This study aims to explore the practical role of governmental accounting in achieving the sustainable development goals (SDGs). It considers the technical aspects of accounting, how accounting affects the society in which it operates (the social role), and expectations as to what accounting should – or should not – do (the moral role).
The case of Italy is investigated, and a pragmatic discourse analysis methodology is used to conduct documentary research. Developments in SDG reporting in Italy are examined and assessed as a possible model for other EU member states.
The government budgetary processes and SDG initiatives in Italy are evolving. The role of budgeting supported by a sufficiently detailed and multi-purpose chart of accounts is an important consideration. Furthermore, digitalisation can provide support by facilitating the categorisation, classification and tagging of expenditure items. Italian practices show that accounting can assume a technical role in the process of SDG achievement, but the underlying subjectivity involved does not facilitate the consideration of the social and moral aspects. The solutions used may be acceptable for decision-making at a micro level but may encounter resistance at the macro level due to the social and moral expectations of government budgeting, including the budget’s legal aspects.
This study taps into the social and moral aspects of management accounting, reminding us of the potential contribution of accounting tools that can be used to provide tangible results. While the limitations of the underlying technicalities are recognised, their application could be more useful ex-ante, integrating the expectations of social and moral practice, rather than looking at information ex-post.
1. Introduction
Reporting on commitments towards sustainability and the sustainable development goals (SDGs) plays a primary role in the entire process of their achievement. Reporting is not an end in itself but rather a means to an end, with the end being to implement changes that lead to the achievement of the SDGs (GRI, UN Global Compact, 2020). SDG reporting is used as a basis to drive informed decision-making and integrate SDGs into the entity’s strategy.
While every entity and individual should be aware of the SDGs and strive for their achievement, the prominent role of governments and public-sector entities is undeniable. They have the power to establish policies that have ripple effects across the whole economy – also enabling private-sector entities to work towards these common targets.
A key role can be played by parliamentarians in making laws to support SDGs, alongside European Union (EU) and international legislation, and being accountable for the effective implementation of the EU Agenda 2030 in the areas of environmental, social and governance (ESG) commitments. Importantly, parliamentarians should ensure that funding and resources are invested effectively to support SDGs, and they “should advocate for complete and coherent integration of the SDGs into budgets” (IPU, 2021, p. 5). Therefore, governments need good information and reliable systems to make the required policy choices. “Finance is the key enabler for addressing climate change and the SDGs” (Carruthers, 2021). Governments need to identify gaps and improve information that can then be reflected in budgetary allocations.
The literature on SDG budgeting and reporting is progressively emerging, even though it tends to focus more on local governments (Benito et al., 2023; Bisogno et al., 2023, 2024). There is a debate about whether SDG reporting should be compulsory (Fallan, 2016) and whether it needs to be audited (Brusca, 2024; Brusca et al., 2024). Some literature refers to legitimacy issues, arguing that such reporting is only done for the sake of appearances (Lindblom, 2010; Flower, 2017). In practice, steps are being taken to harmonise standards on sustainability reporting. However, the literature appears to focus only on rhetorical issues, without pointing to practical solutions. According to Bebbington and Unerman (2018, 2020), the sparse SDG-related accounting research does not incorporate organisations’ challenges. SDG budgeting and reporting need to refer to specific frameworks that, among other things, include accounting-based indicators measuring and disclosing plans and actions undertaken for sustainable development (Cohen et al., 2023; Manes-Rossi, 2024). Conversely, they risk resulting in a further burden for governments without any concrete impact. Therefore, a gap emerges from the literature, and there is a need to investigate the reporting and practices required for accounting to be effective and assist in achieving SDGs. This study aims to explore the role of governmental accounting in achieving SDGs. To do so, accounting is not considered a neutral and merely technical practice but rather a multidimensional technical, social and moral practice. The social aspect refers to the impact accounting figures may have on individuals, organisations and the environment, while the moral aspect is reflected in expectations as to what accounting should or should not do. Accordingly, this study relies on Carnegie et al. (2021) framework, where the technical aspect embraces social and moral dimensions, which are considered crucial for accountants to lead into the future and tackle the SDG-related challenges for a better world (Carnegie et al., 2023).
From a methodological perspective, the SDG reporting and budgeting processes of Italy, an EU member state, are analysed to assess developments in practice and thus provide suggestions for the best way forward. Italy was selected for its high position in the UN SDG Index and Dashboards and its significant progress towards achieving SDGs. Furthermore, Italy was one of the first to develop a conceptual framework for measuring well-being and to integrate it into the policy cycle. The SDGs are mentioned in the latest budget document, and the government issued an official statement endorsing their implementation (Manes-Rossi, 2024). Findings that emerged from the analysis evidence the central role of the technical aspect; however, the social and moral aspects of accounting are not as relevant as expected.
The paper proceeds as follows. Section 2 analyses the background to depict the state of the art, while Section 3 illustrates the theoretical framework and the research questions of the study. Section 4 explains the research approach and procedures and sets the context. Results are illustrated in Section 5 and discussed in Section 6. The conclusion presents a synopsis of the study and some implications.
2. Background
The 2030 Agenda for Sustainable Development encourages the United Nations (UN) member states to review national-level progress regularly. Public-sector organisations play a key role in achieving the SDGs, as they act as regulators and are committed actors in facing environmental and sustainability challenges. Frameworks, standards and guidelines have been developed at the national and international levels to guide the assessment of the contribution of public-sector organisations to SDGs (Cohen et al., 2023). The Global Reporting Initiative (GRI) developed sustainability reporting standards that enable both public and private organisations to be transparent and accountable by reporting their economic, environmental, social and governance impact – the result is the UN’s Global Reporting Indicators Framework (GRI, UN Global Compact, 2020). The development of EU Sustainability Reporting Standards (ESRS) and International Sustainability Reporting Standards (IFRS S1 and S2) is convergent with the GRI. In July 2021, the European Financial Reporting Advisory Group and the GRI agreed to collaborate in drafting new ESRS, contributing to further international convergence. This collaboration supports the European Commission (EC) in reaching its objective of increasing corporate transparency in line with the European Green Deal (EC, 2023).
