In January 2022, the World Bank published its report "Sovereign Climate and Nature Reporting: Proposal for a Risks and Opportunities Disclosure Framework" outlining why a sustainability reporting framework is needed. Following this, the International Public Sector Accounting Standard Board (IPSASB) started a consultation to develop global public sector specific sustainability guidance.

Much of the IPSASB draft climate standard is based on International Financial Reporting Standards (IFRS) S2 “Climate-related Disclosures” and the Global Reporting Initiative (GRI) but has, importantly, added a public sector specific perspective regarding climate policy setting. We break down the similarities and differences between IPSASB, IFRS S2 and GRI.

Differences in the objective, scope and definitions

Objectives

The objective of IPSASB’s climate standard is fundamentally the same as ISSB’s IFRS S2 which is to require entities to disclose information that is useful to primary users of general-purpose financial reports about material climate- related risks and opportunities.

Different audiences

The primary users for IPSASB SRS are different to the primary users of ISSB standards. The primary users as defined in IPSASB’s Conceptual Framework are broad – essentially any person, group of people or organisation who provides goods or services (including tax) to or receives goods and services from the government. By contrast, IFRS S2’s aim is to provide useful information for investors to inform their decision-making process.

Similarly to IPSASB, the GRI standard also contains a broader stakeholder base beyond investors and shareholders, such as suppliers, trade unions, vulnerable groups, customers, employees (not the complete list).  

Considering the primary users of general-purpose financial reports is crucial as it determines the type of information required. 

Investors seek information to make capital allocation decisions, primarily aiming for returns. Conversely, government entity stakeholders look for information on their ability to provide goods and services cost-effectively, emphasising long-term financial sustainability. Additionally, some stakeholders are predominantly interested in the impact an entity has on society and the natural environment, regardless of whether it is a private or public sector entity.

There is some overlap in information that is deemed important but for different purposes; for example, both public and private sector primary users will be interested in an entity’s cash flow, the former to ensure services can be provided without needing to raise taxation, the latter to ensure dividends can be distributed. 

The different information needs of the primary users will also have an impact on how materiality is assessed. Information is material if omitting, misstating or obscuring that information could influence the decision-making process of primary users based on those reports. Materiality is covered separately below. 

Scope

One key difference in scope between IPSASB’s draft climate standard and the other standards is the requirement to report on the outcomes of climate-related public policy programmes. This is in addition to reporting on risks and opportunities affecting an entity’s operations, which is within the scope of IFRS S2. 

To assess the scope of reporting under GRI, an entity needs to identify and prioritise where it has the most significant impact by identifying relevant activities, products and services as well as engaging with stakeholders to understand what information is most relevant to them.  

Definitions

Definitions relating to public policy programs are unique to the IPSASB standard. Public policy programs refer to interventions by public sector entities to influence decisions or behaviours of other entities or individuals. Outcomes of these programs include impacts on the economy, environment, and people that are attributed to the policy interventions. 

Climate-related public policy programs specifically aim to achieve climate outcomes. 

These definitions help to distinguish climate-focused public policy programs that are in scope from non-climate-related policies, which are out of scope.

There are a few minor differences in terminology and emphasis, predominantly around the difference between an entity’s prospects (IFRS) and an entity’s long-term fiscal sustainability (IPSASB SRS), a business model (IFRS) and operating model (IPSASB SRS), and what general purpose financial reports aim to achieve. These differences are not new when comparing IFRS with IPSAS.

The long-term fiscal sustainability of an entity’s operations expands beyond the IFRS S2 concept of the entity’s prospects (which refers to the entity’s cash flows, access to finance or cost of capital over the short, medium or long term) to also include and reflect the public sector’s service obligations and the importance of service delivery alongside financial revenues and debts.

The operating model puts more emphasis on activities that fulfil an entity’s objective, whereas the IFRS S2 definition of business model focuses more on strategic purpose and value creation by looking at cash flow generation over the short, medium and long term.

General purpose financial reports aim to provide information that is useful to the primary users. For annual reports produced by public sector entities, the primary user would tend to place more emphasis on accountability whereas for private sector entities, the importance is about making decisions on whether to provide resources, such as providing credit or buying and selling equity.

Materiality and its application

All standards state that only material information about an entity’s climate risks and opportunities (and impacts) need to be reported. 

