OCDE - Advancing public sector sustainability reporting Insights from past reforms

ADVANCING PUBLIC

SECTOR SUSTAINABILITY

REPORTING: INSIGHTS

FROM PAST REFORMS

OECD PAPERS ON BUDGETING

Volume 2025/05This paper was approved by the OECD Committee of Senior Budget Officials on 27 June 2025 and prepared for publication by the Secretariat.

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© OECD 2025

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or of its Member countries. Third-party material – the licence does not apply to third-party material in the work. If using such material, you are responsible for obtaining permission from the third party and for any claims of infringement. You must not use t he OECD logo, visual identity or cover image without express permission or suggest the OECD endorses your use of the work. Any dispute arising under this licence shall be settled by arbitration in accordance with the Permanent Court of Arbitration (PCA) Arbitration Rules 2012. The seat of arbitration shall be Paris (France). The number of arbitrators shall be one. 3

ADVANCING PUBLIC SECTOR SUSTAINABILITY REPORTING © OECD 2025

Acknowledgements Under the leadership of Elsa Pilichowski, Director for Public Governance (GOV) Directorate, and the direction of Jón Blöndal, Head of GOV’s Public Management and Budgeting (PMB) Division, this paper was prepared by Delphine Moretti, Senior Policy Analyst in PMB, Martin Dees and Maarten de Jong, both Strategic Advisors at the Netherlands Court of Audit , and Giorgia Ponti, Policy Analyst in PMB. It benefitted from editorial assistance and was prepared for publication and laid out by Meral Gedik. This paper has been presented to the OECD Working Party on Financial Management and Reporting and Paris Collaborative on Green Budgeting and shared for comments with the OECD Committee of Senior Budget Officials.4 

ADVANCING PUBLIC SECTOR SUSTAINABILITY REPORTING © OECD 2025

Table of contents Acknowledgements 3 Executive summary 5 1 Introduction 7 1.1. Existing sustainability initiatives in the private and public sectors 7 1.2. New developments in sustainability reporting 11 1.3. Rationale for the paper 13 2 Lessons from past public sector reforms 14 2.1. Integrating information supply 14 2.2. Using reporting for decision making 17 3 Way forward 19 3.1. Rationalising public sector sustainability reporting 19

1.3. Rationale for the paper 13 2 Lessons from past public sector reforms 14 2.1. Integrating information supply 14 2.2. Using reporting for decision making 17 3 Way forward 19 3.1. Rationalising public sector sustainability reporting 19 3.2. Developing a systematic framework for sustainability reporting 19 3.3. Stakeholders’ engagement 21 References 22 Notes 24

FIGURES Figure 1. Corporate sustainability and responsibility 8 Figure 2. OECD countries practicing green budgeting 9 Figure 3. Current landscape of sustainability reporting in the public sector 11 Figure 4. Alignment challenges between public sector sustainability frameworks 15 Figure 5. Model for reporting, interpreting and using sustainability information 20

BOXES Box 1. Next generation green budgeting instruments 10 Box 2. IPSASB’s proposal on climate-related disclosures 12 Box 3. Scope of climate-related public policy programme 16 5

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Executive summary Sustainability has become a critical dimension of governance and reporting across both the private and public sectors. While the private sector already has sustainability reporting through various standards, the public sector faces unique challenges in implementing comparable frameworks: its governance structure for sustainability reporting is particularly complex, with commitments derived from international treaties and national plans, and implemented through multiple governmental entities. Currently, in the public sector, sustainability management and reporting rely on tools such as performancebased budgeting and "strategic budget initiatives" such as green budgeting, which approximately two-thirds of OECD countries now practice. The introduction of new reporting standards similar to those used in the private sector is now being considered, which has sparked debate on whether such standards would add value or create redundancies and reporting burdens. Against this background, this paper underlines that, in promoting sustainability, the public sector needs to consider a number of key lessons from past its reforms. The first lesson is that additional reporting does not automatically enhance transparency, and may lead to

