution to the sustainability
agenda in the public services, and this discussion paper provides a starting point from
which CIPFA seeks to move forward, in partnership with other interested organisations.

Finally, CIPFA would like to record its appreciation to Amanda for producing such a
thoughtful, informative and challenging paper.

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ADVANCING SUSTAINABILITY ACCOUNTING AND REPORTING: AN AGENDA FOR PUBLIC SERVICE ORGANISATIONS

Comments on the discussion paper are very welcome and should be sent to me at:

CIPFA
3 Robert Street
London
WC2N 6RL

or by email to [email protected]

Vernon Soare
Policy and Technical Director, CIPFA

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 A DISCUSSION PAPER

Contents

EXECUTIVE SUMMARY 1

1. The need for advance in sustainability accounting and reporting in the public services 3
Introduction 3
Public service organisations need to keep up with developing practice in
other sectors 3
The definition of ‘sustainability’ is constantly developing 4
Sustainability accounting and reporting are evolving in practice 4
The regularity framework is changing 6

2. What does sustainability accounting and reporting mean for public service
organisations? 7
Introduction 7
What private sector companies are doing 7
Public service organisations are different 9
Public services sustainability reporting needs to be different 10
Where might public services reporting otherwise go? 11
How to ‘incentivise’ sustainability reporting in public service organisations 12

3. Learning from current public service sustainability reporting practice 13

Introduction 13
An overview of some UK and international developments 13
Why some public service organisations report on sustainability performance 16
Why other organisations do not report 16
Key issues from current practice 18

4. Sustainability reporting: the missing piece in the performance reporting jigsaw 19

Introduction 19
Sustainability reporting is key to ‘mainstreaming’ sustainability 19
Public services performance reporting should be advanced through
sustainability reporting 20
Improvement frameworks need to draw on sustainability reporting 21
Performance indicator frameworks need review in the context of a
sustainability agenda 23
Moving towards an institutional ‘fit’ 24

5. A CIPFA framework for public services sustainability reporting 25

The need for and objectives of a common framework 25

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ADVANCING SUSTAINABILITY ACCOUNTING AND REPORTING: AN AGENDA FOR PUBLIC SERVICE ORGANISATIONS

Bringing it all together: areas for general agreement 25

Bringing it all together: the next steps for CIPFA research 26
Conclusions 26

References/further reading 29

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 A DISCUSSION PAPER

EXECUTIVE SUMMARY

Sustainability reporting in public service organisations is an emerging field. Key questions

need to be resolved if more public service organisations are to take up the challenge of
sustainability reporting. For example, what are the objectives of public service organisation
sustainability reporting and who is the intended audience? How should sustainability
reporting in practice recognise the distinctive roles of public sector organisations in
envisioning and promoting a more sustainable future? What forms could and should
sustainability reporting take? How often is it feasible to report?

Arguably, public service organisations are failing to keep pace with the steady growth
of sustainability reporting in the corporate sector. This situation needs to be redressed.
While private sector initiatives are important in advancing sustainability reporting
generally across the economy, none of them specifically addresses the different roles of
public service organisations. Indeed, some initiatives argue that there is no fundamental
difference between organisations in the public and private sectors.

The regulatory framework is adapting as sustainability begins to influence thinking on

governance. For example, the publication of the draft regulations on the Operating and
Financial Review (OFR) raised the prospect of mandatory (if basic) corporate social
responsibility reporting. The public sector needs to consider how it might use the
opportunities presented by such changes.

There are many and various definitions of ‘sustainability’. A working definition of

sustainability reporting in public service organisations is offered in section 1 of this
discussion paper:

A public account of an organisation’s sustainability performance achieved through a

combination of: leadership; strategic partnering; stakeholder engagement; policy outcomes;
and the management of the organisation’s impacts on the local environment, social well-being
and economic prosperity.

Section 2 sets out the case for a distinctive model for public services sustainability
reporting practice. In the private sector, the Global Reporting Initiative (GRI) guidelines
for sustainability reporting have been influential, and are soon likely be supplemented
by specific guidance for public service agencies. This supplement may not be wide-
ranging enough, however, to reflect (for example) reporting on issues of leadership, policy
outcomes, or the diversity of practice which has already developed in the public services.

Section 2 also discusses the predominant agenda for efficiency in public service
provision, as reflected in the Gershon report. Given the ascendancy of environmental cost
management in the private sector, Gershon arguably fails to identify the potential of eco-
efficiency in relation to the public services financial ‘bottom line’. However, it is important
to think beyond prevailing ideas about efficiency, financial cost savings or potential league

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ADVANCING SUSTAINABILITY ACCOUNTING AND REPORTING: AN AGENDA FOR PUBLIC SERVICE ORGANISATIONS

tables of eco-efficiency in public service organisations if the full potential of a sustainability

reporting agenda is to be realised.

Section 3 reviews developments to date and emerging challenges in advancing

sustainability reporting in public service organisations. Generally, the UK is keeping pace
with international developments. However, organisations are more likely to disclose
sustainability performance information through a diversity of reporting channels. It may be
more effective to focus this information through a single, holistic report.

Initiatives in local government in particular have provided important advances. These

include the use of state of the environment reports, the ecological footprint and local or
community quality of life indicators. However, a key challenge will be to shift sustainability
reporting from the margins to the mainstream of public service reporting.

Sustainability reporting is only likely to be advanced within the current ‘rules of the game’
for public service reporting. Where there are practical difficulties manifest in institutional
arrangements for performance reporting, these need to be identified and the relevant
institutions need to be engaged in an agenda for reform.

Section 4 focuses on sustainability reporting in UK local government as a case study of

how institutional arrangements for performance reporting arguably need to be reformed to
promote significant further progress on sustainability issues.

By way of conclusion, section 5 discusses the possibility of a CIPFA framework for public
services sustainability reporting and sets out the next practical steps for CIPFA in working
towards establishing this framework. In relation to a possible framework, this section
draws together the central issues to be resolved if sustainability reporting in the public
sector is to rapidly develop. For example, what data set might be included in an OFR for
public service organisations? Should CIPFA issue guidance in relation to established
reporting models, particularly the GRI? And is there a case for ‘monetising’ environmental
or social impacts, given the potential influence of this idea and its obvious link to a skill set
identifiable in accountants?

While sustainability reporting poses many challenging questions, the conclusions of the
discussion paper underline the current opportunity for CIPFA, in partnership with other
interested organisations, to develop leading-edge practice for the public services.

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 A DISCUSSION PAPER

1. The need for advance in sustainability

accounting and reporting in the public
services

I N TROD U CT I O N

1.1 This paper presents the case for placing sustainability accounting and reporting in the
public services at the heart of the modernisation agenda. It sets out to establish key issues
for a debate on how to advance practice, and is aimed at, in particular, but not exclusively:
● government ministers, MPs, locally elected or appointed members of public service
organisations, policy makers
● users of public service organisations’ performance information, in particular the local
communities who use public services
● qualified accountants and other financial management staff who play key roles in
public service organisations’ performance reporting
● accountancy students, who will in future take these roles in the increasing number of
organisations that will have re-evaluated their responsibilities through an emphasis
on a more ecologically and socially sustainable society
● auditors, regulator and inspectors
● other public services staff with performance reporting responsibilities
● researchers into public services performance reporting.

P UB LI C S E R V I C E O R GA N I S AT I O N S N E E D TO K E E P U P W I T H D E V E LO P I N G
P R ACTI C E I N OT HE R S E CTO R S

1.2 Public reporting on ‘sustainability’ performance is rapidly emerging as an established

element of corporate performance management and reporting systems. The last ten
years or so have seen steady growth in the number of companies reporting on their
environmental performance, with the leading edge provided predominantly (but not always)
by larger companies in certain ‘sensitive’ industry sectors.

1.3 More recently, companies have started to introduce ‘social’ reporting components, covering
such issues as community involvement, equality of opportunity, workforce diversity, human
rights, supplier relations and so on, and the term ‘sustainability reporting’ is becoming
more prevalent (KPMG, 2002). Owen (2004, p.4) cites figures from the Corporate Register
(www.corporateregister.com) that suggest that 80% of the FTSE 100 companies now
produce social or environmental reports.

1.4 Whilst the private sector is providing the lead in reporting, progress by public service
organisations is seemingly patchy by comparison. Along with business, local public

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ADVANCING SUSTAINABILITY ACCOUNTING AND REPORTING: AN AGENDA FOR PUBLIC SERVICE ORGANISATIONS

service organisations in particular have been recognised as primary agents in bringing

about the transition to sustainability, with other public service organisations likely to
play increasingly important roles in bringing about a more sustainable society. It seems
counter-intuitive that the private sector should be seen to be leading developments in
sustainability reporting when, in comparison, UK public service organisations generally
appear to be doing so little.

