A lack of standardisation due to a voluntary regime has created a fragmented sustainability market. ICAEW warns this has posed cost challenges and perceived burdens for businesses.

Concern about skills capacity, choice and competition, and fragmentation in the market are among the challenges flagged up by ICAEW in its response to a Financial Reporting Council (FRC) market study into sustainability assurance.

Although the market is rapidly emerging, the absence of mandatory reporting and assurance requirements and regulatory oversight means it remains fragmented.

The current voluntary regime and a lack of standardisation pose cost and perceived burden challenges for business, ICAEW warns.

Voluntary regime lacks standardisation

ICAEW says: “High-quality assurance can add value to companies by enhancing the reliability and comparability of sustainability information, thereby supporting informed decision-making and capital allocation. However, the current voluntary regime and lack of standardisation pose challenges in terms of cost and perceived burden.”

The FRC’s market study seeks to gauge how well the UK sustainability assurance market is functioning, whether it is delivering desirable outcomes, and how the market may develop in the future. Responses to the consultation by the regulator were published just last week, including feedback from professional accountancy bodies and some of the UK’s major firms.

Transition to mandatory reporting requires planning

In its response, ICAEW says the impending adoption of international sustainability reporting standards is expected to bring more clarity and uniformity. However, the transition from voluntary to mandatory reporting and assurance will require careful planning and phased implementation.

In June last year, the International Sustainability Standards Board (ISSB) published two IFRS Sustainability Disclosure Standards, in a bid to boost transparency in ESG information published by companies. The UK government has outlined its aim to make UK-endorsed ISSB standards available in Q1 2025. 

Competition and choice

In its response, ICAEW highlights that choice and competition remain an issue. “Despite a variety of assurance providers, there is a need for a level playing field to ensure consistent quality and ethical standards,” ICAEW says. As the focus on sustainability reporting increases, demand for assurance services and calls for greater capacity and expertise across the market are expected to follow.

Capacity and skills

ICAEW also voices concern about the sufficiency of capacity to meet the growing demand for sustainability assurance. Upskilling current audit staff and attracting new talent are critical to addressing this challenge. Significant investment in technology, and data is also essential, ICAEW highlights.

Regulatory framework 

The global regulatory landscape is evolving rapidly, with significant developments expected in the near future. With that in mind, ICAEW says the UK must align its standards with international frameworks to ensure consistency and comparability. It calls on the FRC to reassess the market periodically to adapt to these changes.

Recommendations for improvement

ICAEW offers several further recommendations to enhance the sustainability assurance market. In particular, it says clear and consistent messaging on reporting and assurance requirements is essential. “The UK government and FRC should provide a strategic roadmap for the adoption and implementation of sustainability standards.”

Meanwhile, effective communication and education are crucial to managing expectations and ensuring stakeholders understand the value and implications of sustainability assurance. This includes training for both preparers and assurance providers.

ICAEW also says development of the sustainability assurance market requires a holistic approach: “A comprehensive review of related regulatory developments is necessary to ensure alignment and consistency.” This includes considering the connectivity between financial and sustainability information.

ICAEW believes that sustainability assurance has a critical role to play in driving the transition to a more sustainable economy. Developing a robust and effective sustainability assurance market that supports high-quality, reliable and comparable sustainability information will build trust and confidence among investors and other stakeholders, ultimately contributing to economic growth and sustainability goals. 

Alex Russell, Head of Audit and Assurance Strategy at ICAEW, says: “We welcomed the opportunity to engage with the FRC team leading this important market study, and to provide the opportunity for members to input directly through two round-table discussions hosted with the FRC and ICAEW members at Chartered Accountants’ Hall. We look forward to the publication of findings from this market study and to engage with our members for feedback and to convene further discussions as the sustainability assurance market continues to evolve.”

The FRC is expected to conclude its study in early 2025. 

For further information on the FRC’s market study and to access responses received visit Assurance of Sustainability Reporting Market Study (frc.org.uk)