Key points from the FRC recommendations for the sustainability assurance market

Sustainability is becoming more and more integral to business operations and reporting, with increased pressure from investors, consumers and regulators for businesses to demonstrate their commitment to Environmental, Social and Governance (ESG) goals. This shift had led to greater need for credible assurance over ESG reporting. The Financial Reporting Council (FRC) has recently conducted an in-depth market study (which can be found here) on sustainability reporting and assurance which offers insights into the current state of the market and highlights areas for improvement, including actionable steps to enhance the consistency and quality of reporting.

The key findings of the study are:

A varied market of assurance providers

The study notes that a wide variety of firms are involved in providing sustainability assurance. In total nine firms were identified as providers of assurance services to FTSE350 companies. This diversity does not guarantee consistency though in the quality of services. A large portion of the market is still dominated by the big four audit firms with market share increasing year on year. This has meant smaller or mid-sized companies have noted challenges in accessing assurance services that are affordable and tailored to their specific needs.

Lack of regulatory clarity

The sustainability assurance market is still in the early stages of development, and there is a need for greater regulatory clarity. The demand for sustainability reporting has increased, however there is no standardised framework to guide the assurance process. Whilst the International Auditing and Assurance Standards Board (IAASB) has recently published the International Standard on Sustainability (ISSA) 5000 to provide a consistent global standard in this area which is beginning to address this issue, there is still a growing need for clear and effective regulatory oversight to ensure reporting is reliable and consistent.

The need for skilled professionals

The report notes the critical need for skilled staff in sustainability reporting assurance. The sector currently faces a skills gap, with a lack of professionals with expertise in both sustainability and assurance. The complexity of ESG requires a multidisciplinary approach which combines auditing with specialised knowledge in environmental, social and governance factors. To address this gap, the FRC has suggested that greater investment in training and development is required. To assist in this area, certification programmes or an accreditation system are being considered to better recognise professionals in this specialised field, and to provide career credibility and increased assurance quality for businesses.

As sustainability becomes increasingly central to business strategy, the role of assurance in validating reports will continue to grow. The FRC’s market study highlights critical areas where assurance can be strengthened. By addressing these gaps, the UK can build a more reliable and efficient system for sustainability reporting assurance, providing businesses and stakeholders with greater confidence in ESG claims that are shaping the future of corporate responsibility.

In summary, the need for skilled professionals, regulatory clarity and technology driven solutions will be key in ensuring that reports are both credible and impactful and reasonable assurance can be given to the reports produced.