T H E D E F I N I T I O N O F ‘ S U S TA I N A BI L IT Y ’ I S C O N STA N T LY D E V E LO P I N G

1.5 A widely accepted definition of sustainable development is ‘development that meets the
needs of the present without compromising the ability of future generations to meet their
own needs.’ (WCED, 1987). Other definitions emphasise not just an efficient allocation of
resources over time, but also a fair distribution of resources and opportunities among the
present generation and between present and future generations, and a scale of economic
activity relative to ecological life support systems. Forum for the Future, an influential
sustainable development charity, for example, define sustainable development as ‘a
dynamic process which enables all people to realise their potential and improve their
quality of life in ways which simultaneously protect and enhance the Earth’s life support
system.’ 1

1.6 This paper takes ‘sustainability reporting’ as its focus, but recognises that in order to
report on sustainability performance, public service organisations will need to develop
systems for measuring, monitoring and communicating issues of social, environmental
and economic performance. In the corporate sector, sustainability reporting is defined
as the provision of an account of whether the business is making a positive or a negative
contribution to a more sustainable future.

1.7 A working definition of sustainability accounting and reporting in public service

organisations is:

A public account of an organisation’s sustainability performance achieved through a

combination of: leadership; strategic partnering; stakeholder engagement; policy outcomes;
and the management of the organisation’s impacts on the local environment, social well-being
and economic prosperity.

SU S TAI NAB I L I T Y AC C O U N T I N G A N D R E P O R T I N G A R E E VO LV I N G I N P R ACT I C E

1.8 Although the idea of sustainability is ambiguous and contested, there seems to be
increasing acceptance that we need to address how we are to live without plundering the
planet of its capital stocks to fuel ever increasing material consumption. The concept of
sustainability is arguably moving centre stage politically, and is increasingly finding its way
on to the agendas of business leaders, managers and senior academics, who are beginning

1 Forum for the Future claims to be the leading sustainable development charity in the UK. The
definition of sustainable development is taken from its homepage,
www.forumforthefuture.org.uk/ (accessed 15/09/2004).

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 A DISCUSSION PAPER

to talk openly on the practical and ethical dimensions of continuing with ‘business as
usual’.

1.9 Sustainability is a central issue for accountants across the economy because of the
growing recognition that conventional financial accounting and reporting systems may
contribute to non-sustainability, and because there are now significant moves to explore
how accounting and reporting can contribute to a more sustainable future.

1.10 Conventional accounting measures of success reported annually by companies are

increasingly acknowledged as part of the problem of non-sustainability. These highly
abstract measures fail to explain how shareholder ‘wealth’ is accumulated at the expense
of cumulative environmental damage, increasing dependence on wasteful throughput
of materials and energy, and increasing social stresses. Conventional accounting and
reporting systems may record economic growth, but not all of the problems associated
with economic growth, including pollution, congestion and crime.

1.11 One of the main ways in which business organisations have attempted to deal with the
problem of sustainability has been to take up the practice of social, environmental or
‘sustainability’ reporting. The key role for sustainability reporting in bridging the gap
between conventional (economics-based) ideas about organisational success and less
accessible ideas about a sustainable future has also been recognised by other UK
accounting institutes:
● The Association of Chartered Certified Accountants (ACCA) has championed corporate
environmental, social and sustainability reporting for over a decade, for example via
its awards for sustainability reporting.
● Forum for the Future, in association with the Chartered Institute of Management
Accountants (CIMA), has produced a methodology for quantifying in money terms
(‘monetising’) companies’ ‘environmentally sustainable profits’ (Howes, 2002).
● The Institute of Chartered Accountants in England and Wales (ICAEW) has a long-
term project looking at ‘Information for Better Markets’, which includes sustainability
issues and the accountant’s role. Their paper New Reporting Models for Business
(December 2003) identifies the Global Reporting Initiative (GRI, 2002), which claims to
be recognised as the international standard for sustainability reporting, as one of 11
key proposals for new business reporting models.2

1.12 Whilst these initiatives are all important in advancing sustainability reporting generally,
none of them relates specifically to advancing practice in public service organisations.
Accordingly, as the leading professional accountancy body for the public services, CIPFA
now sees a need to influence and advance sustainability accounting and reporting practice
outside the corporate sector.

2 The Global Reporting Initiative is an independent institution which has developed what it claims to be
globally applicable sustainability reporting guidelines (see www.globalreporting.org).

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ADVANCING SUSTAINABILITY ACCOUNTING AND REPORTING: AN AGENDA FOR PUBLIC SERVICE ORGANISATIONS

1.13 If business is to make the transition to a sustainable society, predominant ‘economics’

values and existing accounting measures of organisational success will necessarily and
increasingly be brought into line with a different understanding which draws on ideas
about what a more ecologically and socially sustainable society looks like. Responding
to environmental problems will become core to business activity. Similarly, in the public
services, traditional service objectives will increasingly be questioned through an emphasis
on sustainability, and core definitions of services altered or challenged. Pressures on
waste management and transport services, for example, are now too critical to ignore.
The UK is simply running out of landfill sites (with planning permission) and congestion in
some parts of the UK is choking off economic growth.

T H E REGULATO R Y FR A M E WO R K I S C H A N G I N G

1.14 Taking stock, sustainability is arguably beginning to guide public governance, and
government will in future be under increasing pressure to legislate so that organisations
operate, account for and report on their performance, under different ‘rules of the game’.
There are a number of pressures on companies to manage and report on environmental
and social risks associated with their business activities manifest in legislative
developments, including disclosure measures in the Pensions Act and measures for better
corporate governance (the Combined Code and the Turnbull Report). The publication of
the draft regulations on the Operating and Financial Review3 also raises the prospect
of mandatory reporting in the UK (Owen, 2004). Such developments are likely to inform
practice in public service organisations.

1.15 A changing economic regime is already manifest in new taxes which attach prices to
environmental damage. Examples are the climate change levy (a tax on energy customers,
including public service organisations) and the landfill tax. Perverse economic incentives,
on the other hand, such as those to the fossil-fuel industry, are beginning to be re-
examined (The Economist, October 25 2003, p.13), whilst more sustainable technologies
and solutions are beginning to be financially rewarded. The consequence will be that
environmental accounting, which pays greater attention to the environmental inputs
and outputs of economic systems, will become a necessity in all organisations, with
environmental disclosure of increasing relevance, and accountants increasingly working
alongside other specialists. These reforms seem likely to affect the roles of public service
accounting professionals as much as their corporate sector counterparts.

1.16 To summarise, while it is difficult to predict how things will change, this paper is based
on the assumption that legislative and regulatory change will increasingly reflect better
knowledge of growing ecologically and socially unsustainable practices to promote a
change in priority for sustainable public services. In future, accounting and reporting will
sit in a radically different context. This paper is about starting to influence future practice
in the public services.

3 These draft regulations were published in May 2004 by the Department of Trade and Industry: see
www.dti.gov.uk/cld/financialreview.htm (accessed 07/09/04). See Owen (2004) for an evaluation of the
proposed OFR regulations.

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 A DISCUSSION PAPER

2. What does sustainability accounting

and reporting mean for public service
organisations?

I N TROD U CT I O N

2.1 This section aims to clarify what is meant by sustainability accounting and reporting
in public service organisations. A basic understanding of the idea of sustainability
reporting can be gleaned with reference to what the private sector is doing. This section
therefore starts with a brief review of developments in the corporate sector. It goes
on to argue, however, that public service organisations are fundamentally different
forms of organisation to private sector companies, that they have a key role in driving a
sustainability agenda, and that sustainability reporting for public service organisations,
therefore, should be advanced in different ways to the current thinking in the private
sector.

WH AT P R I VAT E S E CTO R C O MPA N I E S A R E D O I N G

2.2 For companies, sustainability reporting means, broadly, providing a public account of
whether the business is making a positive or a negative contribution to an environmentally,
socially and economically sustainable future. Whilst corporate reporting has traditionally
centred on historical financial information, sustainability reporting extends its scope and
sets the financial bottom line in a radically different context. The widely endorsed Global
Reporting Initiative (2002), for example, builds on the idea of the ‘triple bottom line’4 by
providing a template for business to report information measuring economic, social and
environmental performance. An important theme is multi-stakeholder engagement, which
moves away from the idea that shareholders are the only group to which the business is
accountable.

