Sustainability reporting and the public and social sector

28/07/2023 Ron Horsmans, Partner at Mazars, discusses sustainability reporting in the public and social sector and what organisations should be doing.

Is the way public sector leaders approach sustainability reporting different to those in the private sector?

Reporting requirements for public sector organisations are often voluntary, and don’t follow the new Corporate Sustainability Reporting Directive (CSRD) requirements. As a result, public sector reports are often less complex and challenging and aimed more at demonstrating impact.

In the not-for-profit sector impact is often the main question that’s answered. But as well as picking a reporting topic that makes sense for them, they can’t ignore the topics that everybody needs to report on in the profit sector, such as carbon or your own employees.

As well as the stories of impact, organisations need to also concentrate on the topics that citizens are also interested in. You cannot tell a corporate story in 2023 without giving information on your own carbon and workforce. And that is something that a lot of public sector organisations are not doing yet.

Part of the problem is it’s not mandatory. Large listed and non-listed companies have to follow the CSRD reporting requirements. But for foundations and local governments it is not mandatory – not yet, anyway. They can choose. And a lot of them pick and choose the topics that are relevant for their organisation.

But they can set the tone themselves. It makes sense to start now as there is an expectation that within one to two years larger public sector companies or foundations will follow because of increased public pressure. So it won’t necessarily be because of mandatory legislation, but also public pressure.

So would it be fair to say that it makes sense for them to start now, so when it does become mandatory they're ready?

Yes, absolutely. I would say that's the second argument. The first one would be that if you want to take a lead as a public sector organisation then you need to do it. You have to set the tone and take the lead and do it. Secondly, I think that within a couple of years for a lot of the non-mandatory public sector organisations it will become mandatory to report, so they’ll already be doing it anyway if they start now.

Data challenges – in particular finding a provider – are more prevalent in the public sector when compared to the private sector. How can these challenges be overcome?

Sector initiatives could be a possible route forward. For example, the Dutch Cancer Foundation could also work with the Dutch Heart Disease Foundation, the Dutch Lung Disease Foundation and the Alzheimer's Foundation to collect information. They all struggle with the same topics so it makes sense that they work together.

Sometimes it can help them all if they start collecting the information as a sector, which makes a benchmark easier to achieve. Sector initiatives can then be helpful in getting either to a number or to a qualitative benchmark that is accepted and logical.

There is a trend to move responsibility for sustainability reporting to the CEO in future – is that a good idea? Instead, should public sector organisations be employing more dedicated CSOs?

The size of the organisation plays a big part in that. At smaller organisations often there will only be a couple of people working there. So for them it would obviously be too much to have a dedicated person overseeing sustainability. In that instance, you would expect a lot of involvement from the CEO and CFO in setting the tone from the top. Sustainability reporting can only work if the CEO is convinced that it is a real topic.

It's different for the larger organisations. For example, some of the large not-for-profit foundations  have more than 250 people working for them. At an organisation of that size, you would expect them to have one or two people on the board looking at this.

We have worked on the sustainability report for two pension funds. One of them has five board members, one of which is fully responsible for this topic and dedicated to making it a success, and that works. The other one is focused on risk asset management for the pension holders. In contrast, for them it's going very slowly. And if they don't scale up quickly, they could be in big trouble even though it's not mandatory for them right now.

If an organisation thinks this is important, they need to embed it in their governance structure right at the top and make sure that they have the qualified people in house.