Friday 10 February 2023
As Public Financial Management (PFM) focuses increasingly on climate change and the environment, so PFM institutions will have to build capacity in this area and professionals will have to continually develop their competence. This is an exciting time and change will cover institutional strategies, policies and programmes, and the PFM function itself will also need to operate sustainably, including climate friendly working practices. ;It will be undertaken in an arena of widely differing views about priorities regarding climate change, which are also subject to intense scrutiny, working with other public institutions and stakeholders, at a time of pressure on both public and household finances.
Institutional frameworks. PFM institutions are starting to reflect sustainability and also specifically climate change in building capacity of their professional resource to address climate change. For example, The United Kingdom (UK) Government’s Finance Function Strategy[1] includes a priority financial fundamental of introducing new sustainability reporting disclosures to enable greater control and better management of the use of natural resources and on capability to ensure career and training paths meet the needs of today and tomorrow. Scrutiny and governance process is already influencing governance and delivery of climate change agenda, such as the UK National Audit Office’s good practice guide on climate change risk for audit and risk assurance committees[2] and evaluation of central government climate change policies and objectives to establish if stated reductions in emissions and carbon levels are being achieved[3].;
Competency Frameworks are increasingly used to build and support PFM capacity, and climate change and environmental policies will be increasingly embedded in them. For instance, the PFM Learning and Development Strategy 2018 of the Republic of Rwanda[4] has climate change adaptation planning and management as a pervasive competency. The integrated competency framework of the African Organisation of English-speaking Supreme Audit Institution[5] has a sustainability perspective as a leadership competency, covering legacy for future generations, a broader societal perspective and commitment to institutional social responsibility and sustainability, and a financial management competency relating to sustaining the institution. PFM professionals practising in certain fields such as international development may also work to technical competency frameworks relating to climate and environment[6].
Education and Training. PFM professionals will play a key role in both leading and implementing the climate change agenda, and so roles will adapt to cover climate change and sustainability at all levels from strategy to reporting, and including risk assessment and decision-making, and potentially include elements like valuing some natural resources.
Professional education and training is incorporating these development needs. The professional qualification of the Chartered Institute of Public Finance and Accountancy offer a syllabus that reflects PFM professionals’ role in managing the impact of climate change by covering sustainability, green finance, environmental reporting, and performance measures[7]. The African Professionalisation Initiative[8], which grows the capacity of accountancy professionals in the Africa public sector, includes training on aspects such as environmental budgeting. Training providers such as IASeminars have also taken a lead by offering relevant innovative training courses on Sustainability in PFM[9]. Fields like further and higher education will also need to syllabuses to include climate change.
Technical standards. PFM professionals will have to broaden their technical accounting knowledge as leaders, policy setters and implementers of innovative reporting of the impact of climate change and sustainability in financial statements. This area that is likely to progress significantly in coming years.
The International Public Sector Accounting Standards Board has a Recommended Practice Guideline - Reporting on the Long-Term Sustainability of an Entity’s Finances – that covers providing an indication of the projected long-term sustainability of an entity’s finances, including assessing the impact of environmental factors. It is consulting on updating this and other standards on matters such as the impact on long term fiscal stability, with reference to items like green bonds, carbon tax or investments to mitigate impacts of climate change. The International Sustainability Standards Board’s draft standard on Climate-related Disclosures[10] addresses disclosing information to help users of financial reports to assess the effects of significant climate-related risks and opportunities on value, and how use of resources supports strategy for managing them and evaluating ability to adapt to them.
In the medium and longer term, the coverage and competencies of the PFM profession will widen further as PFM advanced to meet the need for strategies for reporting and evaluation of, and transparency around, measures that the public sector takes on climate change, and the wider environment and sustainability.<
As Victoria mentions in this article, IASeminars offers a Sustainability in Public Financial Management course – Victoria is the instructor! For more information, please go here.
[1] Government Finance Function Strategy 2022-25 - United Kingdom Government Finance Function / HM Treasury
[2] Climate change risk: A good practice guide for Audit and Risk Assurance Committee – National Audit Office United Kingdom
[3] Measuring and reporting public sector greenhouse gas emissions – National Audit Office United Kingdom
[4] Financial Management Learning and Development Strategy 2018 - Ministry of Finance and Economic Planning, Republic of Rwanda
[5] Integrated Competency Framework And Dictionary For SAIs: Achieving Professional Excellence - African Organisation of English-speaking Supreme Audit Institutions (AFROSAI-E)
[6] Climate and Environment: Technical Competency Framework - Foreign, Commonwealth and Development Office
[7] CIPFA Futures Introducing our updated Professional Accountancy Qualification (International) - Chartered Institute of Public Finance and Accountancy
[8] African Professionalisation Initiative
[9] Sustainability in Public Financial Management
[10] Exposure Draft Climate-related Disclosures - International Sustainability Standards Board (IFRS Foundation)