2.3 The form of corporate sustainability reporting varies. In general, however, companies have
tended to supplement their annual reporting on financial matters with information on
health and safety, social or environmental performance. Reporting platforms include the
annual report, a stand-alone report, a CD-ROM or the company’s website. Generally, there
is evidence that practice is beginning to coalesce around emerging standards for reporting
and external verification, with the Global Reporting Initiative’s Sustainability Reporting

4 An idea attributed to John Elkington (1997).

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ADVANCING SUSTAINABILITY ACCOUNTING AND REPORTING: AN AGENDA FOR PUBLIC SERVICE ORGANISATIONS

Guidelines (GRI, 2002) and AccountAbility’s AA1000 Assurance Standard5 increasingly

informing leading-edge practice (Owen, 2004). There is also some evidence of emerging
industry norms (notably, the GRI is in the early stages of developing sector supplements to
its generic sustainability reporting guidelines).

2.4 Explanations of the motivations for corporate sustainability reporting vary. One school of
thought is that there is an emerging business case for sustainability reporting, linked to
improvements in ‘measureables’ such as profit, volatility in share price and cost of capital,
as well as the less easily measurable concepts of corporate reputation or brand image and
business risk (see GRI, 2002; Howes, 2002; Forum for the Future, 2004).

2.5 The indications are that certain companies which have decided to take the longer-term
view (thinking of themselves as winners or losers in the transition to a more sustainable
economy) are more likely to adopt the new reporting approaches. For example, the ICAEW
(2003, p.38) cite Chris Fay, former chairman and chief executive of Shell UK, arguing in
favour of social and environmental reporting:

We are clearly… at the start of a long and difficult journey towards a new type of business
reporting which takes account of economic, environmental and social performance… The days
when companies were judged solely in terms of economic performance and wealth creation
have long disappeared … [T]he successful company of the future will need to demonstrate,
year on year, progress towards greater openness… and, above all, tangible progress towards
external verification of financial, environmental and social performance.

2.6 However, it is often businesses seeking to defend their reputations or, indeed, the
legitimacy of core business activities in the light of a sustainability agenda that regularly
emerge as some of the leaders in environmental, social or sustainability reporting. In the
context of what is still an evolving institutional framework for a more sustainable future, as
Forum For the Future (2004, p.7) has put it, ‘the business case is still being made.’

2.7 Corporate sustainability reporting may be an important benchmark for public sector
practice, but while the financial interests of shareholders remain the key focus of the
corporate sector, there is arguably little real possibility of companies sacrificing profit for
the common good.6 Claims that private sector organisations are making a real contribution
to a more sustainable society must therefore be rigorously evaluated.

5 AccountAbility describes itself as ‘an international, not-for-profit, professional institute

dedicated to the promotion of social, ethical and overall organisational accountability, a
precondition for achieving sustainable development’. (See www.accountability.org.uk/aboutus/
default.asp, accessed 02/09/04.) The AA1000 Assurance Standard is described as follows: ‘The
Standard addresses the need for a single approach that effectively deals with the qualitative
as well as quantitative data that makes up sustainability performance plus the systems
that underpin the data and performance…. It is designed to complement the GRI Reporting
Guidelines and other standardised or company-specific approaches to disclosure.’
(www.accountability.org.uk/aa1000/?pageid=52, accessed 02/09/04).
6 See, for example, Ball and Milne (forthcoming) for a discussion.

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 A DISCUSSION PAPER

P UB LI C S E R V I C E O R GA N I S AT I O N S A R E D I F F E R E N T

2.8 In September 2003 the GRI launched a project to develop a ‘GRI Sector Supplement for
Public Agencies’ to their sustainability reporting guidelines (GRI, 2002).7 To date, the
GRI (2004) seems likely to advocate that public service organisation reporting should
be advanced by taking the private sector sustainability reporting model as a starting
point. Full compliance with the GRI would mean being able to measure, improve and
communicate direct economic, environmental and social impacts to stakeholders. This
makes sense from an eco-efficiency perspective (broadly, focusing on incremental
improvements in resource use and environmental impacts) because, as the GRI points out,
public service organisations make up one of the largest sectors of the economy, and as
such have a major operational impact on the economy, environment and society.

2.9 Since public service organisations’ objectives are often set out in the context of the broad
public interest, it is also possible to argue that they should lead by example by providing a
public account of their own direct impacts on the local environment, local social well-being
and economic prosperity (GRI, 2004, p.2). Arguably, the Environment Agency in the UK, for
example, takes this stance, as reflected in its work on advancing environmental accounting
for use by other agencies and reporting on its own sustainability performance.

2.10 However, the roles of public services organisations in providing political leadership
to catalyse change, in the institutional environment, and in developing meaningful
policies and plans to address problems of unsustainability are far too important to
limit our thinking about sustainability reporting in the public services to a focus on the
organisation’s direct impacts. The private sector (at least in Milton Friedman’s famous
dictum) has the objective of maximising returns on shareholder investments. Public
service organisations have responsibilities of whole orders above those we currently
imagine for companies.

2.11 For example, if environmental accounting is seen as a means of getting firms to

‘internalise’ what have been (mis-) conceived as ‘externalities’ (Howes, 2002), then
public service organisations could be conceived of as the bodies which have statutory
responsibilities to deal with some of the worst excesses (‘externalities’) of society’s
addiction to economic growth and private wealth. Public institutions and service
organisations exist for the public (not private) good, including setting the context within
which the private interests of different parts of society interact, both inside and outside
of any market mechanism. National and regional law-making bodies, for example, are
recognised as having crucial roles with respect to regulations, fiscal incentives, taxes and
subsidies.

2.12 The crucial role of local public service organisations, in particular in bringing about the
transition to a more sustainable way of life, is recognised in international and national
agendas for sustainability. At the landmark Rio Earth Summit, two sectors in particular
emerged as primary agents in delivering sustainability: business organisations and local
government authorities. Agenda 21, the global plan for sustainable development, argued
that the world’s environmental and sustainable development issues can and must be

7 See www.globalreporting.org/guidelines/sectors/public.asp

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ADVANCING SUSTAINABILITY ACCOUNTING AND REPORTING: AN AGENDA FOR PUBLIC SERVICE ORGANISATIONS

solved through local partnerships.8 Ten years on from Rio, most UK local authorities have
developed a Local Agenda 21 (LA21) strategy but have not mainstreamed sustainability.
Section 4 of this report will discuss how the Government’s agenda for modernising local
government provides new opportunities for mainstreaming sustainability, for example in
establishing in law the role of local government in England as ‘community leaders’ under
the Local Government Act 2000.

P UB LI C S ERV I C E S S U S TA I N A BI L I T Y R E P O R T I N G N E E D S TO B E D I F F E R E N T

2.13 The objectives of public service organisations are fundamentally different to corporates’
objectives. This needs to be recognised in the way that advancing sustainability reporting in
public service organisations is approached.

2.14 There is already general recognition that Generally Accepted Accounting Practice (GAAP)
has to be adapted to fit the public service environment. The UK Accounting Standards
Board’s (ASB) (2003) discussion paper on financial reporting in the public and not-for-profit
organisations (collectively referred to as public benefit entities), for example, recognises
the fundamentally different objectives of such organisations in comparison to private
sector companies:

Public Benefit Entities are those entities whose primary objective is to provide goods or
services for the general public or social benefit and where any risk capital has been provided
with a view to supporting that primary objective, rather than for a financial return to equity
shareholders.
(Carter, 2003, p.1, emphasis added)

2.15 Whilst reactions to the ASB discussion paper have varied, there seems to be general
acceptance that the ASB’s Principles for Financial Reporting need very careful
interpretation in the case of public service organisations.9 One issue arising is that in order
to provide a meaningful picture of the performance of a public service organisation, a
considerable amount of non-financial information is necessary.

2.16 Norms for corporate sustainability reporting, similarly, need to be altered to reflect the
scope of public service responsibilities as these are increasingly re-interpreted through
the lens of sustainability. Section 3 of this report will identify how some public service
organisations are already developing distinctive practices and using sustainability reporting
in sophisticated ways.

8 A widely accepted definition of sustainable development is ‘development that meets the needs of
the present without compromising the ability of future generations to meet their own needs.’ The
source is the landmark Brundtland Report, Our Common Future, published by World Commission on
Environment and Development, 1987.

