Support is rising for UK regulators to take an approach to sustainability assurance that would challenge the current dominance of the Big Four firms.

In a response to a consultation, key market players have backed the Financial Reporting Council’s proposal to take a “profession-agnostic” approach to regulating the sustainability assurance market.

That would mean no restriction on what kind of firm could offer sustainability assurance.

Minerva, a proxy adviser, said in its response to the consultation: “Limiting assurance to statutory audit firms risks over-concentration and exclusion of environmental and sustainability specialists.

“A professional-agnostic approach recognises the value of sustainability specialists who bring field experience essential for robust assurance.

“While audit firms bring strengths in governance and control, sustainability professions contribute critical subject-matter expertise.”

‘All qualified providers’

Minerva was not alone. The International Corporate Governance Network (ICGN), writes: “Comprehensive sustainability assurance requires diverse expertise and market provision should be open to all qualified providers.

But there was a warning from ICGN: “However, this approach must not compromise adherence to rigorous international standards or dilute assurance quality.”

The Institute of Chartered Accountants in Scotland (ICAS) is more ambivalent. While ICAS is “supportive” of the FRC’s position, the institute draws attention to arrangements elsewhere in the EU where, it says, individual states have elected to restrict limited assurance of reporting under the Corporate Sustainability Reporting Directive to “financial statement auditors”.

“This is because of their expertise in undertaking assurance engagements and proven track record in doing so,” ICAS says.

The UK market for sustainability assurance emerged as an issue in February when the FRC reported on performance among providers and warned that trends uncovered at the time “could limit future choice” for clients.

The FRC said: “There is a growing preference amongst companies to use Big Four audit firms [Deloitte, EY, KPMG and PwC] to carry out sustainability assurance in the UK market, which could have implications for future choice.”

The FRC found that the Big Four had about 40% of the market, up from 33% in 2019.

How big is too big?

Domination of the market echoes a long running concern among audit market watchers about the Big Four’s share of the big audit market. Proposed audit reforms were supported to tackle the issue with the introduction of “managed shared audit”, though both the current and previous governments have so far failed to act on the advice received from experts.

In other areas of the FRC current consultation, there is also support for a “voluntary registration” regime for sustainability assurance providers. However, there are concerns in the background.

ICGN writes: “While ICGN advocates for mandatory assurance in the long term, we recognise the rationale for a voluntary registration regime as a pragmatic first step in this emerging field.”

Minerva goes a little further, writing there is “the risk of a dual market forming, where some providers operate without registration, leading to inconsistency and potential confusion.”

The FRC is working out the details but there is a new regime on the way for regulating sustainability reporting.

Sustainability reporting is becoming ever more deeply embedded in the UK governance landscape.