PUBLIC SECTOR ORGANIZATIONS are currently facing enormous upheaval triggered by the problems arising from the unprecedented global pandemic, the growing urgency of climate change and dramatic social inequalities.
These challenges place an additional burden on the public sector as we urgently navigate management, transparency and an ever-changing environment.
A signal of hope is being provided by banks, asset managers and investors, who are beginning to recognize and take action through their environmental, social and governance (ESG) strategies and disclosures.
But while disclosure is now required within these corporate entities, few public sector organizations have disclosed how they approach the same issues.
Government agencies have always viewed themselves as transparent, democratic and accountable because of the legislative controls in which they operate.
However, their public disclosure documents do not currently meet this mark.
Public sector organizations now have the opportunity to go beyond their legislative responsibilities and demonstrate progress on ESG disclosure and critical performance metrics.
The Covid-19 pandemic has been a catalyst for us to think about how our economies are changing in a more equitable and sustainable way. This is directly correlated with ESG considerations.
What organizations, including those in the public sector, now need are common standards and key metrics to demonstrate progress in these critical areas.
This means that chartered professional accountants working in public sector organizations now have the opportunity to be pioneers in advancing ESG measures and to inspire others to do the same.
I firmly believe that public sector leaders have the opportunity to lead the way, developing and regulating standards to ensure that prioritization of ESG objectives produces improved results and defines accountability.
The profession is uniquely positioned to carry out these actions because it is competent, trustworthy and respected. This creates an unparalleled opportunity and obligation to report beyond “just the numbers”.
We can seize this moment by coming together to take action against climate risk.
We can influence how current and future generations make informed and relevant decisions by developing the metrics required to measure ESG progress.
What actions has the City of Toronto taken?
The City of Toronto has implemented several key strategies to address climate change and social issues, and strengthen governance.
We have adopted “TransformTO”, Toronto’s ambitious climate action strategy, which sets greenhouse gas emissions targets aimed at improving health, growing the economy and promoting equity. social.
We launched our first green bond in 2018, supporting specific investment projects that target climate change mitigation and resilience.
We became the first Canadian government to issue a social bond in 2020, to fund investments in social and affordable housing, deploy affordable basic infrastructure in communities, and support socio-economic progress and empowerment.
The bonds have been supported by the creation of a “social debenture framework”, which intentionally extends our sustainability framework to demonstrate our commitment to green and social space. By creating Green Bonds and Social Bonds, we have attracted new types of investors from all over the world – investors who put ESG reporting at the forefront of their priorities and insist that issues of sustainability and fairness are mainstreamed. in their investment choices.
We also created the Toronto Investment Board, an independent, skills-based board with experience in investing and ESG issues.
This council guides the city’s strategy to invest its investable assets in a reasonable and prudent manner.
The investment managers selected by the board of directors are all signatories of the United Nations Principles of Responsible Investment and had to demonstrate an ESG integration process in their decision-making.
Since there is no single source of reporting for ESG initiatives, Toronto has chosen to take the lead and become the first Canadian public sector entity to publish an ESG performance report, demonstrating our commitment to each of the three areas.
“To maintain public trust, it is imperative that public sector organizations invest wisely, focusing on demonstrating stewardship and accountability of financial resources.”
The inaugural report, released in January 2021, included topics ranging from the city’s greenhouse gas (GHG) reduction targets, social and economic inclusion, and workplace culture and inclusion.
The report defines the priorities in each of the ESG areas as well as the associated performance indicators aligned with the United Nations sustainable development goals.
What lessons have we learned?
To maintain public trust, it is imperative that public sector organizations invest wisely, focusing on demonstrating stewardship and accountability of financial resources.
For this reason, we are proud to be the first municipality in Canada to incorporate our GHG target and progress in the notes to our financial statements.
We are also one of the first municipalities in Canada to voluntarily adopt the recommendations made by the Climate-Related Financial Disclosures Task Force (TCFD), with the publication of the city’s climate risks and opportunities in our 2019 annual financial report. , which presented our strategy. to mitigate these risks and achieve our net zero goal.
TCFD was intended to influence the allocation of capital for SOEs, but for public sector organizations it goes beyond capital market allocation decisions.
It is essential to understand how climate issues impact the city and our ability to provide services.
In addition, policymakers in Toronto have a mandate to consider climate risks in their policies and financial planning processes.
To do this, public sector organizations need reliable information and clear standards against which to measure themselves. Our profession is supposed to meet these types of information requirements in the financial arena, but we will need to expand our expertise to develop these needs.
Getting into the TCFD adventure was difficult, even when the accountants worked closely with sustainability professionals.
It was important to understand what data was available; what risks or opportunities have impacted service delivery and asset infrastructure; what opportunities could be integrated into policies and processes; and what has already been disclosed in relation to the recommendations.
As an industry, we can develop best practices that will bring true comparability to the disclosures recommended by TCFD.
In our experience, the collaboration of multidisciplinary teams was the key to the start-up, the pooling of knowledge helping to support effective adoption and harmonized approaches allowing consistency of disclosures.
Starting out small, the City of Toronto was able to develop disclosures and build buy-in from across the organization.
Greater collaboration with professional sustainable development organizations will build the methodology and allow the development of this information. Each actor plays an important role in guiding change and taking action to improve sustainability in our global community.
We can all motivate each other to address the risks associated with climate change and disclose our progress on environmental, social and governance factors.
The public increasingly understands the need for action as the impact of climate change becomes more apparent.
Therefore, it is necessary to know both the feasibility and the cost of meeting greenhouse gas emission targets, as well as the cost of the impacts of extreme weather conditions on interdependent infrastructure systems.
Interdisciplinary teams can determine the data required and establish processes to capture that information.
“The public increasingly understands the need for action as the impact of climate change becomes more apparent”
In Toronto, different teams of professionals are working together to ensure that ultimately capital investments are directed to programs with the greatest impact.
The implementation of TCFD in annual financial reports highlights good practices for finance and accounting professionals, as well as the role and value that accountants can bring to sustainability.
More work awaits us
Toronto will continue to take an integrated ESG approach, with responsible practices embedded across the organization to create a sustainable, transparent and resilient foundation for delivering quality and value services over the long term.
Striving to be a caring and friendly city that invests in the quality of life for all, the City of Toronto prioritizes the maintenance and creation of affordable housing, investment in people and neighborhoods and improving social outcomes for residents and our global community.
We are committed to meeting our climate goals, including reducing greenhouse gas emissions and achieving our net zero goals, which will require transformational changes in the way we live, work, travel and travel. to build.
Improving the city’s resilience will allow us to survive, adapt and thrive in the face of challenges.
Toronto strives to be a leader in positive impacts and hopes to demonstrate to others that integrating ESG into financial and policy decisions is not only possible, but also the right thing to do.
We have seen first-hand that by working together you can tackle climate risks and social inequalities.
We are proud of the actions taken under the ESG priorities that the City of Toronto has undertaken and we look forward to partnering and collaborating with other forward-looking public sector organizations to develop key metrics to measure performance. success of our initiatives.
As the saying goes, “what gets measured gets done”.
By developing key metrics, chartered professional accountants can be leaders in securing a sustainable future for all of us.
Image credit | Rice mills