In 2024, the IPSASB issued an Exposure Draft proposing for the public sector the Sustainability Reporting Standard (SRS) 1, Climate-related disclosures. The proposal draws upon the dual role, in terms of regulatory and policy of government in the climate arena and on GRI concepts. The IPSASB also identified General Requirements for Disclosure of Sustainability-related Financial Information and Natural Resources – Non-Financial Disclosures.
Within this evolving context, scholars are investigating sustainability and SDG reporting both in the private and public sectors. Le Blanc (2015) succeeded in mapping the 17 SDGs as a network of targets, showing their linkages and overlaps. However, the integration of SDGs appears to be insufficient, and an effective “mobilisation” of resources (i.e. expenditure and investment) towards SDGs-related implementation is necessary (Stafford-Smith et al., 2017). Mobilisation is perceived as relevant at both macro and micro levels because implementation should ensure the full inclusion of human and financial resources – from the global to the local level, to reach the poorest and most vulnerable.
Scholars have also examined how SDGs can be incorporated into public-sector entity strategies. Referring to local governments, Guarini et al. (2021, 2022) underlined the need to identify the relevant SDGs and targets and proposed a framework that can support managers and politicians to include SDGs in their strategic documents. This stream of literature leads to a broad concept of accountability that also embraces social and environmental areas (Ball et al., 2014). Consequently, there is a need to investigate which information should be provided and how.
Another literature stream refers to alternative reporting formats through which non-financial information can be presented to citizens and stakeholders (Manes-Rossi et al., 2020) for accountability on SDG progress. Although the crucial role of non-financial information in ensuring accountability for SDG-related actions is largely acknowledged, the role played by accounting information (including management accounting and budgeting) should be considered. Bebbington and Unerman (2018) identify the need for new forms of accounting interventions, as accounting information can support the assessment of the value of input resources and output volume information, providing data for calculating sustainability indicators. They also note the scarcity of accounting academic research that explicitly focuses on the development of new accounting tools in this emerging SDG-related practice. Caruana and Dabbicco (2022) discussed the role of the accountancy profession in this realm. Cohen et al. (2023) investigated whether and to what extent SDGs are being translated into accounting terms, documenting that accounting systems are not yet used to their full potential.
At a practical level, the IPU (2021) encourages parliamentarians to actively integrate SDG targets and achievements in the budgetary process – on both the expenditure and revenue sides. The expenditure aspect would ensure that budgetary allocations are applied effectively and strategically. Parliamentarians should also find ways to maximise revenue streams towards SDG achievement, for example, by reviewing existing tax laws to close loopholes that lead to tax revenue leakages.
This study aims to contribute to the debate by investigating the role of governmental accounting in achieving SDGs by considering the technical aspects of accounting coupled with its social and moral role.
3. Theoretical framework and research questions
The literature sends a clear message that traditional accounting technologies and financial statements are not enough to provide data that is relevant for SDG reporting (Milne and Gray, 2013; Bebbington et al., 2017). There appears to be a dilemma as to the extent of financialisation that is possible in relation to SDGs.
Considering that accounting is “a much more multidimensional phenomenon than historic technicist ‘definitions’ have recognised”, Carnegie et al. (2021) underline the need to better understand the nature, roles, uses and impacts of accounting, aiming to shape a better world. Academic research focuses on the role of accounting in creating, sustaining, changing and communicating social reality. Vollmer et al. (2024) further debate the role of public-sector accounting in society and suggest exploring accounting beyond its technical understanding as a professional practice. International scholarly researchers recognise accounting as an instrument of power and control within organisations and society, which should preserve multidimensionality while encompassing a measurement/calculative dimension and a relational dimension (Barbera et al., 2024; Cohen and Manes-Rossi, 2024).
Carnegie et al. (2023) also suggested taking a courageous step and “reimagine accounting for its potential”, setting aside what we know about accounting to investigate what accounting is doing vs what it should be doing to help shape a better world. Focusing on budgeting and the supporting role of management accounting in planning, controlling and decision-making (Drury and Tayles, 2023), this study moves away from the traditional annual reporting; it refers to public-sector accounting and budgetary techniques (the technical role of accounting) and explores how these can (and should) be used to support the technical, social and moral role of accounting for the achievement of SDGs (Carnegie et al., 2021).
3.1 The technical role of accounting
Accounting is related to money and finance. However, the vast majority of the indicators in the SDG Framework are non-financial in nature. Following Sobkowiak et al. (2020), it is crucial for national governments to understand the importance of accounting for sustainable development results and to address the type of technical work that government bureaucrats need to do while questioning the challenges of calculability of sustainability developments. This means that the performance of SDGs can be defined, measured and transformed. However, it does not mean that all the SDGs themselves should be expressed in monetary terms. With governments, the starting point is always a political promise, which is then formulated into a government policy. Eventually, these policies fall into the lap of the budget office, which holds the purse strings for the funding necessary to execute the policy.
The IPU (2021) refers to the possible use of performance budgeting, distinguishing between mandatory and discretionary spending and integrating SDGs into medium-term budgetary frameworks that are regularly reviewed and updated. This would ensure that coherent policies are in place and consider the interests of a wide variety of stakeholders.
Guariso et al. (2023) discussed how it is crucial to integrate the SDGs into public financial management (PFM) systems. They pointed out that this needs to be passed by automated SDG classification of budgetary programs that can be done through machine learning (ML) and text-mining algorithms. A strand of research proposes to extend the use of social media platforms and big data for SDG analysis (Arnaboldi et al., 2017). Digitalisation is continuously advancing and promises to provide disaggregated data to inform environmental policy choices and to pursue sustainable objectives, for example, by considering the potential of digital technology in processing large amounts of public documents (Guariso et al., 2023). However, to implement effective SDG budget tracking and link public spending patterns to the performance of SDG indicators, governments must first conduct SDG budget labelling. Guariso et al. (2023) noted that SDG budgeting is still in its infancy, and there is considerable heterogeneity across countries in how they integrate SDGs into budgetary processes. Manes-Rossi (2024) compared 16 European countries, documenting that only a few (Italy, Norway, Sweden and Ukraine) have committed to preparing a budget to demonstrate how planned strategies and actions are consistent with SDGs. She also evidenced that Finland, Portugal, Spain and the UK have adopted laws or guidelines to support central governments in preparing a budget aligned with SDGs, while specific SDGs have been linked to the outcome goals in Austrian budgets. Other countries do not have an SDGs budget at the central government level. Other studies explored how the common classification system for sustainable economic activities, such as EU taxonomy, has been incorporated and impacts policy measures and expected environmental effects (Lucarelli et al., 2020).
