Hello, everybody, and welcome to another edition of C&F Talks. Today, I have with me Mark Babington, who's an Executive Director of Regulatory Standards at the Financial Reporting Council. Mark's going to be speaking at our 4th Annual Sustainability Summit, which is being held in London. Mark, welcome.

Thank you, Maurice. Looking forward to the conversation.

Very good. Well, let's turn to our first question.

What are the main objectives behind the introduction of the proposed UK Sustainability Reporting Standards, the UK SRS, and how do they reflect the FRC's vision for high-quality corporate reporting in the UK?

Well, I think, firstly, the FRC has always been very supportive of the use of high-quality international standards for all types of reporting, and indeed for audit work as well. We recognise the benefits of UK companies being able to meet their reporting obligations in multiple jurisdictions with a single set of information. So, the proposal to consult on adopting UK SRS is to provide just that, something that can be used not just in the UK, but to meet obligations elsewhere.

Yeah, and I suppose it is quite important, as you say, that these same sorts of reporting standards are applied everywhere.

So how does the FRC envision the implementation and phasing of the UK SRS? And I suppose, you know, what should companies be doing now to prepare for this new reporting and governance standpoint?

So, the phasing will actually not be a question for the FRC. So, there are two legs to this sort of process. Firstly, the Financial Conduct Authority has already indicated that it will consult on changes to its listing rules once the UK SRS are available, so effectively to remove the TCFD reporting requirements, and then to replace them with the UK SRS requirements.

And then there is a decision that has to be taken by colleagues in the Department for Business and Trade about what requirements do they wish to put on other UK corporates. But the timing of that will be for those authorities to determine, and not for the FRC. I think our role will be more on focusing perhaps on what guidance and other material is needed to support consistent application.

Yeah, absolutely. And as any indication, obviously you say the timing is up to those authorities to decide, but presumably this thing is moving along at pace now. So, are we looking towards an FCA consultation, do you think, in the autumn, or are we looking at next year?

Well, I don't know in terms of the timing, but in a sense, you almost have to do a count back. So, if you think most UK corporates are reporting on a 31 December year end, and so therefore you are probably going to want whatever goes live to go live on a 1 January sort of basis. So that may suggest that any sort of consultation, should there be one in the autumn, might be too late for a 1 January 2026 start. So, it may mean reporting from 1 January 2027.

We do know, however, though from outreach with a lot of stakeholders that there may be interesting companies voluntarily reporting before that, as they move towards meeting their own stakeholder needs about sustainability reporting.

Yeah, okay.

And of course, the government's consulting also on mandatory transition plans. What critical elements should organisations consider when developing these plans, and how will the FRC support businesses in meeting these new requirements? Are there unique challenges or opportunities you anticipate as companies implement transition plans under the new framework?

Well, transition plans are a really interesting challenge, because although we have this term, transition plan, it often means many different things to many different users. And I think one of the challenges will be to build more of a shared understanding about just what information is going to be reported. That is going to require a lot of dialogue about what information is going to be decision useful, what information is going to be informative to investors and other stakeholders, and how are you going to be able to achieve some sort of comparability between different types of entities.

I think one of the other things we've got to be very careful about as well is that transition plans are long-term, forward looking, highly judgmental documents. And when I say highly judgmental, it's because the information they're dealing with is highly uncertain. And therefore, there is an important communication aspect around a transition plan.

It is not an absolute statement of what happens. It is an indication of a company's longer-term objectives and aims, and they need to report on how they're delivering against those.

So, I mean, presumably the work of the Transition Plan Taskforce has informed this consultation. And that did set out, didn't it, sort of best practice. And quite a few companies are already providing these transition plans voluntarily. But presumably, it's going to be quite, as you say, people review it or interpret it in different ways. It's going to be quite a process, isn't it, for people to move from a voluntary basis where they can decide what goes in to a more mandatory basis. What advice do you have for companies as they make that transition?

Well, I think that where a company's doing a transition plan on a voluntary basis, maybe the consideration should be, you know, what is the most materially important information you need to communicate for your stakeholders? Because if we go to mandatory reporting, that's likely to have more regulatory guardrails around it. So, you want something that is not going to require too much unpicking and reworking to fit in with the regulatory framework that ultimately, we have in the UK.

So, you know, think very much about that materiality lens. What are the most important things for you to communicate to your stakeholders? And how do you communicate some of these long-term forward-looking issues in a way that is understandable to the people who are going to be reading this information?

Yeah, absolutely.

I mean, it's all very well producing these things, but what's the purpose? How do people use them? And what sort of judgments will they base on them?

One of the other areas which has not really received so much coverage is the consultation on assurance services and how that's going to work. And what's your view on that? Presumably, the FRC is working around this area of assurance. And how do you see the possibility of improving the quality and reliability of sustainability reporting through assurance services?

So, some of the listeners, Maurice, may have already seen that the FRC is consulting on adopting ISSA 5000, which is a single global assurance standard for sustainability for use in the UK. Again, leveraging this idea that having a single consistent approach is an optimal one for UK companies and auditors. So, that consultation is ongoing at the moment, and we hope to finalise that in the autumn.

I very much welcome the consultation on assurance because it's in a way taking us into a slightly different regulatory challenge. And that is because the provision of assurance in sustainability is not something that's just done by accountants and auditors. It's quite a diverse market.

So, there are different types of providers carrying out different work using different sets of professional standards, ethical standards, independent standards. And one of the challenges will be for government and for regulators is creating a regulatory regime that's consistent, that's proportionate, but also that people who rely on sustainability information can have confidence in. So, if your information is assured by your statutory auditor, or if your information is assured by another provider who happens to have a different specialism, you can be equally confident that the information that they're giving their assurance conclusion on is reliable.

Yeah, absolutely.

One further supplementary question if I may before I think we'll run out of time. Why are other entities regarded as being in as good a position as auditors to provide assurance services?

In a sense, Maurice, it's a sort of legacy of history, you know, sort of sustainability reporting, although we talk about it as if it's new, is not new. It has been around for quite a long time.

Yeah.

And there are a number of providers, some of them boutique providers, some of them quite large global firms, for instance, bodies like Bureau Veritas, which operates a lot in France, for instance, that have been operating in this space for a number of years. So, it is not necessarily a case of a new influx of providers. It is established providers in the sector that people are now becoming aware of as a way of providing their assurance.

Oh, okay. I see. All right. Well, Mark, I think our time is up. We're very much looking forward to you joining us at the event for our viewers again. It's the 4th Annual Sustainability Summit being held in London. And if you want further details, they're available at the website www.cityandfinancial.com. We very much hope that you'll be able to join us in person.

Mark, looking forward to seeing you in November.

Thank you.