By Joanne Merry, Head of Product Development
Streamlined Energy & Carbon Reporting (SECR) is a compliance requirement that was introduced in 2019 under ‘The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon) Regulations 2018’ as a replacement for the reporting element of the Carbon Reduction Commitment (CRC). However, whereas there were in the region of 4,000 qualifying companies within the CRC scheme, the qualification criteria extends the number of companies captured under SECR to over 11,000.
Qualifying companies are required to report on their energy usage, greenhouse gas emissions and energy efficiency actions from 1st April 2019, covering financial reporting years starting on or after this date. The first companies who will be required to comply will therefore be those whose financial year ends on 31st March 2020, with other qualifying companies needing to commence reporting at the end of their next financial year end.
Who is required to report?
Quoted companies (UK incorporated companies whose equity share capital is listed on the Main Market of the London Stock Exchange UK or in an EEA State, or admitted to trading on the New York Stock Exchange or Nasdaq) were already obliged to report under the Mandatory Greenhouse Gas Reporting (MGHG) requirements covering global scope 1 and 2 GHG emissions. The requirements of SECR replace and extend on the requirements for quoted companies.
In addition, ‘large’ unquoted companies and Limited Liability Partnerships (LLPs) also qualify. The definition of ‘large’ captures companies and LLPs who meet two or more of the following criteria:
- Turnover: £36 million or more
- Balance sheet total: £18 million or more
- Number of employees: 250 or more
Organisations which meet this criteria and who are undertaking charitable or public activities as registered companies are included in the requirement to comply.
Who is not required to report?
Companies are not required to report under SECR in the following instances:
- Organisations who are unquoted and do not meet the definition of ‘large’.
- Large entities deemed as public bodies.
- Large companies incorporated outside of the UK, including foreign parent companies of UK subsidiaries.
- ‘Low energy users’ – organisations who meet the qualification criteria, but whose energy usage is 40 MWh or less during the period for which the report is being prepared.
- For companies that are part of a group, there is the option to exclude from the group report any energy and carbon information relating to a subsidiary that would not itself be obliged to report on its own account.
- If an organisation is a subsidiary, it is not obliged to report if it is included in a group report of a parent undertaking which is prepared for a financial year that ends at the same time as, or before the end of, the subsidiary’s financial year.
What is required to be reported?
Quoted companies are required to report on their global annual scope 1 and 2 emissions and the underlying energy usage, including disclosure of the proportion of their energy use and GHG emissions which relates to the UK. The previous year’s figure must also be included in the report.
Large unquoted companies and LLPs are required to report their annual UK energy usage and associated GHG emissions covering scope 1 and 2 electricity, gas and transport at a minimum. Again they must also include the previous year’s figures in the report.
All qualifying organisations (quoted and unquoted) must include an appropriate intensity ratio metric as well as disclosing the methodology used to calculate their emissions and most importantly, any energy efficiency actions taken in the financial period the report applies to. Whilst the reporting framework itself intends to simplify the previous reporting requirements which were in place under CRC, the requirement to report energy efficiency actions taken is a positive step up which ensures organisations are focused not on just reporting energy usage, but taking steps to reduce it. This drives further incentive for companies to act as not only are there the associated financial savings from energy reductions, but this introduces a clear reputational incentive as businesses must disclose to interested stakeholders what they are doing.
Although there is no mandatory requirement for organisations to report on any scope 3 emissions, it is strongly encouraged that an assessment of scope 3 emissions is undertaken to establish which ones materially impact their carbon footprint and that these are also reported on.
GHG emissions scopes explained
The 3 scopes referred to are commonly used in defining emissions’ sources for an organisation’s carbon reporting. The below summary illustrates what is included within the definition of each scope category.
Source: GHG Protocol
Accuracy and transparency is key
The SECR regulations has a set of guiding principles that must inform an organisation’s approach to reporting, stating it must be:
The need for accuracy and transparency sit at the heart of these principles. The SECR guidance encourages the undertaking of third party verification of data and reporting, although this is currently not mandatory.
In line with these guiding principles organisations must then ensure that they have a robust data management strategy in place to underpin their reporting framework. The requirements of SECR build on, or cross over with, a number of other mandatory and voluntary schemes such as the Energy Savings Opportunity Scheme (ESOS), Carbon Disclosure Project (CDP), and the Taskforce for Climate-Related Financial Disclosures (TCFD). For organisations already participating in such schemes a robust data management strategy will also ensure a common and consistent data set is being used across all reporting requirements, as well as avoiding duplication of effort.
Whilst SECR is a compliance requirement, those who embrace this and seek to go beyond the minimum requirements will realise the benefits in terms of: driving energy and GHG emissions reductions; demonstrating environmental credentials to stakeholders including investors, shareholders, and customers; understanding and mitigating the physical risks associated with climate change, and the business risks associated to volatile energy costs and the need to transition to a low carbon economy.
Many organisations are now pledging to commit to Net Zero Carbon targets and are putting in place strategies to set out their journey to achieve this. Setting a Net Zero Carbon target must always start with the data required to measure and calculate GHG emissions, so embracing and building on SECR will also help organisations on their journey to becoming a Net Zero Carbon business.
To find how Carbonxgen can support your business with SECR and its wider Net Zero Carbon strategy, please do get in touch:
Call: 01252 560 379