value or create redundancies and reporting burdens. Against this background, this paper underlines that, in promoting sustainability, the public sector needs to consider a number of key lessons from past its reforms. The first lesson is that additional reporting does not automatically enhance transparency, and may lead to pitfalls such as: • Parallel reporting streams: previous reforms often created unco -ordinated systems, leading to inefficiencies and confusion. • Information overload: multiple reports have sometimes overwhelmed users, diminishing accessibility for non-specialist audiences. • Misalignment with stakeholder needs: governments frequently struggle to balance comprehensiveness versus timeliness or detail versus clarity. The second lesson is that merely supplying information does not ensure its effective use in decisionmaking. Obstacles fall into three categories: • Informational obstacles: challenges in consistency, trustworthiness, and alignment, including risks of manipulation. • Organisational obstacles: difficulties in aligning managerial processes and addressing capacity limitations, with implementation costs often underestimated. • Cultural obstacles: challenges in fostering leadership commitment and a culture that values learning over compliance. This paper suggests a w ay forward that involves r ationalising public disclosures, d eveloping a more systematic framework for use of sustainability information, and more systematically consulting users. First, r ather than producing disconnec ted reports using different methodologies, public sector organisations should integrate sustainability information using consistent concepts and presentations. A "layered reporting" approach would make information both accessible to general audiences throu gh concise reports and detailed enough for specialists through supplementary documents —similar to the "core and more" approach used in some jurisdictions.6 

ADVANCING PUBLIC SECTOR SUSTAINABILITY REPORTING © OECD 2025

Second, c ountries establish prerequisites for sustainability reporting within their broader informati on management cycles. The suggested framework would trace sustainability information from production through interpretation to its use in decision-making, recognising that sustainability data must integrate with existing government processes rather than exist separately. Finally, ongoing dialogue with users helps identify which information drives decisions, preventing overload

management cycles. The suggested framework would trace sustainability information from production through interpretation to its use in decision-making, recognising that sustainability data must integrate with existing government processes rather than exist separately. Finally, ongoing dialogue with users helps identify which information drives decisions, preventing overload through materiality analysis addressing both external policies and internal operations. Involving auditors in advocacy, advisory, an d assurance roles builds trust in reported information while helping overcome organisational barriers. The paper concludes that improving public sector sustainability reporting requires balancing implementation costs against expected benefits. By building on existing processes rather than creating parallel structures, and developing layered reporting approaches, organi sations can minimi se administrative burden s while maximi sing value for decision making. A pragmatic approach, guided by lessons from past reforms and supported by stakeholder engagement, ensures that sustainability reporting contributes to better governance outcomes rather than becoming merely a compliance exercise. 7

ADVANCING PUBLIC SECTOR SUSTAINABILITY REPORTING © OECD 2025

1.1. Existing sustainability initiatives in the private and public sectors Over the past few years, increased attention to environmental changes and resource management has brought “sustainability” into focus as a n important dimension of governance and reporting across private and public sectors. To promote, guide and support this, new initiatives have taken place to promote sustainability across each sector. In the private sector, the concept of sustainability refers to the systematic consideration of an organisation's performance regarding corporate sustainability and responsibility principles (Figure 1). This practice has evolved through several influential frameworks, relating to “corporate social responsibility” (CSR) and “responsible business conduct” (RBC). In turn, sustainability reporting provides a mechanism for organisations to evaluate and communicate their societal and environmental impacts —both beneficial and detrimental —while articulating the measures implemented to mitigate and manage any adverse effects. Notable early sustainability reporting initiatives encompass the Financial Stability Board's Task Force on Climate -related Financial Disclosures (TCFD), which enhances reporting of climate-related financial information with particular emphasis on climate risks

societal and environmental impacts —both beneficial and detrimental —while articulating the measures implemented to mitigate and manage any adverse effects. Notable early sustainability reporting initiatives encompass the Financial Stability Board's Task Force on Climate -related Financial Disclosures (TCFD), which enhances reporting of climate-related financial information with particular emphasis on climate risks and opportunities for individual entities or the standards established by the Global Reporting Initiative , or as further discussed below the standards of the International Sustainability Standards Board (IS SB). Reporting on the Sustainable Development Goals (SDG) of the 2030 Agenda has also gained ground as a sustainability reporting framework. (OECD, 2024[1]). According to the latest UN Report on the SDGs there has been a notable increase in the number of companies reporting on sustainability practices, particularly in large and transnational corporations (United Nations, 2024[2]). In addition to these broadly applicable frameworks, more targeted sustainability -related reporting instruments have emerged to serve specific market segments and objectives . For instance, the International Capital Market Association (ICMA) issued guidelines, “Handbook for Green, Socia l and Sustainability Bond Issuers” (ICMA, 2020 [3]), which offer a framework for bond issuers – such as governments and corporations - to evaluate, measure, and notably report on the environmental and social performance of projects funded through sustainable bonds (OECD, 2023[4]). 1 Introduction8 

