UK Sustainability Assurance Rules on Horizon

The Financial Reporting Council (FRC), which regulates auditing practices in the UK, has said that it will assess the functioning and quality of the market for sustainability assurance services to corporates. The FRC described this first-of-its-kind market study as a “powerful regulatory tool for exploring issues within a market in-depth”, which could lead to regulation for the improvement of market functions for stakeholders’ benefit. The market has grown rapidly in recent years, with 84% of FTSE 100 companies obtaining some level of external assurance over their sustainability reporting in 2022, up from 68% in 2020. As part of the study, the FRC will explore any implications for competition and resilience in the UK’s statutory audit market arising from the provision of sustainability assurance services by major audit firms. The regulator said it would also cover choice, quality, competition, capacity constraints and barriers to entry or expansion, as well as potential impacts from changes to international regulation. “Investors and other stakeholders are increasingly relying on companies’ sustainability reporting and the assurance provided over that information,” said Mark Babington, Executive Director of Regulatory Standards at the FRC. “It is vital that the market is functioning properly – providing high-quality, independent assurance, without creating excessive costs and burdens on companies and their reporting.” The study will conclude in early 2025, and comments and evidence can be submitted until 13 June this year.

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