The Government announced the demise of the CRC Energy Efficiency Scheme in 2016 pledging to recover the lost revenue by increasing the Climate Change Levy (CCL) in 2019. It is widely recognised that carbon emissions reporting has a valuable role to play, after all you cannot manage what you do not measure, and therefore the Government also pledged to introduce a streamlined energy reporting mechanism.
The Government’s intention is to reduce the administrative burden of participation in what was a very complex and time-consuming compliance system; helping businesses to improve their productivity and competitiveness as part of its wider Industrial and Clean Growth Strategies. It aims to unlock any potential energy and emission savings in order to keep bills as low as possible and support the delivery of the UK greenhouse gas reduction targets. The goal being to improve energy efficiency by at least 20% by 2030.
The Streamlined Energy & Carbon Reporting (SECR) consultation was launched on 12th October 2017 alongside the Clean Growth Strategy to gather views on what a new reporting framework could look like for introduction in April 2019.
The outcome of the consultation provides a clear message that mandatory reporting is important. It should align with best practice in the UK and internationally, building on the existing mandatory reporting of greenhouse gas emissions by UK quoted companies and the Energy Savings Opportunity Scheme (ESOS). Significant levels of disclosure and transparency are important according to the recommendations of the Taskforce on Climate-related Financial Disclosure (TCFD), which calls for “decision-useful” disclosure of energy and emissions information in mainstream financial reports. The outcome must ensure that the reporting remains in line with the intention of reducing the administrative burden on businesses.
The UK Government and Devolved Administrations have committed to working together to deliver the best outcome as the new SECR reporting framework will apply across the UK both in line with and after the outcome of Brexit.
The main points from the consultation outcome are:
- The Government proposes reporting to be through company accounts which will continue post-Brexit. Additionally, a UK wide approach will be introduced which will align with other existing initiatives such as the Energy Savings Opportunity Scheme (ESOS) and Mandatory Greenhouse Gas Reporting (MGHG).
- The vehicle used for reporting under the SECR framework will be annual reports and will benefit from the simplification and administrative burden reduction of aligning with existing mandatory greenhouse gas reporting. This is also the main reason for using Director’s reports, due to the current obligation on quoted companies.
- UK subsidiaries, that qualify for SECR in their own right, will not be required to individually report where covered by a parent group report. Companies that are not registered in the UK are not obliged to file annual reports at Companies House, and will, therefore, fall outside the scope. Where a parent company is not registered in the UK but has subsidiaries that are registered in the UK, these subsidiaries, if qualifying, would need to report.
- Electronic reporting will be voluntary for SECR information from 2019, although the possibility of this being made mandatory will be an option longer term.
- The Government has made no commitment to establish a mechanism for collating and publishing energy and carbon data.
- The new SECR reporting framework will apply to all quoted companies and to large UK incorporated unquoted companies with at least 250 employees or annual turnover greater than £36m and annual balance sheet total greater than £18m. Two or more of the criteria should apply to a company within a financial year.
- The number of organisations required to report under SECR within annual reports will increase from around 1,200 to 11,900, which is roughly the number already in scope of the Energy Savings Opportunity Scheme (ESOS).
- The existing Companies Act definition of “large” has been deemed the most appropriate for simplicity due to the use of the company accounts regime. A statutory de-minimis will be applied for organisations using 40,000 kWh, or less, in the 12-month period.
- Large LLPs will be obligated to include SECR information in their Annual Reports, through an equivalent to a Directors’ Report, the majority of whom will already be obligated to report under ESOS and / or CRC.
- Quoted companies have been reporting Scope 1 and 2 global emissions since 2013 and this obligation will continue with an intensity metric in their annual reports. Scope 3 emission reporting will continue to be voluntary. UK unquoted companies will be required, where practical, to report their UK energy use and associated scope 1 and 2 emissions with intensity metric.
- There will be no specific methodologies to be used. However, the Government intends to set out in the guidance best practice methodologies to improve transparency and consistency of reporting when considering issues such as onsite generation, green and renewable energy tariffs, business travel, carbon offsetting and the increasing prevalence of ultra-low emission vehicles. The directors’ report must state at least one ratio which expresses the quoted company’s annual emissions in relation to a quantifiable factor associated with the company’s activities.
- The Government intends to include an exemption from disclosing information which the Director’s believe would be seriously prejudicial to the interests of the company, which we consider should only be used in exceptional circumstances given the over-riding benefits of disclosure.
- Participants under SECR will be required to provide a narrative commentary on energy efficiency action taken in the financial year, but will not be required to disclose ESOS recommendations and how they have been taken forward. This will apply to both quoted, large unquoted companies and large LLPs.
- All feedback provided on future improvements will be considered as the SECR scheme develops.
From the information provided in the consultation document it is not possible to establish the exact requirements. However, it appears that the impact of the new legislation will very much depend upon the current reporting requirements. For organisations already reporting under Mandatory Carbon Reporting, there is little change except for the potential of the addition of the inclusion of energy use and energy efficiency measures. For those organisations participating in the CRC EES, the new SECR regulations will replace these with the direct costs of carbon allowances being transferred to the Climate Change Levy.
The largest change will be for those organisations who are not currently expected to participate in either scheme. SECR will introduce annual public disclosure of UK energy use and carbon emissions to more than 11,000 organisations, up from approximately 5,200 required to report for CRC EES and / or MCR. The new regulations will present both a challenge and an opportunity for larger businesses to consider applying best practice in greenhouse gas and sustainability reporting and reduction.