ADVANCING PUBLIC SECTOR SUSTAINABILITY REPORTING © OECD 2025

Figure 1. Corporate sustainability and responsibility

Source: Authors Similarly, governments have undertaken efforts for several decades to consider sustainability issues in their budgetary and financial reporting frameworks and processes. However, the governance structure for sustainability in the public sector presents a notably more complex arrangem ent of principles and commitments than its private sector counterpart. In the public sector, sustainability and responsibility principles derive from diverse sources at both international and national levels: • International targets and commitments - such as the Paris Agreement and Sustainable Development Goals (SDGs) - establish the global context and objectives that subsequently inform

commitments than its private sector counterpart. In the public sector, sustainability and responsibility principles derive from diverse sources at both international and national levels: • International targets and commitments - such as the Paris Agreement and Sustainable Development Goals (SDGs) - establish the global context and objectives that subsequently inform and shape national approaches. • These national approaches manifest as country -specific plans with varying degrees of alignme nt with international treaties and commitments. The principles and commitments established at international or national levels are subsequently implemented through a distributed network of actors. On one side, governments formulate environment and climate-related policies that are executed by one or more public entities. Conversely, individual public sector organisations, while similar to corporations in facing climate risks and opportunities and generating sustainability impacts through their operations, differ significantly in their implementation of environment or climate-related public policies that frequently transcend the boundaries of single entities. This intricate structure of multi-level commitments and governance inevitably generates complexity in the public sector's approach to sustainability management and reporting. Therefore, sustainability management relies on a range of budgetary tools and approaches. They include performance-based budgeting, which links funding to measurable results, including environmental or social outcomes in some cases (OECD, 2019[5]), as well as “strategic budget initiatives”, such as g reen, gender or SDG budgeting, which take a more comprehensive approach by systematically tracking results related to priority policies across all government sectors (Nicol and Dosen, 2023[6]). 9

ADVANCING PUBLIC SECTOR SUSTAINABILITY REPORTING © OECD 2025

Within strategic budget initiatives, around two -thirds of OECD countries currently implement green budgeting ( Figure 2). Further more, the evolution of green budgeting practices reflects growing sophistication in how countries link public finances to climate objectives. While early approaches focused on a limited set of tools such as green budget tagging, 1 countries are now moving toward more comprehensive approaches that can better inform decision -making and ensure alignment between budgets and climate commitments (Box 1). Furthermore, a growing number of OECD countries quantify and monitor c limate-related fiscal risks

on a limited set of tools such as green budget tagging, 1 countries are now moving toward more comprehensive approaches that can better inform decision -making and ensure alignment between budgets and climate commitments (Box 1). Furthermore, a growing number of OECD countries quantify and monitor c limate-related fiscal risks (Moretti, 2021[7]), which involves identifying and quantifying fiscal impacts from climate change over the medium to long term. As part of their fiscal risks management frameworks, countries increasingly track physical risks (damage to infrastructure), transition risks (str anded assets), and contingent liabilities (disaster relief obligations). Figure 2. OECD countries practicing green budgeting

Note: For 2022, Hungary, Latvia and Portugal were not practicing green budgeting but had plans to introduce green budgeting in the future. For 2022, data for Costa Rica and Slovenia were not available.

Source: OECD (2022), OECD Survey on Green Budgeting, Q1. (OECD, 2024[8])10 

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Box 1. Next generation green budgeting instruments Focusing on climate objectives and measuring impacts: • Most OECD countries now have national climate strategies and net zero emissions (NZE) targets • Growing emphasis on linking climate action plans with annual and multi-annual budgets • Development of tools to assess policy impacts on emissions and implementation of resilience assessments being incorporated into strategic planning and asset management practices, • Integration of GHG impact assessments into budget submissions (e.g., Korea's GHG Reduction Cognitive Budgeting System) Understanding multi-dimensional links: • Analysis of direct effects (climate policy spending, tax reforms) and indirect effects (macroeconomic impacts) • Growing body of research on modelling climate impacts on public finances • Development of sophisticated models to assess policy scenarios (e.g., Denmark's GreenREFORM model) Costing climate commitments: • Countries beginning to estimate costs of achieving NZE targets • Analysis of transition costs, physical risks, and compliance costs

