FRC publishes emerging findings from an insightful study on the UK sustainability assurance market

The Financial Reporting Council (FRC) has recently published initial feedback on its market study into assurance of sustainability reporting to give insight into how this market is functioning and developing in the UK. This is of exceptional importance to companies, investors and wider society. As company performance on sustainability topics has become a key driver of company value, the impact of companies on sustainability topics has reached great prominence.

The FRC survey involved intensive consultation with various stakeholders such as companies, investors, audit and non-audit providers of sustainability assurance. It also examined the sustainability assurance data for FTSE 350 companies to understand the developing needs of the UK market for sustainability assurance.

The full study can be found here.

Headlines of the survey

The FRC identified the following headline findings:

• There are concerns that the market may consolidate around Big 4 firms which may limit the choice available in obtaining sustainability assurance.
• There are fears about the consistency of quality of assurance services being offered.
• There was also a desire for a clear regulatory framework for reporting and assurance in the UK as this was slowing down development of the market and the training of experts in firms to deliver sustainability assurance.

Essential points for our clients

Beyond the headlines of the survey, there are other relevant points for professional services firms who are moving into this exciting and expanding developing market:

• Audit firms noted that they already have expertise in understanding control environments, governance and reporting processes, so they have the relevant transferable skills to work on sustainability.
• The addition of sustainability to core audit business would likely increase the attractiveness of audit as a career choice when recruiting new professionals.
• Some firms suggested that future sustainability reporting standards will drive greater connectivity between financial and sustainability data.
• Opportunities were perceived to be growing due to international regulatory requirements such as the EU’s Corporate Sustainability Reporting Directive (CSRD) which will require UK firms operating in the EU above a certain threshold to report on sustainability matters.
• Smaller companies which are part of the supply chain of larger companies may find themselves reporting sustainability information more quickly than expected.
• There was a worry that there may not be enough supply of qualified assurance providers as demand for sustainability assurance grew.

Conclusions

The FRC study shows there is a definite growth in the size and maturity of the UK sustainability assurance market and the study has identified a number of opportunities and challenges faced by new entrants to the market.

What’s on the horizon?

The IAASB approval of the International Standard on Sustainability Assurance (ISSA) 5000, which the IAASB expects to formally publish by the end of the year, has provided a well-needed framework for firms who wish to provide high quality, structured and compliant advice in this new space. The UK is largely expected to adopt ISSA 5000 as the UK’s sustainability assurance standard as well as IFRS S1 and S2 as the UK’s sustainability reporting standards. This will provide clarity to UK sustainability professionals, once adopted.

How can Mercia help?

Mercia is currently developing a variety of products which will support firms looking to provide sustainability assurance and contribute to the provision of high quality, consistent and compliant engagements in line with the new ISSA 5000. You can also view our Getting Started with ESG course here and our podcast on the future of sustainability reporting here.

We look forward to supporting our clients in this growing market and are eager to hear from you about your future needs.