Further literature explored the potential of full cost accounting (Bebbington and Larrinaga, 2014), for example, as inspired by the “polluter pay principle” developed by the EU and the UN as part of a set of broader principles to guide sustainable development worldwide. This practice assigns a value to the use of otherwise free environmental (and social) services, aiming to identify more sustainable ways for obtaining goods and services. Bebbington and Larrinaga (2014) discussed the relevance of external costs that are central to full-cost accounting but also showed the limitations of the extent to which externalities can be defined. Furthermore, the type of information available must be considered with uncertainties deriving “from the scale and complexity of the key ecological processes and diverse values imperfectly translated into economic/financial terms” (p. 406). This, in turn, may lead to uncertainty in conclusions, specifically on how to shape the role and relevance of accounting for a reliable SDG report.
From Sobkowiak et al.’s (2020) and Guariso et al.’s (2023) acknowledgement of the importance of recognising the challenges of the technical work required by government bureaucrats and the suggestions of the IPU (2021), our first research question is:
What is the technical role that accounting can assume in the process of SDG achievement?
3.2 The social and moral obligations
Carnegie et al. (2021, p. 68) discussed the interconnection of morality and accounting as a social practice, arguing that “morality is at accounting’s core”. Ethical conduct in the public interest is expected, particularly from the public-sector accountant as a moral agent. The value placed on neutrality in the profession contributes to a shared moral myopia. This arises from a lack of consideration of the ends towards which accounting contributes. Bebbington and Unerman (2018) discussed the role of professional accountants in their commitment to a public interest remit, in raising awareness of the SDGs and in encouraging recognition of the SDGs at an organisational level. At a global level, the activity of the accounting profession in relation to the SDGs has emerged from policy documents since 2016, which identified a number of SDGs that could be greatly affected by the accounting profession (Bebbington and Unerman, 2018).
A moral practice can be understood as one in which actions or inactions influence others, both now and in the future. It helps shape the moral order of organisations and societies, which, in turn, affects individual and organisational behaviours. This is particularly evident in cases of the aggressive use of key performance indicators (KPIs) for remuneration purposes, which puts undesirable pressure on moral behaviour and has adverse reputational consequences (Carnegie et al., 2021).
From this perspective, several accounting tools and techniques would be useful to really achieve SDGs – not just for information governance (Brorström, 2023). Financial statements can be supplemented with (key) performance measures and narratives containing non-financial data related to SDGs (Makarenko and Plastun, 2017; IPU, 2021). However, accounting is much more than a financial report dealing with the past, and it has other tools that can be effectively used for planning, control and decision-making for achieving SDGs (Bebbington and Larrinaga, 2014).
On the one hand, scholars (Carnegie et al., 2021, 2023; Leoni et al., 2021) refer to previous accounting literature (notably Bryer, 2014) that demonstrated the multidimensionality of accounting as a moral and social practice and not as a purely technical instrument. On the other hand, accounting technologies, including government budgets, are not a “mere neutral” and “genderless” technical practice showing only expenditure and revenue. Should the national budget ignore, for example, measures of social roles and (gender) differences in civil society (Khalifa and Scarparo, 2021), it would negatively influence well-being development. In our reference framework, therefore, accounting is also a social and moral practice and – being influential and pervasive in social life – has the potential to be used for overcoming traditional economic measures (such as the gross domestic product [GDP] at the macro level, but also expenditure at the micro level) to support broader social and environmental changes. Accordingly, our second research question is:
To what extent can accounting support the inherent social and moral obligations for the achievement of the SDGs?
4. Methodology
4.1 Research approach and procedures
The research methodology used in this study is based on discourse analysis. This qualitative approach is ideal for exploratory studies that aim to delve into new research areas (Flick, 2009) and allows for examining the use of written or sign language (Khalifa and Mahama, 2017). Among the various approaches through which a discourse analysis can be conducted, this study refers to a pragmatic approach, which tends to concentrate on the use of language rather than syntax (Al-Hindawi and Saffah, 2017). This approach was chosen as it allows going beyond the mere transfer of information, focusing on the context-embedded nature of accounting numbers and indicators to unveil their meanings. Following Yamaji (2005), this means recognising a novel role for accounting discourse to stimulate social consciousness in the public’s mind to understand whether and to what extent public-sector accounting language also encompasses social perspectives (Khalifa and Mahama, 2017).
The pragmatic approach was implemented through different steps. First, two research team members autonomously examined the contents of various documents, such as statistical information from the UN database, legislative information and official documentation (budgets and reports). Then, the research team selected the main reporting initiatives on well-being and sustainability in the investigated context (Italy). A table was prepared to summarise their contents and related indicators (see Table 1), and a preliminary analysis was then conducted.