9 See for example the difference between the CIPFA and ACCA responses to the ASB discussion paper,
available at www.cipfa.org.uk/pt/pt_details_r.cfm?news_id=16984 (accessed 03/09/04) and
www.corporateangels.com/uk_business_advice9.html (accessed 03/09/04).

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 A DISCUSSION PAPER

WH ERE M I G H T PU BL I C S E R V I C E S R E P O R T I N G OT H E R W I SE G O ?

2.17 An interesting question is where sustainability reporting for public service organisations
might go if it failed to reflect these basic differences. ‘Efficiency’ has arguably become a
by-word of public service organisation reform, and it is relatively easy to see how a private
sector style triple bottom line might be advocated to facilitate comparability between public
service organisations, or competition with alternative suppliers of public sector services.
However, if corporate sustainability reporting is used as a benchmark for public service
organisations, there is the danger that the idea of sustainability gets confused with simply
managing the direct impacts of the organisation, or eco-efficiency.

2.18 Further, in practice it may not be possible to agree on a common definition of what
sustainability is or what sustainability reporting might cover because ideas about
sustainability necessarily differ between communities. WWF-UK (2002) indicates that most
local authorities have agreed sustainable development objectives linked to local strategic
objectives, so that the language used to describe objectives will vary between them.

2.19 This diversity arises because there is still a great deal to learn about how a future
sustainable society might look. For this reason, this paper will argue against a possible
‘league table’ of public service organisations’ sustainability performance based on
standardised indicators, most likely biased towards eco-efficiency. (In the private sector,
indicators for direct environmental impacts, at least, are now pretty well worked out.10)
Further issues arise in relation to the burden of the cost of such a benchmarking exercise,
and the danger that compliance with such a sustainability reporting requirement would be
only to the extent that it is perceived to be required or supported by government policy.

2.20 Whilst the use of league tables of sustainability (eco-efficiency) performance is not
advocated as the way forward for advancing sustainability reporting, the failure of
reformers to make connections between an agenda for operational efficiency in the public
services and the potential of the new wave of environmental accounting developments
must be highlighted. The Gershon Report (Gershon, 2004) is an example of this kind of
reform, identifying ‘auditable and transparent efficiency gains of over £20 billion in 2007-08
across the public sector’ (which includes a target of £6,450 million for local government)
and ‘a gross reduction of over 84,000 posts in the Civil Service and military personnel’ (p.3).

2.21 Whilst Gershon emphasises the potential of well-established management accounting

approaches, particularly activity-based costing (ABC), in driving efficiency, the failure
to identify the potential of eco-efficiency, along with a wider concern for risk and
reputation management, is surprising given the potential of these ideas in relation to the
financial bottom line. Somewhat worrying in Gershon, too, are references to ‘sustainable
efficiencies’ (p.5) and ‘recyclable savings’ (pp.23, 24) which seem to appropriate the
language of sustainability and turn it into something else entirely.11 An important agenda
for future research and practice will be one which seeks to identify the potential for
systematic eco-efficiency gains in public service organisations.

10 See, for example, the GRI guidelines on sustainability reporting (GRI, 2002).

11 The idea of ‘appropriating the language of sustainability’ is borrowed from Larrinaga-Gonzalez and
Bebbington (2001).

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ADVANCING SUSTAINABILITY ACCOUNTING AND REPORTING: AN AGENDA FOR PUBLIC SERVICE ORGANISATIONS

H OW TO ‘ I N C E N T I V I S E ’ S U S TA I N A BI L I T Y R E P O R T I N G I N P U B L I C SE R V I C E
ORGAN I S ATI O N S

2.22 One practical difficulty that arises is how to ‘incentivise’ sustainability reporting in public
service organisations in the absence of a clear motivation – an equivalent to the private
sector ‘business case’ for sustainability reporting. Individuals working in public service
organisations might well recognise that sustainability reporting is in the public interest.
However, given the already significant burden of performance reporting, why should they
‘invest’ in building capacity in sustainability reporting if there are no obvious (short-term
financial) benefits to offset the investment, and if government is not perceived to be giving
a stronger political backing for delivering on sustainability? On the other hand, given
the amount of disclosure already required of public service organisations, sustainability
reporting could be promoted as a smarter way of organising and providing overall
coherence to existing reporting requirements.

2.23 Further issues arise in relation to how sustainability reporting sits in relation to the agenda
for corporate governance; and how it sits in relation to the current agenda for corporate
social responsibility (CSR), particularly in the context of public service organisations in
which the idea of CSR chimes, say, because the organisational form closely resembles the
private sector firm. An important area for discussion will be whether it is helpful to explain
sustainability reporting in the context of the organisation’s corporate governance or CSR
credentials, and in what context(s) this approach might be helpful.

2.24 The next section of this paper examines current sustainability reporting practice in public
service organisations.

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 A DISCUSSION PAPER

3. Learning from current public service

sustainability reporting practice

I N TROD U CT I O N

3.1 This section discusses developments to date and emerging challenges involved in
advancing sustainability reporting in the public services. Some omissions are likely, as the
range of sustainability accounting and reporting approaches in the public services is not
well documented.

AN OV E R V I E W O F S O ME U K A N D I N T E R N AT I O N A L D E V E LO P M E N T S

3.2 The GRI (2004) reports findings of exploratory research into international public service
organisation sustainability reporting. The broad indication is that this is a new but
expanding field, in which the UK appears to be keeping pace with wider developments.
A notable finding is that many public service organisations disclose information on
sustainability performance, but that this is not always presented as a structured
sustainability performance report as such. Also, sustainability information tends to be
spread across an array of publications and tends to focus on general policy goals rather
than sustainability impacts (GRI, 2004). UK local government authorities, for example,
already have to produce a panoply of reports for different service areas, often in great
detail. One study suggests that reporting channels for a county council number over
50 (Ball, 2002). A possible conclusion is that these diverse disclosures would be better
focused if brought together in a more structured, holistic report.

3.3 Unsurprisingly the GRI’s research is focused on triple bottom line reporting, although
the indications are that only a handful of public service organisations internationally have
experimented with the GRI (GRI, 2004). In the UK a notable example (the only UK cited) is the
NHS Purchasing and Supply Agency, which has produced a web-only report using the GRI.12

3.4 A small number of exemplar public service sustainability reports have been recognised
in the ACCA UK Sustainability Reporting Awards. In 2001 Bolton Metropolitan Borough
Council won the Best First-Time Reporter award in the Environmental Reporting Awards
Category. Echoing the GRI finding that public service sustainability reporting is a young
but developing field, the judges’ report on the 2002 Awards noted an increased number of
public sector reports entered (six reports, with three public sector reports short-listed).
Short-listed public sector reports in the 2002 awards were from the Environment Agency
(noted for its work on the development of environmental accounting and expenditure
trends over the previous three years), HM Prison Service, and the NHS Purchasing and
Supply Agency.

12 See www.pasa.nhs.uk/sustainabledevelopment/2003/, accessed 31/08/04.

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ADVANCING SUSTAINABILITY ACCOUNTING AND REPORTING: AN AGENDA FOR PUBLIC SERVICE ORGANISATIONS

3.5 Turning to sector-specific developments, the UK Government has committed itself to

reporting progress on its national sustainable development strategy (see Ball, 2002).
Central government departments also have sustainability objectives and targets and have
taken steps towards reporting on their sustainability performance. In the governmental
sector, a number of organisations have taken the opportunity to request the inclusion of
sustainability reporting requirements as part of the Private Finance Initiative contracting
process (see Ball et al, 2002; Howes, 2002).

3.6 There is a paucity of work relating to health, police or fire services, although a research
project at University Hospital Lewisham has led to the production of social and
environmental reports. The Hospital states, ‘As far as we are aware, no NHS organisation
has produced this kind of integrated accounts – even though good health and well-being
are underpinned by positive social experiences, conditions and relations and a healthy
natural environment.’13

3.7 Sustainability reporting in UK public services seems most developed in the case of
local authorities, where it is recognised as an outgrowth of LA 21 activities. A recent
academic study (Telford, 2002) indicates that around 25% of local authorities produce an
environmental report, with around 13% having the idea under consideration. A far larger
proportion of authorities, however, are reported as having taken initiatives in service
delivery, policies or community leadership, suggesting (again) that the incidence of
disclosure is far higher than the proportion of authorities claiming to be producing a formal
report as such.

