The government’s proposal to introduce a voluntary registration regime for sustainability assurance service providers has been broadly welcomed.
The proposed regime is part of a consultation (which ended in September) by the Department for Business & Trade, alongside a separate consultation on UK sustainability reporting standards (SRS, see panel).
‘There are consistency concerns over assurance quality’
Under the proposals, the Audit, Reporting and Governance Authority (Arga – soon to replace the Financial Reporting Council) would be responsible for maintaining a register of sustainability assurance providers and setting the quality of work these providers must uphold. This work might include assuring information provided under the new UK SRS and other domestic standards that are based on IFRS Sustainability Disclosure Standards (ESRS).
The sustainability assurance provider regime will be ‘profession-agnostic’. Both audit and non-audit professionals and firms can be registered providers, although the opportunities for finance professionals are significant.
Optional
In addition, the assurance provider registration scheme may be voluntary rather than mandatory. This has the support of ACCA, although it recommends that the regime has a clear pathway towards mandatory registration. It warns that the UK could lose out as a service hub for sustainability reporting and assurance if its register is voluntary, as other jurisdictions moved into regimes with mandatory requirements for sustainability assurance.
‘We recommend that the regime includes a clear pathway towards mandatory registration,’ ACCA says in its response to the sustainability assurance consultation. ‘Without this progression, Arga’s ability to influence market standards, enforce quality and hold providers accountable will be limited.’
The government has argued that there will be buy-in to the scheme regardless. It anticipates ‘it will be in the self-interest of assurance providers to opt in, as reporting entities will be more likely to seek the services of registered providers than unregistered providers’.
Market immaturity
However, both ACCA and the government agree that UK sustainability assurance markets are currently too undeveloped to make mandatory registration possible.
The government stresses that the UK has ‘a wide variety and choice of sustainability assurance providers, but there are concerns over the consistency in the quality of the assurance provided’. ACCA says: ‘A voluntary approach provides space for assurance providers to build capability and adapt to new requirements, helping the market to grow.’
This could help ensure that sustainability assurance work doesn’t become dominated by Big Four firms.
The Investor Relations Society has also backed voluntary registration. It hopes that the registration system will have equivalence with those created by other jurisdictions ‘so that issuers can use a provider that can work across its geographical footprint’.
‘The UK should allow UK assurers to also handle EU-focused work’
Big Four welcome
KPMG too supports the proposals. George Richards, partner and head of ESG assurance at the firm, is calling for future mandatory registration ‘after a period’, as this would allow purchasers of assurance services to ‘identify those in the UK with the skills and experience for the required work’.
In its response, Deloitte recommends that the incoming register prioritises compliance with relevant international standards, such ISSA 5000, ‘focusing on demonstrable skills and experience, and aligning with international best practice’. It adds that the government and the Financial Conduct Authority should promptly outline their plans for sustainability assurance and reporting for listed companies, providing clear timelines.
Looking ahead, Richards foresees significant numbers of technical sustainability subject matter experts being based in the UK. ‘There is potential for assurance providers to pool that resource to provide support in delivering sustainability reporting assurance engagements across other countries,’ he says. He adds that the UK registration scheme should as a result recognise the ability to undertake CSRD assurance engagements, allowing UK assurers to also handle EU-focused work.
Sustainability reporting in the UK
The UK’s proposals for the UK SRS are based on the IFRS Sustainability Disclosure Standards, IFRS S1 and IFRS S2. The UK SRS only diverges fro the ISSB’s global baseline in a small number of specific ways.
The government has indicated it may publish final versions of the UK SRS this autumn for any entity to use on a voluntary basis.
Once the UK SRS are adopted, the Financial Conduct Authority will consult on using the UK SRS to introduce requirements for UK-listed companies to report sustainability-related information. For UK companies that are not regulated by the FCA, the government will consult on introducing UK SDR (based on the UK SRS) through the Companies Act 2006. Although the consultation does not specify which entities would be covered, it is likely at least to include those already subject to climate-related financial disclosure requirements.