Main reporting initiatives on well-being and sustainability in Italy (SDGs)
| Type of publications | Year of firstpublication | Frequency | Indicators |
|---|---|---|---|
| BES report (benessere equo e sostenibile – ESW) | 2016 | Annual, with updated set of indicators | Well-being and welfare indicators |
| Annexe to the economic and financial document (DEF) | 2016 | February each year | Reduced set of BES indicators (latest publication in 2023 included 12 well-being indicators up to 2022 and forecasts for the period 2023–2026 for eight of them, namely: adjusted gross disposable income per capita, disposable income inequality, non-participation rate, emissions of CO2 and other greenhouse gases, absolute poverty, healthy life expectancy at birth, overweight or obesity, early leavers from education and training. In addition, there is a forecast of “disposition time”, which is an indicator of civil justice efficiency.) |
| SDGs Report: Statistical information for 2030 Agenda in Italy | 2018 | Annual; periodically the set of statistical measures for the SDGs of the 2030 Agenda are updated/extended | Indicators for monitoring the objectives of the 2030 Agenda for Sustainable Development |
| Gender budget | 2017 | Annual | Reclassification of three categories of expenditure: reducing gender disparities or promoting equal opportunities; sensitive expenditures, relating to measures, which have, or could have, an indirect impact on inequalities between men and women; and neutral expenditures (with no effect on gender). The various approaches of gender budgeting in Italy (Guerra and Romano, 2020 - amongst those listed by Khalifa and Scarparo, 2021) show the prevalent use of the following: (1) gender-aware policy appraisal; (2) gender-disaggregated beneficiary assessment; (3) gender-disaggregated public expenditure incidence analysis; and (4) gender-disaggregated tax incidence analysis |
| Eco-budget | 2010 | Annual | Expenditure for the protection of environment classified according to the CEPA (classification of environmental protection activities and expenditure) and the expenses for the use and maintenance of natural resources classified according to the CReMA (classification of resource use and management activities and expenditures) (current and capital spending) |
| Integrated framework for mapping 64 SDGs statistical measures to the NRRP sub-measures | 2022 | (to be determined) | Each NRRP measure is mapped to a specific indicator and goal |
The following step consisted of organising several meetings to share reflections about the contents of the selected documents. The language used was scrutinised, and the meaning of accounting numbers and indicators was deeply examined and then critically discussed to understand whether and to what extent economic and social policies were connected with the budget process; to unveil how budgetary techniques were used to allocate public funds towards achieving SDGs; and to elicit the embedded technical, social and moral perspectives. This process allowed appreciating the relevance of public policies for the objectives of well-being and SDGs at both macro and micro levels.
4.2 Research context
The context investigated is Italy, and documentary research is the primary research tool. The analysis covers the period 2020–2023, on which information is available online at the time of writing. Italy was selected for several reasons. First, it ranks 23rd in the UN SDG Index and Dashboards from 166 countries, significantly outperforming several countries in achieving the SDGs. Second, Italy scores around 80 (out of 100) in the overall measures of the total progress towards achieving all 17 SDGs, getting high scores on commitment and efforts in policy setting. Third, the SDGs are mentioned in the latest Italian budget document, and the government issued an official statement endorsing the implementation of the SDGs (Manes-Rossi, 2024). Furthermore, Italy is undergoing the programme of the Next Generation EU Program (NG-EU) and its implementation with the development of Italy’s National Recovery and Resilience Plan (NRRP) towards an ecological and digital economy. Finally, Italy was one of the first to develop a conceptual framework for measuring well-being and integrate it into the policy economic programming cycle – way back in 2010 when the National Statistical Office (ISTAT) launched the “Benessere Equo e Solidale” (BES) reporting.
Table 1 lists the main reporting initiatives on well-being and sustainability in Italy examined in this study.
In Italy, budgets (and financial reports) are structured with a uniform classification of expenses to missions, programs and “actions”. Missions identify policy areas; programs constitute the unit of the parliamentary vote corresponding to an administrative responsibility unit; and “actions” highlight the destinations of resources to enhance the link with objectives and performance (Dabbicco, 2021). Reports mainly include Italy’s statistical publications on SDG monitoring, which are coordinated by the ISTAT, in cooperation with the Italian Ministry for the Economy and Finance (MEF) and other civil organisations. These publications contain the BES report, which includes more than 150 indicators in 12 domains to describe the quality of life in Italy through a multidimensional well-being analysis. These indicators are considered complementary to the traditional GDP and, since 2016 (reform of the Italian Budget, Law no. 163/2016), are included in an annexe to the Economic and Financial Document (DEF).
Since 2018, ISTAT has also published the annual “SDGs Report: Statistical information for 2030 Agenda in Italy”, where indicators are updated twice a year. This report offers an analysis of SDGs both at the territorial and socio-demographic levels. The report targets monitoring the path of Italy towards the UN objectives of the 2030 UN Agenda for Sustainable Development, aiming to evaluate the progress of society from an economic, social and environmental perspective.
Two more specific initiatives relating to sustainable development and well-being reporting in Italy are the Gender Budget and the Eco-budget. The Gender Budget was introduced on an experimental basis (Law 196/2009 Article 38), aiming to achieve greater transparency on the allocation of budgetary resources and their gender impact. Up to the time of this research (December 2024), eight annual reports have been presented to the Parliament. The Gender Budget uses the tool of “budget tagging and earmarking” as the first step in the reclassification of budget expenditure from a gender perspective. This reclassification requires the cross-referencing of different data, starting from reporting documents and examining the title and description of the budget-line items. Relevant at this stage is also information from Classification of the Functions of Government (COFOG), as well as the budget by economic category (Guerra and Romano, 2020). The Gender Budget is published in the Government’s Annual Report to Parliament. However, it should be considered that gender budget tagging in Italy is done ex-post, and so it seems not to be included in the total for the planning and approval phase of the budget (OECD, 2023).
The State Eco-budget, introduced in 2010 (Law 196/2009, article 36, paragraph 6) as an annexe to the “General State Accounts” (Rendiconto dello Stato), illustrates the results of the environmental expenditure aimed at protecting the environment and the use and management of natural resources. Since 2011, the Budget Law Draft has included environmental expenditure, but it does not disclose forecasted expenses for environmental purposes. This reporting initiative also uses a “tagging” approach to identify specific contributions of budgetary items and ensure consistency of the budget with environmental goals.
As for the deliverables in this development in Italy, there is an eco-budget annexe in the draft budget and an eco-execution annexe with information by CEPA-CReMA [1] and the ministry. The eco-budget has a medium-term horizon of t + 2. The eco-execution presents current, capital and other major spending categories and “provides information on financing phases from unspent allocations to new allocations, commitments, and payments” (EC, 2022 n.p.). This is also noted by IPU (2021).