3.8 Three levels of sustainability accounting and reporting in public service organisations have
generally been identified (Ball, 2002; Lewis, 2000; GRI, 2004, p.9):
● Operational impacts. The Audit Commission has in the past (Audit Commission,
1997) deemed the adoption of LA-EMAS14 to be the cornerstone of LA21. Telford
(2002) indicates that around 12% of local authorities are verified to an environmental
standard, with around 25% either implementing or considering implementing a
standard. It is not clear how many of these authorities use the information generated
for external reporting. Alternatively the triple bottom line would provide a means
of accounting for and reporting on operational impacts, a measure which is being
encouraged in local authorities in Australia and New Zealand, but is not evident in the
UK.

13 See www.uhl.ac.uk/esia.php, accessed 31/08/04.

14 LA-EMAS is an adapted version of the European Commission’s Environmental Management and

Audit Scheme (EMAS). EMAS sets guidelines for improving the organisation’s environmental impacts
and external reporting on impacts. Local authorities can alternatively follow a second environmental
management scheme, the ISO14000 series, which is generally viewed as less onerous.

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 A DISCUSSION PAPER

● Policy effectiveness. As the GRI (2004, p.18) recognises, ‘Efforts to develop policies
and strategies have been paralleled by a broad-based movement dating back several
decades to measure environmental sustainability and social development’. In the
UK, local or community sustainability or ‘quality of life’15 indicators now represent
the main thrust of attempts to measure and report effectiveness in delivering
sustainability outcomes (Ball, 2002; Lewis, 2000), although it is not clear how
widespread their use is. These indicators measure external environmental, social and
economic conditions in the area. Local government has collaborated in developing
a core menu of indicators with government, but authorities could also use sets
of indicators developed by the European Commission and the Audit Commission.
(Central government also uses national quality of life indicators to monitor national
sustainable development objectives.)
● The locality. ‘State of the environment’ reports, encouraged since the 1980s (Lewis,
2000), assess the state of the environmental and sometimes economic and social
conditions in a given geographical area. These kinds of reports are not widespread,
but are highly informative when they are produced. (Notably, state of the environment
reporting is a mandatory element of public sector accountability at different
governmental levels in some parts of the world [GRI, 2004, p.18].)

Currently gaining considerable currency is the ‘ecological footprint’ (Wackernagel and

Rees, 1996), which illustrates the global environmental impact of a community and is
a much-needed tool for communicating about sustainability. The ecological footprint
uses the idea of an ‘Earthshare’, which is based on the total productive land on the
planet divided by total global population. Average citizens in the UK currently require
vast areas of land to support their materialistic lifestyles and so have large footprints.
There is potential for the ecological footprint to educate, to be used as an indicator
of progress towards sustainability (WWF-UK, 2002) or to help in pinpointing practical
ways to reduce the footprint of a community.

The Welsh Assembly Government, for example, has adopted the ecological footprint
as a headline indicator for sustainability. The value of work to date on the ecological
footprint of Wales (WWF Cymru/BBF, 2002) is claimed to lie in providing an early
sustainability assessment; identifying the ‘big hitters’ in terms of environmental
impact; and scenario planning, which looks at possible future footprints in the context
of policy-making and understanding ‘what a sustainable Wales would look like’ (p.41).
(Notably, ‘locality’ could relate to any area, for example the Environment Agency has
a statutory duty to report on the state of the environment across the area of England
and Wales, whilst the European Environment Agency reports similarly across the
whole of Europe.)

15 Government uses the terms ‘quality of life’ and ‘sustainability’ interchangeably. The national
strategy for sustainability is entitled, for example, A Better Quality of Life: A Strategy for Sustainable
Development in the United Kingdom (DETR, 1999).

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ADVANCING SUSTAINABILITY ACCOUNTING AND REPORTING: AN AGENDA FOR PUBLIC SERVICE ORGANISATIONS

WH Y S OM E P U BL I C S E R V I C E O R GA N I SAT I O N S R E P O R T O N SU STA I N A B I L I T Y
P E RFORM AN C E

3.9 The reasons why public service organisations are developing sustainability accounting and
reporting are, similarly, not well documented. However, the GRI (2004, pp.23-25) reports
that public service organisations give a number of reasons for sustainability reporting:
● reinforcing organisational commitments and demonstrating progress
● integrating sustainability into operations
● serving as a role model
● facilitating public participation in government where some process of stakeholder
dialogue underpins the reporting process.

Suggested benefits are (GRI, 2004, p.27):

● improved operational efficiency
● increased environmental/social awareness
● ability to approach business partners on a similar level
● enhanced intra-governmental co-operation
● improved public image.

3.10 Based on research in local government, Ball (various) indicates that sustainability
accounting and reporting are adopted to:
● embed concerns in sustainable development strategies into front-line services
● increase the visibility of non-sustainable trends in local communities and the
challenges for the organisation
● set targets for improvement and hence change attitudes and behaviour towards action
on sustainability within the organisation
● raise public awareness of sustainability
● arrive at fuller clarity and meaning about the organisation’s agenda for sustainability.

3.11 Certainly these findings, whilst not comprehensive, indicate that sustainability reporting
(and underlying sustainability accounting activities) is playing a rather more profound
role in public service organisations than simply addressing the unsustainability of
organisational impacts (which may be the most we can hope for in the corporate sector for
the time being).

W H Y OTH E R O R GA N I S AT I O N S D O N OT R E P O R T

3.12 A further question, however, is why public service organisations do not take up
sustainability reporting, or look to advancing practice. Telford’s (2002) study indicates that
the main barriers to local authorities taking up environmental issues (including reporting)
more fully are the costs of implementing improvements and the priority being given to
other, non-environmental issues.

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 A DISCUSSION PAPER

3.13 A further practical difficulty in local government is that sustainability reporting has tended
to be developed by ‘sustainable development teams’ or environment departments. Whilst
cross-service sustainable development (or equivalent) teams in local authorities are likely
to continue to play supporting roles in embedding a sustainability agenda, in order to
advance sustainability reporting it will need to be mainstreamed, which means integration
with the organisation’s overall performance management and reporting system. A
key question, therefore, is where sustainability reporting should be ‘owned’ within the
organisation. Amongst the more obvious lead players are the chief executive or finance
director.

3.14 Although studies have suggested that accountants have had a role limited to legitimising
environmental decisions (Bowerman and Hutchinson, 1998; Telford, 2002), this paper has
already underlined the significant future role of public service accountants in action on
sustainability. Telford (2002) reports that many local government accountants believe they
have a significant role to play in environmental reform (Telford, 2002). Producing something
like the triple bottom line or environmental cost and management information implies a
skill set identifiable in accountants. And as pressures for accounting to reform increase,
accountants will increasingly work alongside those with more direct responsibility for
implementing sustainability measures. Analogously, the existing public sector auditor skill
set involved in providing assurance that reports comply with agreed standards will also be
important as new reporting approaches are explored.

3.15 A profound difficulty, too, is a likely absence of public pressure for sustainability reporting.
In the case of local authority sustainability reporting, for example, local politics can be
dominated by what are often highly individualised expectations for quality services at low
cost (as opposed to a sustainability agenda for the common good) and the management
of budgetary ‘crises’ (leaving little by way of resources for sustainability). Although
resources for local government have increased under the current government, demands
for performance have also increased. The political agenda, and therefore local spending
priorities for local government, has been dominated by the Government’s agenda for
improved education and social care.16

3.16 In short, there has been little interest or incentive for making the overall sustainability
agenda a key issue of local political debate – a state of affairs which is surely reflected
in the patchy response to a sustainability reporting agenda. It would seem that if
sustainability is not perceived to be an important issue in local politics, there is an absence
of motivation for reporting that in the private sector is driven by issues of corporate and
brand reputation. One challenge is to consider ensuring that sustainability reporting covers
the core issues which seem important to people, including local protest over such issues
as airports, incinerators, and road building, and attempting to link these concerns to a
wider debate.

16 These points are discussed more fully in Ball and Seal (2004).

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ADVANCING SUSTAINABILITY ACCOUNTING AND REPORTING: AN AGENDA FOR PUBLIC SERVICE ORGANISATIONS

KE Y I SS UE S FR O M C U R R E N T P R ACT I C E

3.17 Taking stock, it is possible at this stage to look to certain exemplar public service
organisations (particularly local authorities) which seem to be important in building up
new reporting practices and creating new knowledge. Further research would reveal
what proportion of public service organisations are actually engaged in sustainability
reporting and the implications for delivering on sustainability. Public service organisations
will, however, struggle to gain visibility in comparison to corporate reporting on ‘big
ticket’ issues. A further challenge lies in being able to shift sustainability reporting from
being a marginal activity to the core of what is generally understood to be performance
management and reporting practice. One possible conclusion is that government might
very usefully reward organisations which choose to use sustainability reporting as part of
their approach to delivering on government’s national and their own local strategies for
sustainability.

