The role of accreditation in enhancing climate accountability and the credibility of sustainability actions

In UKAS’s Annual Report for 2024, we explored this topic, interviewing Mark Babington , Executive Director of Regulatory Standards at the Financial Reporting Council .

What are the critical climate and net zero issues that FRC sees for the financial world and what are your key initiatives in this area?

There is a growing demand from investors for the provision of high-quality, consistent and comparable reporting of climate and wider sustainability matters. This information is increasingly being used to inform capital allocation decisions. It is important, therefore, that those decisions can be taken from a position of investor confidence in the reliability of that information. We are working with colleagues in government toward a decision in 2025 on the endorsement of standards issued by the ISSB. At the international level we are working with international standard setting boards to ensure that reporting is underpinned by high standards of ethical behaviour and independence, and high-quality assurance. One of the really interesting challenges of this work is that it is performed by a diverse group of providers, and therefore it is important to ensure that the same high standards apply regardless of who does the work. Of course, the work is not just about setting standards – with any new reporting, there needs to be implementation support as both reporting and the underlying information systems that support it can mature and develop to support assurance.

What is the role of assurance in helping enhance climate accountability and the credibility of organisations’ sustainability actions?

Sustainability reporting poses some interesting challenges – the information itself may rely on reporting systems that are less well developed and less mature than those that support financial reporting. The information being reported may contain higher levels of estimation uncertainty and may include greater levels of judgement and significant assumptions on the part of the preparer. When thinking about issues like transition planning and net zero reporting, the information that an entity reports may be forward-looking rather than historic and may cover a time period that extends long into the future.  Reporting on net zero and transition planning also offers an important opportunity for investors and other users of annual reports to assess whether an entity’s net zero targets are sufficient to deliver on that target. With more uncertain, more subjective information, assurance performs an important role in providing users with confidence that the information they are relying on is trustworthy and that the judgments and assumptions made are reasonable.

What is the difference between market-based assurance (of ISO standards and accreditation) and the assurance deployed in the financial auditing and ESG ratings sector? Are they complementary?

An audit of financial statements is a way of providing assurance that a set of financial reports, prepared in accordance with a general-purpose reporting framework, give an assurance view of an entity’s financial position and financial performance. At the end of an audit, the auditor gives their opinion whether the financial statements give a reliable (true and fair) view, and whether those financial statements have been prepared in accordance with the right reporting framework.  Market-based assurance is another source of assurance, focusing on a different set of information – it can confirm that information, or a process or a product, consistently meets certain high standards regardless of where that activity has been carried out. These activities are complementary – reporting in an annual report relies on information being gathered – where that information has been prepared in line with standards and verified by an accredited body, this builds trust in its reliability. Both types of assurance effectively support the public interest in allowing users to have justifiable confidence in the information they use for decision-taking.

What are the main ways in which the FRC and UKAS can work together to increase the impact of existing assurance mechanisms in the net zero, climate and broader sustainability space?

Firstly, this is a fast-moving, fast-developing sector, and it is not one that relies on a single profession. Together UKAS and the FRC can share their understanding of what underpins reporting and assurance of information related to net zero, climate and sustainability. Where that information is derived from existing business processes underpinned by accredited verification, it helps us to determine how companies can meet their reporting requirements with minimum additional burden.  Both UKAS and the FRC also work in areas where international standards are important – standards which allow a business to meet regulatory obligations in multiple jurisdictions are an important way in which we can support economic growth and trade. It also allows both organisations to better understand the end-to-end process through which information is developed, reported and assured.