The NG-EU and its implementation with the development of Italy’s NRRP towards an ecological and digital economy is a more recent initiative related to the EC’s temporary program. ISTAT and the MEF have mapped each NRRP measure and sub-measure in relation to the SDG statistical indicators to identify links between the goals themselves and each of the NRRP missions. To allocate funding, a predominant link needs to be identified for each measure with a specific indicator and goal. In the case of multiple statistical measures attributed to a sub-measure, a criterion of “prevalence” is followed, meaning that only one measure is defined as “prevalent”, and the whole financial amount is assigned to it. The mapping results aim to allocate the NRRP total resources to each SDG. However, it may not be the best way to grip the multidimensional nature of the several measures included in the NRRP because the analysis may be limited due to implications for implementing the targets of other policies and exogenous factors, needing thematic research. In this perspective, ISTAT launched a project on SDGs interlinkages aimed at mapping the complex “network”, connecting various phenomena. This study highlights how the achievement of individual targets or goals has relevant effects on others too, eliciting, once again, the opportunity for policy-making to take these effects into account (ISTAT, 2024b).
Finally, following the recent development of the NRRP Reform 1.13, from the 2024 budget law [2], Italy will present to Parliament a report classifying the expenditure according to the SDG criteria concerning gender and environmental budgeting.
5. Findings
5.1 The technical role of accounting in sustainable development goal achievement
The main approach followed by the SDGs and BES reporting in Italy consists of a statistical methodology which includes the use of administrative sources, geospatial information and other data sources, such as surveys (i.e. ISTAT, EU-SILC survey) and National Accounts, to support the publication of a focused set of indicators related to the SDGs and the corresponding BES, as suggested by the literature (Guariso et al., 2023; IPU, 2021). The indicators are statistically normalised and aggregated within and across the SDGs/BES. However, SDG reporting appears to be a matter of monitoring what has been done, and the focus on what can be done is missing. A forward-looking approach would radically change the communication on SDGs achievement, together with the urgency of policy-making, allowing for a better understanding of the impact of implemented policies (Lucarelli et al., 2020). There also appears to be significant development regarding the areas of gender budgeting and eco-statements. However, there is still a need to implement a commonly accepted, standardised system, distinct from other techniques, in achieving the related targets.
In line with previous studies (Guariso et al., 2023) that emphasised the importance of digital tools, the use of “tagging” is the main approach followed by both initiatives in Italy to gather measures of SDG-related objectives. Tagging is “the identification (through a ‘tag’) of specific contributions of budgetary items and a first step to ensuring consistency of the budget with the goals (i.e. environmental)” (EC, 2022, n.p.). Tagging appears to be a useful tool in providing evidence for the effective mobilisation of resources and opportunities for managing expenditure. This technique is based on an analysis of individual items or budget line items to assess if they are useful and affect gender or green objectives. However, to be effective, it may appear that firstly, policies should guide gender budgeting in the budget planning and approval phase. Ex-ante gender budgeting may notably give an assessment of “the budget measures in advance of their inclusion in the budget, specifically for their impact on gender equality” (OECD, 2023, p. 60).
When focusing on the context-embedded nature of accounting numbers and indicators, we observed a two-stage tagging approach (on expenditure) of the eco-statements. In the first stage, the budget sub-chapters are identified according to three categories:
no environmental contribution;
environmental contribution; and
environmental and non-environmental contribution.
In the second stage, the sub-chapters of the first and second categories are reclassified according to the classifications CEPA-CReMA. A flag is assigned to items classified under multiple objectives, and a percentage contribution is attributed to them (EC, 2022). However, it appears that the resulting percentage allocated is somewhat arbitrary since it is based on presumed prevalence. Specifically, the process of the MEF to review information and establish (the assumed) prevalence requires substantial judgement. This subjective percentage is a limitation of the process and would markedly impact sensitive items, confirming how complex the process can be (Bebbington and Larrinaga, 2014; Lucarelli et al., 2020).
At the level of (statistical) environmental accounts, the development process requires consistency of COFOG with classifications of environmental accounts, which is ensured through an in-depth analysis of budget missions and programs. With this aim, for example, a joint analysis by the MEF and ISTAT has been conducted on the relationship between Missions/Programs and COFOG groups focusing on certain budget lines, i.e. Mission 09 “Sustainable development and protection of the territory and the environment”. This is aimed at improving consistency and, where necessary, increasing detail to comply with the European regulation on environmental economic accounts [3]. The standard budget classifications (economic and functional) of expenditure, by both spending entity and functional categories, are reviewed and detailed to account for their impact on the environment (see Figure 1). Therefore, the pragmatic approach of discourse analysis methodology used here allowed for highlighting the importance of combining accounting measures and sustainable/environmental objectives (Sobkowiak et al., 2020) to preserve multidimensionality while encompassing a measurement/calculative dimension and a relational dimension (Barbera et al., 2024; Cohen and Manes-Rossi, 2024).
5.2 The social and moral aspects of accounting in sustainable development goal achievement
Alongside economic planning in the budget, an important role for institutions and civil society for further development in Italy is found in the context of the NRPP, which appears to be an important step towards aligning policies and national budgeting with the 2030 Agenda, i.e. ex-ante and not only ex-post. Clearly, public service officials involved in the process may wish to champion the cause and learn more about the budget process to understand how the government will target its future expenditures (Sobkowiak et al., 2020; IPU, 2021). This would promote the appropriate accountability of the government while paving the way for a faithful representation of the progress achieved, according to the moral aspects of accounting.
The pragmatic approach used for analysing the documents listed in Table 1 revealed further development of accounting as a social and moral practice involving the institutional level of governments and their ministries that have an important role to play in “critically analysing” and integrating SDGs into national strategies and, in doing so, reflecting the SDGs in the budget (IPU, 2021).