3.18 In terms of the form of reporting, some of the most important advances have come from
local government in demonstrating the importance of moving away from the conventional
accounting focus on a single organisational reporting entity, as in corporate sustainability
reporting. Approaches such as the state-of-the-environment reports, the ecological
footprint and local or community quality of life indicators have been key to envisaging a
more complex web of ideas and solutions for sustainability. As Hawken et al (2002) explain:

…narrowly focused eco-efficiency could be a disaster for the environment by overwhelming

resource savings with even larger growth in the production of the wrong products, produced
by the wrong processes, from the wrong materials, in the wrong place at the wrong scale, and
delivered using the wrong business models.

3.19 These developments are important conceptually because it is only in examining cumulative
impacts at the level of communities, that the need for change at many levels, and not only
in individual organisations, can be demonstrated. Certainly, policy-focused and locality-
focused sustainability reporting by local government authorities seem important in
developing multi-level thinking for the long term, but a very different question is how these
ideas can be made more effective in practice in understanding and delivering sustainable
outcomes

3.20 The next section therefore takes up the question of how sustainability reporting can be
advanced within the current ‘rules of the game’ or institutional constraints within which
public service organisations operate.

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 A DISCUSSION PAPER

4. Sustainability reporting: the missing

piece in the performance reporting
jigsaw

I N TROD U CT I O N

4.1 As sustainability reporting in the UK is probably most advanced within local authorities,
this sector is used as the focus for this part of the paper. Different ‘rules of the game’
or institutional constraints may operate within, for example, the central government
department, government agency and NHS sectors. These and other parts of the UK
public sector could be included in future CIPFA research. The central question is how
sustainability reporting sits in relation to statutory performance reporting requirements
and attendant audit and inspection arrangements. If there are practical difficulties
manifest in institutionalised arrangements, then the argument is that there will be a need
for change and the introduction of incentives to ensure that sustainability reporting is
made a priority.

4.2 This section aims to draw out the issues for UK local authorities generally. Reflecting the
author’s particular experience of research in the sector, however, the approach is to draw
primarily on the case of English local authorities, whilst also discussing issues arising in
relation to arrangements for authorities in Wales and Scotland.

4.3 Using this approach, four arguments are developed in relation to advancing sustainability
reporting in UK local authorities generally:
● sustainability reporting is key to ‘mainstreaming’ sustainability
● public services reporting should be advanced through sustainability reporting
● improvement frameworks need to draw on sustainability reporting
● performance indicator frameworks need review in the context of a sustainability
agenda.

S US TAI N A BI L I T Y R E P O R T I N G IS K E Y TO ‘ M A I N ST R E A M I N G ’ SU STA I N A B I L I T Y

4.4 Although local authorities in the UK have worked towards sustainability through Local
Agenda 21, recent policies for local government arguably represent new opportunities to
mainstream sustainability and sustainability reporting activities (WWF, 2002; Forum for
the Future, personal communication). In relation to authorities in England and Wales, key
policy measures for sustainability under the Local Government Act 2000 are:
● Community strategy, which is a requirement to prepare an overarching plan ‘for
promoting the economic, social and environmental well-being of an area’. Central

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ADVANCING SUSTAINABILITY ACCOUNTING AND REPORTING: AN AGENDA FOR PUBLIC SERVICE ORGANISATIONS

government has made explicit links between the development of these local
strategies and local, regional and national sustainability objectives. Community
strategy has a duty attached to it to deliver economic, social and environmental well-
being (‘well-being’ is a term which tends to be used interchangeably with sustainable
development). This is an important driver for sustainability. The community strategy
will be the overarching strategy for sustainability in an area, aiming to guide all other
strategies beneath it.
● The well-being power: a discretionary power linked to community strategy.

4.5 These interlinked measures arguably provide local authorities with the opportunity to mainstream
sustainability initiatives which then need reporting. Developments in Scotland differ, although the
Local Government in Scotland Act 2003 also introduces a power of well-being, and achievement
of sustainable development is a characteristic of Best Value arrangements.

4.6 In the corporate sector, sustainability reporting is the primary vehicle for reporting
evidence of performance on sustainability, and is regarded as an element of good practice
in corporate social responsibility (CSR). In comparison, sustainability reporting in local
authorities will be key to improving sustainability performance and delivering on the
community leadership role for local government authorities.

4.7 The community strategy document will be the document that articulates the area’s vision
for sustainability. It would make sense for local authorities to base their sustainability
reporting on community strategy priorities (which express economic, social and
environmental objectives for the area), particularly as each priority will have a series of
performance indicators attached.

PUB LI C S E RV I C E S PE R FO R MA N C E R E P O R T I N G SH O U L D B E A DVA N C E D
T H R OUGH S U S TA I N A BI L I T Y R E P O R T I N G

4.8 Arguably, to provide a meaningful picture of the performance of a public service

organisation, there is a need for an extended performance report that brings in a
considerable amount of non-financial information. The mainstream of accounting and
reporting on public service organisations in general, and local authorities in particular, has
traditionally focused on financial matters. In the case of local government, the introduction
of statutory performance indicators and an emphasis on programmes to improve the
quality of services (in relation to English local authorities, for example, Best Value and the
Comprehensive Performance Assessment (CPA) framework) have meant that, in addition
to traditional budgetary and financial statements, non-financial reporting and performance
indicators have also become very prominent.

4.9 In spite of this recent emphasis on non-financial information, however, local authority
performance reporting generally appears to be an unambitious exercise, lacking in
meaningful reporting objectives. In the case of English local authorities, for example,
the statutory financial reports do not take in extended qualitative information, whilst the
(now downgraded) Best Value Performance Plan is generally regarded as a vehicle for
demonstrating improvement to the Office of the Deputy Prime Minister. In short, nothing
‘tells the story’ of the authority’s performance in the local community.

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 A DISCUSSION PAPER

4.10 There is a growing interest in social, environmental and sustainability reporting in the
private and public sectors, coupled with the prospect of mandatory (if basic) CSR reporting
following the publication of the draft regulations on the Operating and Financial Review.
Taken together with the need to develop community strategies, these developments
suggest that the time is opportune to consider how to improve on the quality of local
authority performance reporting through an emphasis on sustainability reporting.

4.11 Social, environmental and sustainability reporting arguably represents the most important
advance in organisational reporting generally in the last few decades. In the case of local
government, sustainability reporting offers the potential for reporting, for example, on
the material social, environmental and economic impacts of operations and policies; on
the achievement of priorities in relation to a community leadership role; and on progress
in envisioning what a more socially, environmentally and economically sustainable
community will look like.

4.12 In Scotland, the Local Government in Scotland Act 2003 raises the profile of performance
reporting and presents a further opportunity for a critical review of reporting in local
government. Under Best Value, local authorities have a duty to demonstrate accountability,
which extends to both financial and non-financial reporting. A key requirement is for an
extended annual public performance report, which suggests an important opportunity
to encourage new thinking about reporting. Disappointingly, however, draft public
performance reporting guidance17 issued by the Scottish Executive does not draw on
ideas about social, environmental or sustainability reporting. Also of interest here is a
recent project carried out by the Local Authority (Scotland) Accounts Advisory Committee
(LASAAC) which similarly sets an agenda for improving local authority accounts.

4.13 A recent Institute of Chartered Accountants of Scotland (ICAS, 2003) discussion paper is
also noteworthy in raising important questions about how best to extend performance
reporting in the public services. This paper looks to the introduction of a narrative OFR
in public service organisation reporting, and emphasises the need for accountable
representatives ‘to take responsibility for their stated outcome objectives and the extent
to which these are achieved, or become nearer to being achieved, during each reporting
period….’ (ICAS, 2003, p.3). Possibly on account of the limited emphasis on social and
environmental disclosure in the OFR guidelines, the ICAS paper does not go on to consider
the important developments in social, environmental and sustainability reporting practice
in discussing how best to extend public service reporting.

