New carbon and energy reporting rules may be coming your way

Posted on Tuesday, February, 12th, 2019

What now?

Announced in July last year but coming into force for financial years starting after April 1st this year a new set of carbon and energy reporting rules are just around the corner for many businesses. Called the Streamlined Energy and Carbon Reporting framework (SECR) the scheme will replace the old Carbon Reduction Commitment (CRC) and Mandatory Carbon Reporting (MCR).

Does this change affect your business?

SECR will apply to around 12,000 companies, which is more than double the number that used to come under the old CRC/MCR rules, so you might be involved now even if you weren’t before. Four groups of businesses will need to comply:

Is there any way out of this?

Companies will not need to comply if they are:

Why are these regulations coming in?

The changes are part of a range of policies being implemented as part of the government’s Clean Growth Strategy, to deliver on its target of at least a 20% reduction in business and industry energy emissions by 2030. This is in support of the UK meeting its overall 80% reduction in greenhouse gas emissions by 2050, as enshrined in the Climate Change Act.

SECR’s purpose is to simplify carbon and energy reporting requirements for companies, and at the same time prompt action in reducing emissions (and therefore costs).

SECR has been designed to build on existing requirements, such as CRC and MCR. There was a large consultation on the framework in 2018 and most responses accepted that a mandatory reporting scheme is important in creating an environment that leads to improvements, and that it needs to be aligned with best practice in the UK and internationally.

The reporting itself is intended to encourage the implementation of energy and carbon efficiency measures in businesses, which will have both internal economic and externa environmental benefits. Requiring companies to make disclosures on energy and carbon is also in line with the recommendations of G20’s Taskforce on Climate-related Financial Disclosures – providing important information for investors to help them move to a sustainable and low carbon economy.

What do we need to report?

Quoted companies are already required, where practical, to disclose global scope 1 and 2 greenhouse gas emissions and an intensity metric in their annual reports under MCR requirements in place since 2013. Scope 3 reporting is currently done on a voluntary basis and this will continue remain the case. However, quoted companies will be required, where practical, to report on global energy use as well. The scopes are explained at the bootk of the page for the uninitiated.

Unquoted large companies, large LLPs and other unquoted companies will need to report, as a minimum, UK energy use from electricity, gas and transport, as well as their associated scope 1 and 2 greenhouse gas emissions and an intensity metric. As with quoted companies, reporting only needs to be done where practical, and transport is defined as including road, rail, air and shipping. Companies can voluntarily go beyond this and include any other noteworthy energy use or greenhouse gas emissions, as well as reporting on scope 3 emissions.

In addition, all reporting businesses will be required to provide a narrative commentary on any energy efficiency action taken in the previous financial year. They will not currently be required to disclose ESOS recommendations and progress with their implementation, although they can include this information if they wish to. The government intends to revisit how SECR interacts with ESOS following completion of its evaluation of the impact and effectiveness of the first phase of ESOS.

The government does not specify which methodologies should be used for energy and carbon reporting, however, it has set out guidance on good practice. This will include encouragement of transparency in areas such as the purchase of renewable energy, action taken on business travel, any offsetting of emissions, and the use of ultra low emission vehicles. Offsetting via the Woodland Carbon Code and, in the future, the Peatland Code, are both supported in the guidance.

With respect to intensity metrics companies will need to express their emissions as a ratio against at least one quantifiable factor related to business activities, such as turnover or number of full time employees.

When do we need to do all this?

Qualifying companies will need to report in line with the SECR framework in the directors’ report or equivalent section contained within their annual report for financial years beginning on or after 1 April 2019.

Electronic reporting for SECR will currently be voluntary from 2019, as it is not mandatory for directors’ reports to be submitted electronically. However, this is under review and mandatory electronic reporting could be an option in the future.

And finally, what are Scope 1, 2 and 3 greenhouse gas emissions?

Greenhouse gas emissions are categorised into three groups ('scopes') by the most widely used accounting methodology, the Greenhouse Gas Protocol. Scopes 1 and 2 cover direct emission sources (e.g. fuel used in company vehicles) and Scope 3 emissions cover all indirect emissions in the supply chain and product lifecylce activities of an organisation.

Examples include:

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