The UK’s Financial Reporting Council (FRC) has launched a market study to examine the UK market for sustainability assurance services.

The study aims to ensure this market is functioning effectively and providing high quality assurance over companies’ sustainability reporting.

This is the first time the FRC has conducted a market study, which is used a regulatory tool for in-depth exploration of issues within a market and can lead to proposals to improve how the market functions.

A growing market for sustainability assurance

The market for providing independent assurance over sustainability information disclosed by UK companies has been expanding quickly in recent years. According to the FRC, 84% of FTSE 100 companies obtained some level of external assurance over their sustainability reporting in 2022, 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
• Any interplay between the sustainability assurance and statutory audit markets

Commenting on the importance of the market study, FRC executive director of regulatory standards Mark Babington 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.”

The FRC has all interested parties to submit comments and evidence on the sustainability assurance market by 13 June 2024. The market study is expected to conclude in early 2025.