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The Financial Reporting Council (FRC) has announced the launch of its first market study to examine the UK market for sustainability assurance services.
The study aims to ensure this growing market is functioning effectively and providing high quality assurance over companies’ sustainability reporting.
It is the first time the FRC has conducted a market study, which is a powerful regulatory tool for exploring issues within a market in-depth and can lead to proposals to improve how the market functions for the benefit of all stakeholders.
The market for providing independent assurance over the sustainability information disclosed by UK companies has been expanding quickly in recent years. In 2022, 84% of FTSE 100 companies obtained some level of external assurance over their sustainability reporting, up from 68% in 2020.
As some major audit firms are significant suppliers in this market in addition to providing statutory audits, the FRC wants to understand any potential implications for competition and resilience in the UK’s statutory audit market.
Key areas the FRC’s market study will explore include choice, quality and competition in the sustainability assurance market, capacity constraints and barriers to entry or expansion, potential impacts from changing international regulations and any interplay between the sustainability assurance and statutory audit markets.
Mark Babington, executive director of regulatory standards at the FRC, said: “Investors and other stakeholders are increasingly relying on companies’ sustainability reporting and as a consequence the assurance provided over that information. It is vital that the market for sustainability assurance services is functioning properly – providing high quality, independent assurance without creating excessive costs and burdens on companies and their reporting.
“By promoting transparency and high standards in this area, we can support the endeavours of UK companies to supply high quality information to financial markets that enables opportunities for growth and investment across the UK economy.”