I M P R OV E M E N T FR A M E WO R K S N E E D TO D R AW O N SU STA I N A B I L I T Y R E P O R T I N G

4.14 All UK local authorities work within what might be termed ‘improvement frameworks’.
In the case of English local government, the CPA builds on the Best Value improvement
framework (which promoted, in summary, a duty to provide quality services at a price the
community is willing to pay), and in so doing introduces the first attempt to assess the
overall corporate performance of local authorities. Similarly, local authorities in Wales are
subject to performance assessments under the Wales Programme for Improvement, whilst
the system for local authorities in Scotland is the audit of Best Value.
17 www.scotland.gov.uk/consultations/localgov/pubrepsla.pdf, accessed 15/09/2004.

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ADVANCING SUSTAINABILITY ACCOUNTING AND REPORTING: AN AGENDA FOR PUBLIC SERVICE ORGANISATIONS

4.15 The general argument here is that improvement frameworks could both usefully draw
upon and promote existing sustainability reporting developments in local government. In
the case of English local authorities, the first round of the CPA (carried out in single tier
and county councils in 2002) did not promote a serious emphasis on sustainability, to the
detriment of the advancement of sustainability reporting in local government.

4.16 The CPA arguably provides an opportunity for local authorities to demonstrate and improve
on their achievements on sustainability, and to mainstream sustainability activities. In
particular, the Audit Commission (Audit Commission, 2002) suggests that the ‘corporate
assessment’ provides an opportunity to address ‘cross-cutting issues in a way that is not
fully picked up through individual service judgments…’, making it the primary CPA process
for assessing how councils are achieving on sustainability (WWF-UK, 2003). This emphasis
in the corporate assessment element is important because managing cross-cutting
issues and sustainability at the corporate level is seen as a prerequisite to mainstreaming
sustainability in front-line services (WWF-UK, 2003).

4.17 However, research carried out by WWF-UK (2003) found that whilst CPA assessments
‘touched on’ sustainability, coverage was generally weak. Summary findings were that:

1 The majority (two thirds) of Self-Assessments failed to consider sustainable development.

2 Few (22%) Corporate Assessment Teams investigated local authorities’ sustainable

development performance, and the approach of those that did tended to be very cursory.

3 Seven (35%) Corporate Assessment reports failed to notice that authorities had
sustainable development (or a related idea) in their corporate plans or strategies.

4 Only four (20%) of the Corporate Assessment reports commented on sustainable

development or performance management, but even here there were weaknesses
indicating that inspectors do not fully understand the concept of sustainable
development.

5 More than half of the interviewees… thought that CPA has had a negative influence on
the priority that councils give to sustainable development…
WWF-UK (2003, p.iv)

A clear way of improving on these disappointing findings would be to include local authority
sustainability reporting as an element in the CPA process.

4.18 Proposals for a revised CPA framework from 2005/6 (Audit Commission, 2004) arguably
give greater emphasis to sustainability. Proposed revisions interpret the corporate
assessment in the following terms (p.17):
The corporate assessment can be seen as a means of measuring the impact a council has on
the quality of life in its locality through its ability to maximise the contribution of its partners
and other stakeholders towards agreeing and achieving key local priorities.

Noteworthy also is that within the corporate assessment there is an emphasis on

‘sustainable communities’. Also of note is an identified need within the CPA process more
generally for a ‘better and more appropriate balance between the service and community
leadership aspects of authorities’ activities’ (p.15).

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 A DISCUSSION PAPER

4.19 It is ideas about assessment in the proposals for a revised CPA framework, however,
which provide the (potential) linkage between the CPA process and sustainability reporting.
Community strategy will be core to the corporate assessment (p.19): ‘…we will…build the
corporate assessment around the work of authorities in terms of developing and delivering
against their local community strategy.’ Whilst the Commission itself recognises (p.14)
the complexities of assessment of sustainability objectives, as well as (p.20) ‘the success
of the self-assessment element of the corporate assessment,’ it still overlooks important
achievements in the field of sustainability reporting.

4.20 Whilst this section has concentrated on the argument for bringing sustainability reporting
into the English CPA framework, the same broad argument applies in the cases of
improvement frameworks for Welsh and Scottish local authorities. The National Assembly
for Wales has a statutory duty to promote sustainable development. The statutory duty
requires the Assembly to review and remake its sustainable development scheme after
each Assembly election. (The scheme is a statutory duty of the whole National Assembly,
ie across all parties.) The Welsh Assembly Government then draws up a programme for
delivering against the scheme. The improvement programme for local government, the
Wales Improvement Programme, includes sustainability as one of 20 agreed aspects for
corporate self-assessment.

4.21 Taking stock, the indications are that few local authorities have been able to rigorously
assess their achievements in embedding sustainability into their operations, but notably
the Wales Improvement Board (comprising the National Assembly for Wales, the Welsh
Local Government Association and the Audit Commission in Wales) has commissioned
a study looking at sustainable development in all 22 local authorities in Wales. In this
situation, sustainability reporting suggests itself as a useful focus within existing
arrangements for catalysing and reporting improvements.

4.22 In Scotland, Best Value became a statutory duty following the Local Government in Scotland
Act 2003. The Best Value framework in Scotland has developed differently to the Best Value
framework in England. This has been on a partnership basis, with the Scottish Executive
and Scottish local government sharing a commitment to delivering better quality public
services. The Scottish Executive identify sustainable development as one of five areas for local
authorities to deliver on,18 although at this early stage, it is difficult to gauge how far local
authorities are able to assess their achievements. However, sustainability reporting is again
argued to provide the basis of demonstrating achievement on sustainability.

P ERFOR MA N C E I N D I CATO R FR A M E WO R K S N E E D R E V I E W I N T H E C O N T E X T O F A
S US TAI N A BI L I T Y AG E N DA

4.23 The argument here is that such is the salience of performance indicators for public
services generally, and local government in particular (and the attendant league tables of
councils’ performance), that developments in sustainability reporting in local government
will be only be advanced significantly if these important indicators are reviewed in the
context of local government’s role in delivering on a sustainability agenda.

18 See www.scotland.gov.uk/about/FCSD/LG-PERF4/00014838/Home.aspx, accessed 15/09/2004.

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ADVANCING SUSTAINABILITY ACCOUNTING AND REPORTING: AN AGENDA FOR PUBLIC SERVICE ORGANISATIONS

4.24 In the case of English local authorities, Best Value performance indicators (BVPIs) are
determined by the Office of the Deputy Prime Minister (ODPM). In spite of ODPM’s apparent
emphasis on sustainable communities, however, the BVPI framework does not provide
the basis for local authorities to report on progress on sustainability (with the possible
exception of waste management indicators). Further, the existing framework does not
help in benchmarking sustainability performance across different authorities in relation
to particular services where it might be helpful to have better targeted indicators. (To
reiterate, however, the argument in this paper has been that league tables of sustainability
indicators are not the way forward on sustainability reporting.) There is therefore an urgent
need for the ODPM to review the BVPI framework in the context of local government’s
leadership role in a sustainability agenda.

4.25 A notable advance in this context is the first stage in the development of a set of
sustainable development indicators for waste, energy and transport in Scotland, targeted
at decision makers in public and private sector organisations. A recent paper published
by the Scottish Executive Central Research Unit (Entec UK Ltd, 2001) argues that this
approach makes sense ‘because it is believed that it is more practical to focus on a
limited number of issues to begin’, and that ‘action on too broad a front risks no action
at all…’ (p.4). This paper provides a useful benchmark against which to review statutory
performance indicators for local government.

MOV I NG TOWA R D S A N I N S T I T U T I O N A L ‘ F I T ’

4.26 To summarise, this section has identified sustainability reporting as the missing piece
in the local authority performance reporting jigsaw. Sustainability reporting has been
identified as key to delivering on a new agenda for mainstreaming sustainability and as
a means of developing a response to a wider agenda to extend traditional performance
reporting. In this sense, sustainability reporting should be understood as an important
part of mainstream performance reporting, carried out alongside financial reporting rather
than competing or being additional to it. Sustainability reporting has also been identified
as key to the progress of meaningful assessment of local authority performance under
existing improvement frameworks.

4.27 A key challenge for CIPFA, together with government departments and agencies,
national executives, statutory audit agencies, the local government associations and
other key representative organisations, is to develop a framework for public services
sustainability reporting. A further challenge to these organisations is to publish their own
sustainability reports. Such a move would reflect the leadership role incumbent upon these
organisations in relation to sustainability performance reporting, provide insights into
the scope for management of sustainability and cross-cutting issues, and provide a clear
signal about a serious agenda for sustainability reporting in public service organisations.

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5. A CIPFA framework for public services

sustainability reporting

TH E NE E D FO R A N D O BJ E CT I VE S O F A C O M M O N F R A M E WO R K

5.1 By way of conclusion, this final section discusses the potential for a CIPFA framework for
public services sustainability reporting. It also sets out the necessary next practical steps
for CIPFA and key partners in working towards establishing such a framework.