Information is material if omitting, misstating or obscuring it could influence the decisions of the primary users. According to IPSASB, information is also material if it could reasonably be expected to influence the discharge of accountability of the entity. 

GRI looks at impact materiality, which assesses pollution based on its ecological harm. The ISSB framework concentrates on financial materiality, whereby pollution is only reportable if it incurs costs for the company and therefore affecting an “entity’s prospects”. 

IPSASB did discuss the various concepts of materiality, including single and double materiality – looking at both financial and impact materiality - but concluded that the definition of material information should be aligned with their Conceptual Framework. This decision was driven by the broader stakeholder base and emphasis on supporting primary users in evaluating information for decision-making and accountability purposes. This extends beyond the private sector focus on decision-making solely for capital allocation purposes. 

Interestingly, the Conceptual Framework underpinning both the IFRS and IPSAS is almost identical regarding materiality - both state that the primary users make use of the general-purpose financial reports. However, as noted above, the IFRS S1 standard (which includes guidance on materiality) specifically draws attention to the financial statements and sustainability-related financial disclosures when referencing general purpose financial reports. 

The IPSASB’s Conceptual Framework adds that disclosure of information about compliance or non-compliance with legislation, regulation or other authority may be material because of its nature – irrespective of the magnitude of any amounts involved. This re-confirms the importance of accountability in the public sector compared with the focus on capital allocation in the private sector.

Furthermore, IPSASB’s guidance reflects the wider stakeholder base of GRI, stating that climate related reporting shall consider all relevant stakeholders whose interests could reasonably be expected to be affected by the entity’s activities. These include individuals, businesses and local communities that may be affected by public policy programs and those that are not able to articulate views (eg, future generations).  

While the approach to materiality in IPSASB’s draft standard primarily aligns with IFRS S2, it does nevertheless layer in GRI guidance on understanding the entity’s context and engaging stakeholders. And given IPSASB’s broader stakeholder base, as well as including climate policy outcomes in its scope, information that is considered material is likely to be wider than what an investor would consider material under the IFRS climate standard. 

Overview of the Structures of GRI, IFRS S2 and IPSASB   

Structure of GRI

The GRI framework is modular, comprising three universal standards, eight sector standards, and. This structure is designed to be flexible and comprehensive. 

The Universal Standards apply to all organisations and cover essential concepts, organisational structure, governance, strategy, and steps to determine material topics. 

Sector Standards focus on 40 specific industries, including oil and gas, fishing and agriculture, listing topics that are likely to be material for most organisations and indicate relevant disclosures to report on these topics.

The GRI Topic Standards provide detailed disclosures on specific issues such as waste management and occupational health and safety.

Structure of IFRS S2 and IPSASB SRS

Both IFRS S2’s and IPSASB’s draft climate-related disclosure standards are organised using the TCFD framework. This framework organises the required disclosures into four pillars: governance, strategy, risk management, and metrics and targets. IPSASB replicates this structure twice: once for an entity's own operations and once for those with additional climate-related public policy programs.

IPSASB’s standard aligns closely with IFRS S2, even adjusting language to fit public sector contexts. The "public sector context" in the diagram above is in relation to additional application guidance provided for the public sector context.  

Differences between FRI, IFRS S2 and IPSASB

GRI’s modular structure is more flexible, allowing organisations to choose relevant standards based on their material topics. IFRS S2 and IPSASB primarily target financial materiality, while GRI includes both financial and impact materiality. IPSASB also includes requirements for public policy programs, which are not covered by IFRS S2. Additionally, IPSASB’s standard incorporates guidance on materiality and qualitative characteristics of reporting which is part of IFRS S1. 

So, while GRI, IFRS S2, and IPSASB share common goals in promoting transparency and accountability in reporting, their structures reflect their unique focuses and target audiences.

GRI offers a flexible, modular approach suitable for various organisations, whereas IFRS S2 and IPSASB provide more structured, finance-focused guidelines, with only IPSASB specifically addressing the requirements of public sector organisations.

Climate-related public policy programs

The difference between own operations and climate-related public policy programmes

IPSASB’s draft climate standard is closely based on IFRS S2 as shown above but includes additional requirements for entities that are responsible for the outcomes of climate-related public policy programs. 

To help with navigation, it was decided to separate the standard into two sections - one which closely aligns with IFRS S2, referred to as own operations, and another that focuses on public policy programmes. These two sections are both organised using the same four pillars listed above and the standard signposts the relevant sections.