• Growing body of research on modelling climate impacts on public finances • Development of sophisticated models to assess policy scenarios (e.g., Denmark's GreenREFORM model) Costing climate commitments: • Countries beginning to estimate costs of achieving NZE targets • Analysis of transition costs, physical risks, and compliance costs • Recognition that while mitigation costs are high, costs of inaction would be greater • Examples from Ireland and Switzerland show comprehensive approaches to estimating fiscal impacts Source: (OECD, 2024[9]) Outside from the strict scope of budgeting and financial reporting, governments also report on their sustainability action. For instance, the Biennial Transparency Report, mandated under the Paris Agreement, exemplifies this. Countries must report on national circumstances, emissions metrics, progress toward climate commitments ( Nationally Determined Contributions, or NDC), policies and adaptation strategies, as well as financial and technological support received and provided. Furthermore, some public sector entities have voluntarily started publishing sustainability disclosures using for instance TCFD standards. Other international reporting initiatives can be highlighted, such as the Voluntary National Reviews (VNRs) that serve as follow-up and review mechanisms for the 2030 Agenda and SDGs, the VNR process in several countries have helped to strengthen institutions and policies. (OECD, 2024[1]) 11

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Figure 3. Current landscape of sustainability reporting in the public sector

Source: Authors 1.2. New developments in sustainability reporting In the private sector, important initiatives have been taken recently to develop ESG reporting. They include the establishment of the ISSB in 2021 by the IFRS Foundation and the publication of the first IFRS Sustainability Disclosure Standards (ISSB standa rds IFRS S1 and S2) by that new body. In addition, the International Auditing and Assurance Standards Board (IAASB) published an International Standard on Sustainability Assurance (ISSA 5000) and the European Union adopted legislation on sustainability due

Sustainability Disclosure Standards (ISSB standa rds IFRS S1 and S2) by that new body. In addition, the International Auditing and Assurance Standards Board (IAASB) published an International Standard on Sustainability Assurance (ISSA 5000) and the European Union adopted legislation on sustainability due diligence (CSDDD), sustainability reporting (CSRD, ESRS) and the related classification system (EU Taxonomy). In light of private sector developments, public sector organisations have been called to similarly embrace sustainability repo rting standards. Notably, it has been underlined that p ublic sector organisations represent a very large share of the global bond market : as climate and nature -related risks significantly impact sovereign borrowing costs and debt sustainability , climate and nature data should therefore be reported in a rigorous and standardised way for comprehensive country risk assessment (Stewart et al., 2021[10]). From a broader perspective, calls for improved public sector sustainability re porting can be linked to the fact that citizens and stakeholders expect public sector organisations to practice what they preach and lead by example. Specifically: • As major employers, asset owners, and service providers, public entities must fulfil a dual mandate: developing and implementing effective policies that influence broader economic, societal and development transformation while managing their own environmen tal, social and climate impacts. Their actions must align with international commitments such as the Sustainable Development Goals (SDG) or the Paris Agreement while demonstrating measurable progress through robust reporting based on broadly accepted frameworks. • Quality information and transparency serve as vital foundations for meeting these responsibilities. First, collection of comprehensive and reliable data enables evidence -informed decisions about resource allocation, risk management, and policy prior ities. Second, external reporting and12 

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transparency empower stakeholders from legislators to citizens to understand government action, assess policy effectiveness, and hold decision makers accountable. This accountability should create positive feedback loops that can drive further improvements in decisions. Against this background, in 2024, the International Public Sector Accounting Standards Board (IPSASB)