However, the pragmatic approach also suggested exploring how accounting measures and sustainable/environmental objectives could affect social perspectives. Our analysis allowed us to observe that scarcity of interest and limited public debate on SDG priorities may be an obstacle, requiring the accountancy profession to apply its knowledge at the SDGs’ disposal to serve the public interest (Yamaji, 2005) and to play the role of facilitator in such a debate in the civil society (Bebbington and Unerman, 2018), fulfilling the moral obligation of accounting (Carnegie et al., 2021).
Essential to this is also the technical knowledge to analyse to what extent the existing PFM information system can develop to support SDGs budgeting aspects, considering how to assist with an appropriate technique, such as the Italian practice of labelling (tagging) and earmarking of gender and green expenditures (IPU, 2021). This practice needs to be extended to broader well-being and sustainability analysis in financial management. However, interlinkages and cross-cutting issues of most SDGs became relevant in this perspective (Malinić and Vučković-Milutinović, 2023), and this also requires coordination across ministries, agencies and interest groups. Furthermore, this triggers consideration of the specificity of some goals, which may embody different knowledge and contributions with various levels of decentralisation (Guariso et al., 2023; IPU, 2021). Moreover, translating the SDGs into government policies may require certain laws to be reviewed, besides spending reviews and performance reports from government (IPU, 2021). This means that the tagging used in Italian practice should also be extended to include not only budget documents but also narrative reports that should become available to review progress. An appropriate selection of methods and tools to support and review the policies across the budget cycle is necessary. This could promote the appropriate accountability of the government while paving the way for a faithful and fair representation of the outcome achieved. According to Carnegie et al. (2022), accountability, faithful representation and fairness are the key pillars of the moral feature of accounting, as they contribute to the equitable functioning and development of society. Furthermore, the daunting process could lead to further development in digitalisation so that ML and artificial intelligence (AI) support the coding of accounting entries (i.e. tagging) for further system enhancement.
6. Discussion
Budgets are a fiscal depiction of government policies, and it is up to the Budget Office to see that sufficient funds are directed towards executing such policies (Stafford-Smith et al., 2017). What we observe here is the opportunity to use accounting in its real live form – just as managers use it, on a day-to-day basis – to drive an entity to achieve its aims (Guariso et al., 2023). Accounting supported by new technologies (Bebbington and Unerman, 2018) can be used to help policymakers establish policies and then move resources in the required direction, as also pointed out by IPU (2021). Subsequently, the accounting system can measure and report on the financial resources that are actually used to target these issues, enabling the development of accounting-related metrics to assess SDGs’ achievement, thus bringing accounting and sustainability together (Cohen and Manes-Rossi, 2024).
SDG budget tagging and the analysis of expenditure through which government programs are connected to goals, alongside other tools and methods, such as ML, are preliminary to the integration process of SDGs into PFM (Guariso et al., 2023). The technical role of accounting tends to become invasive rather than remaining passive. Management accounting is the tool that accountants can use in this way, as illustrated in the example in the Appendix. However, this development needs to be accompanied by new strategies and digital applications that ensure such PFM development. It appears of primary importance that SDG budgeting practice is grounded on a serious and conscious established policy, as it is not all about tagging or classifying what is (the numbers) already in place. Conversely, SDG budgeting risks failing to be meaningful if integration into the budget is not comprehensive and systematic (IPU, 2021).
6.1 The Italian approach
In the case of Italy, the inclusion of BES indicators in the economic planning documents, beyond traditional measures such as GDP, emphasises the importance of the social and moral aspects of accounting, as it permits indicators to follow up on national progress. Notably, this is mentioned as the first such initiative in the EU and G7 to benefit the implementation of SDGs and thus considered as a new accounting intervention (Bebbington and Unerman, 2018). But it needs to be further included in the budgeting cycle and the forecasting assessments of the government’s policy actions.
The SDGs reporting practice in Italy confirms that, due to the connectivity of SDGs (Le Blanc, 2015; ISTAT, 2024b), it would be rather rare to find a project or policy that contributes solely to one SDG. A theoretical framework and a subsequent methodology would need to be established for the apportionment. This means that financial management should find ways to integrate cross-cutting topics impacting SDGs (Cohen et al., 2023).
The Italian experience applied the criteria of “prevalence” in mapping the funds for the NRRP. As already noted, this criterion is questionable, as it implies a degree of subjectivity in determining the prevalent objective. The process can be compared with methods used to apportion indirect costs to cost units/cost centres in management accounting. The methods are subjective, and the results would be estimates. They may be sufficient for a costing exercise but cannot be relied upon for decision-making – not even in the private sector (see any standard management accounting textbook, for example, Drury and Tayles, 2023), let alone decisions relating to the allocation of public funds, which would subsequently involve parliamentary scrutiny and legal approval. Besides coordination between line ministries and agencies, more complex analyses are necessary, using tools and methodologies that build the network of (positive and negative) relationships so as to include progress on the SDGs into budget proposal narratives (IPU, 2021). As observed earlier, a first-level reconciliation methodology is already applied in ISTAT’s production of the (statistical) environmental accounts and SDGs. However, it seems to be insufficient. To support budget preparers, a more complete reconciliation could be developed connecting (tagging: ex-ante not only ex-post) the structure of the budget (for example, for Missions and Programs, and then COFOG, as in the Italian case) and the SDG objectives, to structure and analyse the allocation of the financial resources planned in the budget with respect to the objectives of the 2030 Agenda. This would be even more effective if developed at the regional or municipality level (Guarini et al., 2021, 2022).
6.2. A potential alternative accounting intervention
To bring technical, social and moral aspects together, we highlight a new accounting intervention at a micro level (Bebbington and Unerman, 2018), which may prove quite challenging for government bureaucrats (Sobkowiak et al., 2020). Table 2 shows the relationship between SDGs and budgetary allocations in terms of COFOG [4], which can help the government illustrate the linkages between SDGs. The COFOG is structured so that divisions describe the broad objectives of government, while groups and classes define how these broad objectives are achieved. Government expenditure broken down by the different functions of government – such as health and education – is relevant to judge the quality of government expenditure and to help deliver economic policy objectives. Budgetary data of central governments are in line with these classifications.