5.2 Public services sustainability reporting is an emerging and important area of public
service performance management and reporting. This gives rise to a need for a common
framework in order to ensure that sustainability reporting gains visibility, best practice
is encouraged, and potential benefits are realised. Suggested objectives for the CIPFA
Framework might be to:
● encourage public service organisations to develop sustainability accounting and
reporting as part of their wider performance reporting responsibilities
● provide principles based accounting and reporting guidance to public service
organisations, in particular to develop a range of complementary reporting
approaches that, taken together, present a comprehensive view of an organisation’s
contribution to the promotion of a more sustainable society
● allow emergent best practice to become codified in non-mandatory form in
anticipation that best practice will increasingly become reflected in regulatory
processes.

5.3 General arguments in favour of regulatory frameworks for financial reporting are that such
frameworks enable comparison between reports and ensure that reporting meets user
needs (see, for example, ICAEW, 2003). The possible downside of a principles-based CIPFA
framework just described is that, in the absence of agreed standards for sustainability
reporting, different forms of reporting are positively encouraged, with reporting potentially
lacking consistent disclosure. This points to the need for agreement to the core common
content and the particular set standards (eg GRI, EMAS) on which to base a CIPFA
framework, leaving the actual reporting to be carried out on a principles basis.

B R I NGI N G I T A L L TO G E T H E R : A R E A S FO R G E N E R A L AG R E E M E N T

5.4 A key objective of this paper has been to identify the main components of the sustainability
debate for public service organisations. To make progress on this objective, there is a
need for agreement between CIPFA and potential partners and stakeholders on the broad
principles for public services sustainability reporting. The key areas for discussion are
summarised at the end of this section.

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ADVANCING SUSTAINABILITY ACCOUNTING AND REPORTING: AN AGENDA FOR PUBLIC SERVICE ORGANISATIONS

B RI N GI N G I T A L L TO G E T HE R : T HE N E X T ST E P S FO R C I P FA R E SE A R C H

5.5 Whilst CIPFA’s role now lies in stimulating and encouraging debate on these questions
amongst a range of stakeholders, there are other complementary steps which CIPFA
should consider. These are measures which have a technical and/or research orientation
and are seen as actions which it is appropriate for CIPFA to undertake as a public sector
accountancy institute.

5.6 The OFR – This paper has argued that the Operating and Financial Review (OFR) provides
an opportunity to improve on the quality of general local authority performance reporting
through an emphasis on sustainability. Indeed, the OFR raises possibilities for CSR
reporting by all public service organisations. In future the OFR may include summary
narrative and quantitative information on sustainability performance which draws on a
much richer account of the organisation’s performance provided in a sustainability report.
A timely role for CIPFA lies in developing an agreed data set for inclusion in the OFR for
public sector bodies and its relationship with sustainability reporting.

5.7 The GRI – One of the questions raised by this report is whether CIPFA should issue
guidance in relation to established reporting models. In particular, the GRI is widely
endorsed in the private sector. Given that the GRI is already developing a supplement to
their sustainability reporting guidelines aimed at public service organisations, CIPFA will
need to consider the extent to which the GRI acknowledges the distinctive role of public
service organisations in advancing a sustainability agenda, and the need for a range of
sustainability reporting approaches.

5.8 ‘Monetisation’ – It is also important for CIPFA to develop its thinking on the idea of
‘monetising’ environmental or social impacts. This is important because this approach
particularly draws on a skill set identifiable in accountants, and because it is potentially
a powerful tool in an armoury of sustainability reporting practices. For these reasons,
CIPFA should consider whether it is possible to develop a meaningful approach based on
transforming social and environmental qualities into a common money metric, leading
perhaps to a ‘triple bottom line statement’ for public service organisations.

C ON C LUS I ON S

5.9 From the outset, this paper has aimed to pose rather than to answer a range of potentially
difficult questions about the role of public service sustainability reporting. In asking the
author to raise these questions, CIPFA has set out its intention to influence and guide the
development of systematic sustainability reporting in public service organisations. To do
this, CIPFA will need to build institutional support, address a number of technical and
research questions and maintain open debate. Whilst the questions this agenda raises
may be uncomfortable, the search for the answers provides a real opportunity to develop
leading-edge practice for the public services.

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 A DISCUSSION PAPER

KEY DISCUSSION ISSUES FOR THE DEVELOPMENT OF A CIPFA FRAMEWORK FOR

SUSTAINABILITY REPORTING AND ACCOUNTING FOR THE PUBLIC SERVICES

Drawing on the discussion in sections 1 to 4 of this paper, the key issues and questions that will need
to be addressed are:

Objectives
1 What are the objectives for public service organisations adopting sustainability reporting and
who is/are the intended audience(s)?

Setting the public sector apart from the private sector

2 How should the CIPFA framework recognise fundamental differences between public service
and private sector organisations?

Comparability
3 To what extent is there a need for direct comparison on sustainability performance between
public service organisations?
4 Would it be useful to adopt generally agreed environmental performance management
indicators for public service organisations?
5 Would it be useful to benchmark certain services (like waste and transport, which are already
being influenced through an emphasis on sustainability performance) using standardised
indicators?

Recognising a diversity of approaches

6 How should the CIPFA framework recognise the full range of approaches (and potential
approaches) to sustainability reporting, given that a diversity of practice has made a significant
contribution to the general understanding of sustainability?

Completeness
7 If the CIPFA framework is encouraging diversity of practice, how can it ensure that all material
issues of managing sustainability performance are disclosed?

Assurance statements
8 How should the CIPFA framework encompass standards for reliability of information and
fairness of disclosure?
9 Should the framework include the need for independent assurance by an external auditor or
equivalent?

Level of analysis
10 Is it necessary or even possible to address different levels of performance (for example direct
impacts, policy effectiveness and the environmental footprint) on an annual basis?

Reporting cycles
11 Given the potential difficulty and complexity in producing sustainability reports, is there a need
to accept longer reporting cycles?
12 Is the OFR the appropriate vehicle for reporting between reporting cycles where a
comprehensive sustainability report is not produced annually?

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ADVANCING SUSTAINABILITY ACCOUNTING AND REPORTING: AN AGENDA FOR PUBLIC SERVICE ORGANISATIONS

Balance between narrative and ‘measurables’

13 What amounts to a reasonable balance between meaningful narrative and disclosure of
measurable dimensions of environmental, social and economic performance?

Existing channels for sustainability disclosures

14 How should a CIPFA framework encourage public service organisations to find the linkages
between existing information disclosures and good practice in sustainability reporting?
15 How might organisations work towards bringing together a range of existing disclosures into a
structured, holistic report?

Corporate governance and CSR

16 Should the CIPFA framework set out the linkages between good practice in sustainability
reporting and the organisation’s responsibilities in relation to corporate governance and/or
corporate social responsibility?

CIPFA statements of guidance

17 Should the CIPFA framework include judgments or guidance on existing sustainability reporting
models and approaches?
18 Should there be statements of guidance in relation to potentially important initiatives such as
the GRI Public Sector Supplement?

Use of the internet

(New forms of sustainability reporting are likely to evolve because public service organisations
make extensive use of the internet in disclosure of performance information.)
19 Should there be statements of principles relating to the use of the internet for such possibilities
as using prospective (current and future-focused) rather than historical information, presenting
information in different ways to different stakeholders; or online discussion with decision-
makers?

Education and Training

20 Finally, in order to develop the public service accounting professional’s role in sustainability
reporting, how should the CIPFA framework be linked to CIPFA’s education, training and
continuing professional development activities?

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 A DISCUSSION PAPER

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Audit Commission (2004) CPA 2005 – The Way Ahead. Audit Commission, London.

Ball, A. (forthcoming) ‘Environmental accounting and change in UK local government’.

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Ball, A. (2002) Sustainability Accounting in UK Local Government: An Agenda for Research.

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Global Reporting Initiative (GRI) (2002) Sustainability Reporting Guidelines. Global Reporting
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Telford, B. (2002) ‘Environmental accounting in UK local authorities: a preliminary survey

th
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Wackernagel, M. and Rees, W. (1996) Our Ecological Footprint: Reducing Human Impact on
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World Commission on Environment and Development (WCED) (1987) Our Common Future.
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WWF (World Wildlife Fund) Cymru/BBF (Best Foot Forward) (2002) Ôl-troed Cymru: The
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