transparency empower stakeholders from legislators to citizens to understand government action, assess policy effectiveness, and hold decision makers accountable. This accountability should create positive feedback loops that can drive further improvements in decisions. Against this background, in 2024, the International Public Sector Accounting Standards Board (IPSASB) has published an exposure draft for its first sustainability reporting standard - the Sustainability Reporting Standards Exposure Draft (ED) 1, Climate-related Disclosures (IPSASB SRD ED 1) (Box 2) - which draws on private sector -focused ISSB standards. Unlike broader sustainability frameworks such as the United Nation’s SDG’s, the ISSB’s standards, or the European Union’s CSRD that cover multiple dimensions of sustainability, IPSASB's initial standard specifically focuses on climate -related disclosures as a tar geted first step in public sector sustainability reporting. Box 2. IPSASB’s proposal on climate-related disclosures In 2024, the IPSASB released its first proposed Sustainability Reporting Standard (SRS) focused on climate-related disclosures. It builds on established private sector frameworks like the Task Force on Climate-related Financial Disclosures (TCFD) and International Financial Reporting Standards Sustainability Disclosure 2 (IFRS S2), while adapting them for public sector needs. The standard aims to address the public sector's unique dual role in climate action by having two distinct parts. The first part covers disclosures for an entity’s own operations about the climate related risks and opportunities that could affect the entity’s day-to-day activities. The second part covers disclosure requirements about public policy programs with a primary objective to change the behaviour of other to achieve climate-related outcomes. It follows a four -pillar structure covering governan ce, strategy, risk management, and metrics/targets. This applies across all levels of government, from national to local institutions. Concerning climate-related public policy programmes, entities must disclose: • Their oversight of climate -related public po licy programmes, covering policy design, target setting, and progress monitoring. These responsibilities may be shared among multiple entities, whose disclosures should collectively provide a clear and comprehensive picture. The IPSASB

Concerning climate-related public policy programmes, entities must disclose: • Their oversight of climate -related public po licy programmes, covering policy design, target setting, and progress monitoring. These responsibilities may be shared among multiple entities, whose disclosures should collectively provide a clear and comprehensive picture. The IPSASB recognises the complexity of these governance structures across different entities. • The entity’s strategy, including decision-making processes, time horizons, policy trade-offs, and scenario analyses. They must address financial implications such as costs, funding, and income, as well as internal and external factors like resource limitations, regulatory constraints, and public opposition. • Their processes for identifying, assessing, and monitoring risks and challenges—both expected and unexpected —to achieving policy outcomes. These disclosures help stakeholders understand how risks are managed and mitigated. • Greenhouse gas emissions affected by the programmes and the targets for achieving intended outcomes. Metrics can be derived from sources such as the United Nations Framewor k Convention on Climate Change (UNFCCC) or other. The standard defines materiality specifically for climate disclosures in the public sector context, focusing on information that influences accountability and decision-making by primary users - service recipients and resource providers.

Source: Authors based on (IPSASB, 2024[11]). 13

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The future possible adoption of a full set of ESG disclosures standards in the public sector however already generates diverging views. • Some argue current public practices suffer from inconsistency and limited information, making such standards necessary for improvement. They stress the need for standardised metrics comparab le to private sector disclosures to enable cross-sector analysis and, as noted above, better functioning of financial markets. In fact, the OECD 2021 Survey on Primary Market Developments issuers found that issuers reported significant challenges in environmental and social sustainability-related reporting, including difficulties in identifying relevant information. Debt Management Offices , also, faced difficulties in responding to investor requests or verifying the reliability of the information

of financial markets. In fact, the OECD 2021 Survey on Primary Market Developments issuers found that issuers reported significant challenges in environmental and social sustainability-related reporting, including difficulties in identifying relevant information. Debt Management Offices , also, faced difficulties in responding to investor requests or verifying the reliability of the information disclosed (OECD, 2023[4]; OECD, 2022[12]). • Other tends to consider that i) existing approaches embedded into budgeting systems are adequate, emphasising the history and legitimacy of approaches such as green, gender or SDG budgeting and climate-related fiscal risks quantification. They note that additional sustainability requirements could create redundant reporting without meaningful impact on decision -making; or ii) argue that the p roposed disclosures would not better address user needs. In this regard, the OECD's recent publication Governing for the Green Transition highlights the need to improve data quality, standardisation, and interoperability, while ensuring that reporting fram eworks remain proportionate, adaptable to diverse contexts, and conducive to innovation (OECD, 2025[13]). This paper therefore aims to analyse the potential value and administrative costs of expanding sustainability reporting in government, drawing on existing public sector initiatives to assess where additional reporting could bring benefits relative to implementation costs. 1.3. Rationale for the paper As expectations for public sector sustainability action and reporting increase, it appears useful to examine relevant lessons from previous government budgeting and reporting reforms. This paper aims to demonstrate that successful reforms hinge on several fundamental principles, such as (i) developing reporting frameworks that enhance transparency through integrated frameworks rather than creating parallel streams of information, and (ii) providing information that is focused and decision-relevant, carefully balancing comprehensiveness with usability to maximi se influence on policy decisions and operational improvements. The final section of this paper examines how governments can develop effective sustainability disclosure frameworks by incorporating these lessons from past reforms.14 

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