## **Learning Outcomes**

After reading this article, you will be able to explain how public sector organisations measure performance using Environmental, Social and Governance (ESG) metrics. You will understand the challenges of applying ESG in the public sector, interpret how stakeholder influence shapes sustainability priorities, and select/or recommend appropriate non-financial performance indicators. You will be able to critically assess public sector sustainability reporting and advise on the role of management accountants in implementing ESG frameworks.

## **ACCA Advanced Performance Management (APM) Syllabus**

For ACCA Advanced Performance Management (APM), you are required to understand how sustainability and ESG performance is measured and managed by public sector organisations. In particular, pay attention to:

- The influence of diverse stakeholder groups on performance measurement systems in the public sector
- The purpose, structure, and application of ESG (Environmental, Social and Governance) metrics in non-profit and public sector entities
- The challenges and methods for collecting, measuring, and reporting social and environmental data in the public sector
- The role of the management accountant in selecting ESG-related critical success factors (CSFs) and key performance indicators (KPIs)
- The use of frameworks (e.g., GRI, UN SDGs) in reporting sustainability performance to stakeholders

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. Which of the following best describes an ESG metric for a public sector health authority?
   a) Net profit margin
   b) Patient recovery rate
   c) Compliance with emissions standards
   d) Return on capital employed

2. True or False? In the public sector, financial indicators are usually the primary measure of sustainability performance.

3. Which stakeholder would most likely insist on transparent reporting about employment diversity within a government agency?
   a) Tax authorities
   b) Local communities
   c) Creditors
   d) Competitors

4. Briefly state two challenges that public sector organisations face when measuring social impact as part of their ESG reporting.

## **Introduction**

Sustainability and responsible governance are now as important for public sector organisations as for private businesses. Increasingly, governments, regulators, and taxpayers expect public services to operate efficiently, ethically and in a way that benefits society and the environment. As a result, Environmental, Social and Governance (ESG) metrics play a growing role in measuring and managing public sector performance. ESG reporting helps organisations demonstrate transparency, accountability, and alignment with stakeholder values—but brings unique complexities compared to the private sector.

This article examines how public sector bodies use ESG measures, why these matter for performance management, and the role of management accountants in collecting and applying sustainability data.

> **Key Term: Environmental, Social and Governance (ESG) metrics**
> Performance indicators focused on an organisation’s impact on the environment, society, and its governance (decision-making, transparency, and ethics).
>
> **Key Term: Stakeholder**
> Any individual or group with an interest or expectation in what an organisation does—includes staff, communities, customers, regulators, government, and the public.

## ESG MEASURES IN THE PUBLIC SECTOR

Public sector organisations often have broad missions: promoting welfare, ensuring access, protecting the environment, or maintaining infrastructure. ESG metrics help measure how well these missions are achieved—beyond simply tracking costs or service output.

### Environmental Metrics

These assess an organisation’s effect on the natural world. Typical measures include:

- Energy and water usage per facility
- Waste recycled as a percentage of total waste
- Carbon dioxide (CO₂) emissions from fleet vehicles or operations
- Proportion of procurement spend on sustainable/ethical suppliers

Public entities such as hospitals, city councils, and transport providers increasingly monitor and report these metrics in their sustainability statements.

### Social Metrics

Social metrics focus on how the organisation impacts people, both within and outside its boundaries. Common examples:

- Workforce diversity (e.g., gender, ethnicity, disability ratios)
- Health and safety incident rates
- Community investment (fiscal or in-kind)
- Accessibility of services to disadvantaged groups

Social factors are particularly important in services such as education, healthcare, and housing—where inclusiveness and equity are core objectives.

### Governance Metrics

Governance relates to decision-making processes, transparency, and compliance. Typical measures include:

- Proportion of independent board members
- Compliance with anti-corruption codes or legislation
- Frequency and resolution rate of complaints or whistleblowing cases
- Timeliness of mandatory performance reporting

> **Key Term: Non-financial performance indicator (NFPI)**
> A metric that measures organisational success in areas other than financial outcomes, such as service quality, sustainability, or staff satisfaction.

## STAKEHOLDER INFLUENCE ON ESG MEASUREMENT

Stakeholders influence ESG selection and reporting directly. In the public sector, stakeholder groups may include government, taxpayers, service users, advocacy groups, and employees. Each has unique priorities that must be balanced.

For example:

- Environmental groups may prioritise pollution reduction or biodiversity.
- Service users may focus on accessibility and social inclusion.
- Oversight bodies may require robust governance and anti-fraud controls.

> **Key Term: Stakeholder mapping**
> The process of identifying, analysing, and prioritising the expectations and influence of different stakeholder groups.

### **Worked Example 1.1**

A city council plans to publish an ESG report for its municipal housing programme. Tenant associations demand transparent reporting on living conditions and repairs, while the local council insists on reducing carbon emissions from buildings. The finance committee wants assurance on ethical use of public funds.

**Question:** Identify one ESG metric for each stakeholder group and explain why each is relevant.

> **Answer:**
>
> - Tenant associations: "Average repair completion time"—demonstrates social responsibility and service quality.
> - Local council: "Annual CO₂ emissions per residential unit"—measures environmental impact of housing stock.
> - Finance committee: "Percentage of contracts awarded in compliance with ethical procurement policy"—addresses governance and risk of misuse of public funds.