Mapping the SDGs to COFOG
| SDGs | COFOG (division) | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| General public services | Defence | Public order and safety | Economic affairs | Environmental protection | Housing and community | Health | Recreation, culture and religions | Education | Social protection | |
| Goal 1. End poverty in all its forms everywhere | X | X | X | X | X | |||||
| Goal 2. End hunger, achieve food security and improved nutrition and promote sustainable agriculture | X | X | X | X | X | |||||
| Goal 3. Ensure healthy lives and promote well-being for all at all ages | X | X | X | X | ||||||
| Goal 4. Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all | X | X | X | |||||||
| Goal 5. Achieve gender equality and empower all women and girls | X | X | X | X | ||||||
| Goal 6. Ensure availability and sustainable management of water and sanitation for all | X | X | X | |||||||
| Goal 7. Ensure access to affordable, reliable, sustainable and modern energy for all | X | X | X | |||||||
| Goal 8. Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all | X | X | X | |||||||
| Goal 9. Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation | X | X | X | X | ||||||
| Goal 10. Reduce inequality within and among countries | X | X | X | X | X | |||||
| Goal 11. Make cities and human settlements inclusive, safe, resilient and sustainable | X | X | X | X | ||||||
| Goal 12. Ensure sustainable consumption and production patterns | X | X | X | X | X | |||||
| Goal 13. Take urgent action to combat climate change and its impacts | X | X | X | X | X | |||||
| Goal 14. Conserve and sustainably use the oceans, seas and marine resources for sustainable development | X | X | X | |||||||
| Goal 15. Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification and halt and reverse land degradation and halt biodiversity loss | X | X | X | X | ||||||
| Goal 16. Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels | X | X | X | |||||||
| Goal 17. Strengthen the means of implementation and revitalize the Global Partnership for Sustainable Development Finance | X | X | X | X | ||||||
Source(s): Authors’ own work
The analysis in Table 2 could assist budget preparers in implementing program-based budgeting that is directed towards the achievement of SDGs. For example, if a policy or project targets a number of SDGs, for each SDG affected, the related costs are analysed according to COFOG, and this could be done at the micro level considering the available data on single items of costs. Furthermore, at the same (micro) level, activity-based costing and budgeting could be used to apportion the cost of a project/policy across SDGs (Cohen et al., 2023), if this is required. Still, it may prove rather difficult to establish in practice due to the interconnected SDGs (Le Blanc, 2015) and the sharing of costs. The calculations involved are rather subjective (technical challenges), and the objective of such measurement is questionable (on moral and social grounds).
6.3 Reflections on the implications of the study
It can be argued that the technical role of public-sector accounting in the process of SDG achievement is possible, as illustrated by Italian practices, but it is fraught with difficulties, especially due to the underlying subjectivity involved in the apportionment required. Such solutions may be acceptable for decision-making at a micro level but may encounter resistance for decision-making at the macro level due to the social and moral expectations of government budgeting, including the budget’s legal aspects. Indeed, monitoring the SDGs throughout the budgeting process is key to accountability (IPU, 2021), as it also reflects the social and moral aspects of accounting (Carnegie et al., 2021). However, would such financial knowledge provide a basis for choosing one budget measure over another? Knowing how much is being spent on SDGs may show that a particular SDG is being overlooked. It seems that the logic needs to be reversed. The objective is not to report but to facilitate and support.
According to the pragmatic discourse analysis approach (Khalifa and Mahama, 2017), we should ask: Why would we need to know how much public funds are being spent on each SDG? Which comes first: value, metric or policies? (Hall, 2024). Is it a question of reporting to citizens for the sake of accountability? Will a citizen be willing to forsake health services if these are proving to be the most expensive?
Or for comparison with other countries? This does not make sense because each country’s requirements differ, and the importance of each SDG is relative to the state of the country. For example, the importance of SDG on hunger in Italy is not as important as in Somalia.
From a social and moral perspective, then, it can be argued that the current reporting system is insufficient, particularly considering the important role that accounting can play – not just to report on the past achievements of the SDGs but to actually support their achievement in the future and in supporting governments to enact policies for a sustainable better world. In the public sector, the well-being of citizens and the quality of life should be the budget cost drivers and not the other way around.
7. Conclusion
This study analysed the tangible role of accounting as a technical, social and moral practice towards the achievement of SDGs. Providing an SDG report may be merely a means to appear to be doing the right thing (Contrafatto, 2011; Fallan, 2016; Lindblom, 2010). The objective of an SDG report is not simply to show what has been achieved in the past (Milne and Gray, 2013). It should provide forward-looking data that can help policymakers decide how to divert financial resources towards achieving SDGs. For this reason, the study moved away from financial reporting to management accounting (Brorström, 2023). We examined Italy’s government budgetary processes and SDG reporting initiatives to investigate our research questions.
This study has limitations. It focuses on one country that is ranked high as an SDG performer worldwide and has an established PFM system (albeit the budget is on a cash-commitment basis). Future research could consider countries that perform less well with respect to the SDGs and have weaker government financial management. Furthermore, the study has not discussed the analysis of efficiency and value for money in achieving SDGs, for example, through evaluation, assurance and audit. Whilst this study has shown the importance of linking budgets to actions for SDGs (and their eventual achievement), future research could analyse the incremental costs on the road to SDG achievement. The relevance of securing adequate revenue streams for SDG achievement should not be overlooked.
Despite these limitations, the Italian experience could be of interest to other contexts, as it adds fresh insights to explore the practical role of governmental accounting in achieving the SDGs.