The flowchart aims to clarify that disclosure requirements relating to climate-related risks and opportunities applicable to an entity’s own operations are relevant to all entities while disclosures for climate-related public policy programs and their related outcomes are only relevant to those entities that have responsibility for the outcomes of those policies.  

Application of climate-related public policy programmes

What are climate-related public policy programmes? According to IPSASB’s application guidance, these are programmes that have a primary objective to achieve outcomes impacting climate. There are several examples of what would constitute public policy programmes:

• regulations and standards such as any that specify abatement technologies or minimum energy consumption; 
• taxes and charges imposed on unit of activity by a source, such as fuel tax; 
• emissions trading programmes, research and development and much more. 

The primary objectives may be expressed as key performance indicators such as percentage reduction in GHG emissions. Alternatively, this primary objective may also be expressed using a narrative description of a desired future state primarily relating to climate, such as reduced exposure to climate-related physical risks. 

Government policies that would have a negative impact on climate are unlikely to be included since climate-related outcomes would never be the primary objective of such policies. Similarly, policies that have a positive side effect on climate, such as a policy to expand the rail network, may or may not be included within scope since that would depend on the primary policy objective. If the primary objective of rail expansion were the reduction in traffic congestion, then this policy would be out of scope since the primary policy objective is not climate related. In this instance the reduction in emissions due to lower traffic is a by-product. 

However, entities and jurisdictions may choose to report on the climate related outcomes of public policy programmes even if they are out of scope of the draft standard. It should be noted that actual negative outcomes of climate-related policy programs where they have not achieved their intended climate objectives would need to be reported on. 

IPSASB’s draft climate standard states that climate related public policy programme outcomes include climate-related impacts on the economy, environment and people, which are interconnected by nature. It goes on to acknowledge that policy outcomes are often driven by interactions and dependencies outside the entity’s direct control through a series of cause-and-effect relationships. The reporting must focus on the outcomes which can be attributed to the policy and exclude other factors that have influenced the outcomes. This may be quite difficult to achieve in practice.  

Disclosure requirements 

Below are some examples of disclosure requirements specifically for climate-related public policy programmes, split into the four pillars – governance, strategy, risk and outcome management and metrics and targets. 

Governance – climate-related public policy programs

The core disclosure is to provide information on the oversight of these programs. Disclosure requirements include information on the oversight of policy design, oversight for setting targets and achieving the intended outcomes and for monitoring progress. 

Disclosure requirements remain with the entity that has responsibility for a climate-related public policy programme but that responsibility may be shared amongst multiple entities, as shown below.

As illustrated, for governance, entities must disclose their oversight of policy design, target setting, and progress monitoring. 

These responsibilities may be shared among multiple entities, whose disclosures should complement each other to provide a complete picture. However, IPSASB acknowledges the complexity and variations in different structures. 

Strategy – climate-related public policy programs

Disclosures to help users understand the entity’s strategy include information about the decision-making process, the scope of affected entities or individuals, time horizons, policy trade-offs, and scenario analyses. 

Disclosures also address the financial implications of the programmes, such as costs, funding, and income to public or private sector entities or individual. They need to consider internal factors, such as resource and technical limitations as well as operational challenges. They also need to consider external factors such as regulatory constraints, economic conditions and local opposition.

While information about funding/investment is also required in IFRS S2, asking for this information on policies may be more difficult given the way funding for policies often requires (annual) renewal and political commitment. 

Risk and outcome management – climate-related public policy programmes

Risk and outcome management disclosures require entities to explain their processes for identifying, assessing, prioritizing, and monitoring challenges to achieving policy outcomes. This includes both anticipated and unanticipated challenges.

Metrics and targets – climate-related public policy programs

Metrics and targets disclosures involve reporting on the increase or decrease in greenhouse gas emissions resulting from the programmes, as well as the targets for achieving intended outcomes. Entities can consider metrics from sources such as the United Nations Framework Convention on Climate Change (UNFCCC), peer entities with similar policy objectives, or input from stakeholder engagement.  Overall, IPSASB has based much of its content on existing standards and frameworks while focusing on public sector specific areas, namely on how the guidance needed to reflect government’s ability to set policy and regulations. 

Access the consultation, the deadline for responding is on 28 February 2025.