## CHALLENGES IN MEASURING AND REPORTING ESG

Public sector organisations face several difficulties when applying ESG measures:

**1. Quantifying Social or Environmental Impact:** Unlike private sector financials, many impacts—like community wellbeing or lower emissions—are hard to value accurately or compare year-on-year.

**2. Data Collection and Quality:** Many ESG indicators require new data gathering processes, sometimes relying on qualitative surveys or third-party verification.

**3. Defining Appropriate Metrics:** Not every ESG measure is relevant for each public body. Choosing metrics that actually reflect organisational mission and stakeholder priorities is critical.

**4. Balancing Stakeholder Demands:** Multiple, and often conflicting, stakeholder needs may pull the organisation in different directions, leading to trade-offs in which ESG areas are prioritised.

### **Worked Example 1.2**

A regional health authority sets a goal to improve sustainability by reducing waste and promoting workforce diversity. Targets include reducing single-use plastics by 30% and increasing minority representation in management roles.

**Question:** What practical difficulties might arise in measuring progress against these ESG goals?

> **Answer:**
>
> - Waste reduction: Measuring actual single-use plastic usage across many sites may be complicated by inconsistent reporting, lack of baseline data, and changing supplier packaging.
> - Workforce diversity: Reliable reporting requires accurate self-identification from staff and up-to-date HR systems; voluntary disclosure or incomplete records can undermine data quality.

## MANAGEMENT ACCOUNTANT'S ROLE IN ESG FOR PUBLIC SECTOR

Management accountants are central to successful ESG performance management. Their responsibilities typically include:

- Collaborating with operational teams to identify mission-driven critical success factors (CSFs), such as “reduction in community wait times” (social) or “energy efficiency improvements” (environmental).
- Designing robust key performance indicators (KPIs) for each ESG area, ensuring they are relevant, measurable, and meaningful.
- Collating and validating ESG data—ensuring it is accurate, timely, and fit for reporting.
- Advising management on aligning incentive structures, policies, and resource allocations with ESG strategy and public accountability requirements.
- Supporting the adoption of recognised frameworks or standards for ESG disclosure, such as the Global Reporting Initiative (GRI) or the UN Sustainable Development Goals (SDGs).

> **Key Term: Critical success factor (CSF)**
> An essential activity or area where satisfactory performance is necessary for the organisation to achieve its mission and objectives.
>
> **Key Term: Key performance indicator (KPI)**
> A specific measurement used to quantify achievement against a CSF.

## FRAMEWORKS FOR PUBLIC SECTOR ESG REPORTING

Public organisations are increasingly expected to use established ESG frameworks. Two widely adopted models are:

- **GRI Standards:** Provide structured guidance for public interest organisations to disclose social, environmental, and economic indicators that matter most to stakeholders.
- **United Nations Sustainable Development Goals (SDGs):** A set of 17 global priorities, including goals for good health, reduced inequalities, and climate action. Public bodies may align performance measurement with relevant SDGs.

Some metrics common to these frameworks and suited for public reporting include:

- Gender pay statistics
- Volume of waste re-used or recycled
- Accessibility score for public buildings
- Percentage of governance policies reviewed annually

### **Worked Example 1.3**

A government transport department adopts the UN SDG "Affordable and Clean Energy" as a strategic priority. It sets a KPI to increase the proportion of electric buses in its fleet.

**Question:** How can the department ensure this ESG KPI is meaningful and reported accurately?

> **Answer:**
> The department must establish a clear definition (e.g., only fully electric—exclude hybrid), baseline total bus numbers, and set a time-bound target. Data collection requires robust asset tracking and regular public reporting—ideally verified by an independent audit.

### **Exam Warning**

In the APM exam, avoid suggesting generic or vague ESG indicators (e.g., “be more sustainable”). Your recommendations should be quantifiable, directly linked to organisational strategy, and relevant to the service context. Always ensure ESG KPIs are SMART (Specific, Measurable, Achievable, Relevant, Time-bound).

### **Revision Tip**

Always consider which ESG metrics best align with the public sector organisation's mission and main stakeholder groups. Prepare examples of both social and environmental public sector KPIs to use in your answers.

## **Summary**

ESG metrics provide a structured approach to measuring public sector performance beyond finances. Key challenges for public bodies include data reliability, selecting relevant indicators, and balancing conflicting stakeholder demands. Management accountants play a key role in embedding measurable ESG objectives into reporting systems, selecting suitable frameworks, and ensuring sustainability information is used for decision-making and accountability.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Explain the role and types of ESG (environmental, social, and governance) metrics in the public sector
- Identify principal stakeholder groups and analyse their influence on public sector sustainability reporting
- Discuss common challenges in setting and measuring ESG indicators in public organisations
- Advise on the specific responsibilities of management accountants in public sector ESG performance management
- Recommend and evaluate appropriate ESG KPIs and reporting frameworks for public bodies

## **Key Terms and Concepts**

- Environmental, Social and Governance (ESG) metrics
- Stakeholder
- Non-financial performance indicator (NFPI)
- Stakeholder mapping
- Critical success factor (CSF)
- Key performance indicator (KPI)

Public sector and sustainability measures - Environmental social and governance metrics