First, technical aspects of public-sector accounting still play an important role in the process of achieving SDGs (Cohen and Manes-Rossi, 2024). To be effective, the SDGs cannot be observed solely in a non-financial manner. According to the statement that “finance is key” (Carruthers, 2021), governments need money to make things happen, for example, to educate people and to buy medicines. The accounting system can be used to monitor and study past expenditures and plan and budget costs for tomorrow. Therefore, SDG accounting and reporting is not only a question of embellishing financial reports with narratives. The way forward is to give more importance to management accounting and budgeting, supported by digital transformation advanced technologies (such as AI and ML) to code and categorise budget items and multi-purpose charts of accounts. In this way, planning and decision-making, particularly in the public sector, is directed towards achieving SDGs; that is, the SDGs become integrated into the budgetary decision-making (IPU, 2021).
Second, although public-sector accounting seems to provide rather limited support to the social and moral obligations of SDG achievement, new accounting interventions inspired by effective SDG policies can add value. The Italian experience suggests that this added value can be assessed through improved accountability towards citizens or comparability between nations (if desired and supported by a standardised system), or it could also affect policymaking.
Third, for political and social reasons, there is limited scope in establishing financial SDGs and indicators – even at the national level. The scope of reporting the actual spending is limited to certain SDGs, while others depend more on a policy approach. Indeed, it would be too simplistic to say that, for example, an entity or government aims to spend a certain percentage of its income on any particular SDG. Tagging expenditures and linking them with SDGs (the technical aspect of accounting) is a well-developed methodology in Italy, and it could also contribute to assessing social and moral issues. However, SDG reporting does not mean just classifying and cross-referencing the budget items for SDGs. The challenge is to make citizens understand the concept of the social role of accounting, bringing in the collective dimensions into organisations and cultures and developing a governance model. These last aspects deserve further attention, and effective policy and tangible action are required to demonstrate whether and to what extent SDGs have been achieved and not remain wishful thinking (Stafford-Smith et al., 2017).
Fourth, an important practical implication that arises is the consideration of SDGs as budget drivers (for both costs and revenues) rather than the reverse. More broadly, the extent to which SDGs could/should be financialised is worthy of investigation. Even if technically possible, how important is knowing how much is spent on a particular SDG? Are there social and moral implications linked to such measures? A further issue that requires more attention, which is not so clearly evident in the Italian practice, is how an accountant can help review tax policy and revenue streams to help SDG achievement. Gender budgeting or green budgeting shows progress, for example, in order for governments to consider tax policies to incentivise more women to join the formal workforce or a tax policy that supports sustainable development (e.g. carbon tax) (IPU, 2021). As such, the whole point of citizens’ well-being and SDGs could be to shift the budget focus from fiscal performance and economic growth to other objectives that are more cherished by citizens, namely, better education, improved health facilities, equity and fairness, consideration of ecosystems and caring for the planet. Governments are required to go beyond information transfer (Khalifa and Mahama, 2017) to bear in mind that the well-being budget targets the needs of citizens on aspects that improve their quality of life – aspects that “matter”. What is more important for citizens – their health or the government’s debt?
Notes
CEPA stands for Classification of Environmental Protection Activities, and CReMA stands for Classification of Resource Management Activities (EC, 2021).
Regulation (EU) no 691/2011 of the European Parliament and of the Council of 6 July 2011 on European environmental economic accounts (text with EEA relevance) establishing SEEA framework amended by Regulation (EU) no 538/2014 and by Regulation (EU) 2024/3024 of the European Parliament and of the Council.
We are referring to COFOG because it is an international format, developed by the OECD and published by the UN Statistical Division as a standard to classify the purposes of government activities.
References
Further reading
Appendix
An example to illustrate the role of management accounting towards the achievement of SDGs, through policymaking and budgeting at the macro level
Table A1 is an extract of the indicators relating to SDG 3 Health. This extract is being presented as an example that represents the type of indicators illustrated in the GR Indicators Framework for the SDGs (as revised in 2020, https://unstats.un.org). The GR Indicators Framework suggests 28 indicators for the 13 sub-goals relating to healthy lives and the promotion of well-being for everyone. All of the 28 GR indicators are non-financial in nature, for example, maternal mortality ratio, and death rate due to road traffic injuries. The majority are quantitative. Potential sources for such data would be medical records and/or national surveys. The National Statistics Institutions (NSIs) are the generators of such data.
GR indicators for SDG 3 [1]
| Goal 3. Ensure healthy lives and promote well-being for all at all ages | Potential source | |
|---|---|---|
| Goals and targets (from the 2030 Agenda for Sustainable Development) | GR indicators | |
| 3.1 By 2030, reduce the global maternal mortality ratio to less than 70 per 100,000 live births | 3.1.1 Maternal mortality ratio | Death statistics from census or medical records/ministry of health |
| 3.1.2 Proportion of births attended by skilled health personnel | Medical records/national surveys e.g. Survey on deaths causes | |
| 3.9 By 2030, substantially reduce the number of deaths and illnesses from hazardous chemicals and air, water and soil pollution and contamination | 3.9.1 Mortality rate attributed to household and ambient air pollution | Medical records; national survey |
| 3.9.2 Mortality rate attributed to unsafe water, unsafe sanitation and lack of hygiene (exposure to unsafe Water, Sanitation and Hygiene for All [WASH] services) | Medical records; ministry of health data; national survey | |
| 3.9.3 Mortality rate attributed to unintentional poisoning | Medical records; ministry of health data; national survey | |
| 3.d.2 Percentage of bloodstream infections due to selected antimicrobial-resistant organisms | Health ministry data/medical records | |
Note(s): Our illustration is based on a detailed elaboration on metadata of the disseminated statistical measures that can be found at: www.istat.it/en/well-being-and-sustainability/sustainable-development-goals/istat-indicators-for-sustainable-development
These non-financial indicators can be used to provide a picture of the current situation, and also as a target required to be achieved. In between, the budget would need to be constructed in a way that funnels financial resources in the required direction. Figure A1 provides an illustration relating to SDG 3.9.1. For example, we have 1% of annual deaths related to air pollution – and by the end of the year we want to go down to 0.5%.
How are we going to achieve this? What needs to be done? Doing means policies, which means resources, hence, money. As highlighted in the literature, budgets are a fiscal depiction of government policies. Therefore, the answer should be sought in the budgetary process. The SDG targets need to be integrated into the budgetary process.
