Promises and Threats of SECR

The UK sustainability landscape has come a long way since the introduction of Climate Change Levy back in 2001. Companies have not only learned what the price of their environmental impact is, but gradually were required to learn how to define their organizational boundaries, set up verifiable data collection and report on their emissions and energy usage. The next milestone will take place in the UK in April 2019, when the new Streamlined Energy & Carbon Reporting (SECR) framework’s comes in to effect. The new scheme promises to simplify carbon and energy reporting requirements, but at the same time broadens scope and extends the number of obligated companies to around 11,900.

Purpose of a new, streamlined framework

SECR builds on the UK government’s Clean Growth Strategy, enabling businesses and industry to improve energy efficiency by at least 20 percent by 2030.The SECR should ensure that companies have the information they need to act to reduce emissions and energy costs. The new mandatory reporting framework will replace the Carbon Reduction Commitment Energy Efficiency Scheme (CRC EES) and extend the scope of the existing Mandatory Carbon Reporting (MCR) regulations for listed companies to all large organizations.

Nevertheless, SECR includes the promise to streamline and reduce complexity in the carbon and energy reporting landscape. Following an extensive consultation, the UK government recently published the full guide on SECR.

Here are some of the key points we believe companies will need to be aware of and consider.

Who needs to comply?

All large quoted¹ and unquoted companies will have to comply with the new energy and carbon reporting framework. Unlike the Energy Saving Opportunity Scheme (ESOS), where qualification criteria for large companies is either to meet the employee number, the financial thresholds, or both, the qualification for SECR is to meet two or more of the following criteria:

•           Turnover of £36 million or more

•           Balance sheet total of £18 million or more

•           Number of employees 250 or more

The new qualification criteria will vastly change the number of participants, extending the number of companies required to report the SECR information from around 1,200 in ESOS to 11,900.

What is the scope?

Similar to the CRC EES, companies must take into account not only their own information, but also the information of any subsidiaries. They may exclude from the report any energy and carbon information relating to a subsidiary whereby the subsidiary itself would not be obliged to include data, if reporting on its own. In the case of landlord/tenant arrangements, the party responsible for the consumption of energy should take the responsibility for reporting under this legislation.

What to report? And when?

Quoted companies are already required to report global scope 1 and scope 2 greenhouse gas emissions and an intensity metric in their annual reports under existing MCR requirements. Scope 3 reporting is currently done on a voluntary basis and this will remain the case. However, quoted companies will now be required, where practical, to report on global energy use as well.

Unquoted companies will need to report, at a minimum, UK energy use from electricity, gas and transport, the associated scope 1 and 2 greenhouse gas emissions from these and an intensity metric. As with quoted companies, transport is defined as including road, rail, air and shipping. In addition, all reporting businesses will be required to provide a narrative commentary on any energy efficiency action taken in the previous financial year. With the recent release of the final guidance, some details still remain unclear especially around the exact items under scope 1 obligations or the nature of requirements around scope 3 emissions.

Companies will need to include their energy and carbon information in their Directors’ Report as part of their annual filing obligations. Because the scheme will come into force in 2019, the first time companies will need to include their SECR information will not be before January 2020. Electronic reporting for SECR in 2019 will be voluntary, as it is currently not mandatory to for Directors' Reports to be submitted electronically.

So, where is the simplification?

Participants will welcome a new addition where the legislation allows for the ability to waive disclosure of certain aspects of the energy and carbon information (e.g. if it is seriously prejudicial to the interests of the organization, or not practical to obtain).

Moreover, there is no requirement in the legislation for the emissions data to be independently verified or assured, which allows for individual methodology and synergies. The methodology will need to be published alongside the figures. Widely recognized independent standards, such as ISO, CDSB, GRI or CDP, are recommended. Companies can go beyond the requirements and include any other material source of energy use or greenhouse gas emissions outside the boundaries, including reporting on scope 3 emissions.

What next?

The challenges to report on SECR will vary depending for different groups. For the 1,600 companies already reporting under MCR, there is little change except for the addition of the inclusion of energy use and energy efficiency measures. For organizations reporting and purchasing credits in the CRC EES, the new SECR regulations will replace these. The largest change will come for those organizations who don’t fall into either scheme. Companies that have never been subject to any mandatory GHG reporting will certainly take time to adjust to reporting protocols. This group should start preparing immediately, as it will be a process to introduce systems to capture the data before the end of the reporting cycle. Despite the adjustment to changes, the new regulations also present an opportunity for many larger global businesses to rethink their reporting methodologies across schemes and to consider applying best practice.

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Schneider Electric helps their clients with reporting services and software to ensure hassle-free compliance with these types of legislation, so should you need any help, we will be at your disposal. Contact us!