The Financial Reporting Council (FRC) has published the final report from its market study into the assurance of sustainability reporting, after initial findings of its analysis raised concerns over quality and consistency amid growing demand.

The final report sets out comprehensive findings from the FRC’s sustainability assurance market study and proposes remedies to support the functioning of the market, drawing on evidence gathered from engagement with stakeholders, including FTSE 350 companies, private companies, together with audit and non-audit firm providers of sustainability assurance.

In the report, the FRC lays down three key actions to support the market’s development. They are to:

• Establish a clear UK policy framework for sustainability assurance that provides medium-term certainty for providers and reporters, supports investment, and aligns with international frameworks where appropriate.

• Create a unified regulatory regime that consolidates standard-setting, oversight, enforcement, and market-monitoring to maximise certainty for companies, providers, and investors.

• Improve the calibre of available information on the quality of sustainability assurance to support how the assurance market functions.

Growing preference for Big Four

Emerging findings of the FRC’s study published in October revealed a growing preference among the largest companies to use the Big Four audit firms to carry out sustainability assurance in the UK market, which the regulator warned could have implications for future choice.

Meanwhile, the FRC warned that the immaturity of the UK sustainability assurance market and a lack of clarity on the UK’s regulatory position could hinder investment, planning and capacity development. Many stakeholders have warned of the need for education and communication to bridge gaps in knowledge and understanding.

High-quality sustainability information for decision-making

The FRC warns that without an established regulatory framework, including appropriate monitoring and oversight, the UK sustainability assurance market may not produce consistent, high-quality sustainability information for decision-making.

In a statement, the FRC’s Executive Director of Regulatory Standards, Mark Babington, said: “This report provides us with a clearer picture of the UK’s rapidly developing sustainability assurance market which companies, assurance providers and investors are currently navigating, as reporting expectations continue to develop in this important space.

“The findings provide a baseline understanding, that we will continue to build on, so we are best placed to support our stakeholders in this market as demand continues to grow.”

ICAEW’s consultation response

In its response to the FRC’s emerging findings report published last year, ICAEW said competition is to be welcomed, and it recognised that a broad range of expertise is needed for sustainability assurance. 

It calls for a level-playing field of regulation across market participants to ensure consistent quality and clarity on the UK’s regulatory requirements and timeline, with a call for phased implementation to enable audit firms, and other assurance providers, to invest with certainty and address any gaps in capacity and expertise. 

ICAEW’s response also includes recommendations for future regulatory and policy changes, and advocates for a strategic and holistic approach to developing the sustainability assurance market, including the UK adoption of ISSB standards and revisiting the introduction of an Audit and Assurance Policy, previously recommended in 2019 under the Brydon Review. 

“We continue to be of the view that developments in sustainability reporting and assurance should be considered as part of – and keep pace with – prevailing and emerging regulation and related activity, including audit and corporate governance reform, the recently published Transition Finance Market Review, and the corporate reporting review planned by the Department for Business and Trade (DBT) for 2025,” ICAEW’s consultation response says.

The FRC has said it will continue to provide technical expertise to the government as it considers the UK’s policy position and any appropriate regulatory framework for sustainability assurance.

Further reading

ICAEW calls for greater regulatory clarity and certainty on sustainability reporting and assurance requirements.