In a recent Utilitywise blog, we outlined what we’d expect to see from Streamlined Energy and Carbon Reporting. Now, the Government has responded to the consultation.
Summary of the Government response
The Government proposes that the new Streamlined Energy and Carbon Reporting (SECR) scheme will apply throughout the UK from April 2019, when the current phase of the Carbon Reduction Commitment (CRC) ends.
It has already been announced that to compensate for the removal of approximately £790m in annual CRC tax revenues the Climate Change Levy (CCL) has been noted for increase in 2019.
The suggested vehicle for reporting is company accounts, which will continue to be part of a post-Brexit landscape, and a UK-wide approach is in line with other existing initiatives such as ESOS and mandatory greenhouse gas (GHG) reporting.
Organisational reporting will be similar to ESOS in that:
- UK subsidiaries, that qualify for SECR in their own right, will not be required to report where they are covered by a parent’s group report, although they may report individually on a voluntary basis.
- Companies that are not registered in the UK (non-UK incorporated) are not obliged to file annual reports at Companies House, and will, therefore, fall outside the scope of the mandatory SECR framework.
- Where a parent company is not registered in the UK, but has subsidiaries that are registered in the UK, these subsidiaries, if qualifying for SECR in their own right, would need to report.
Who will be required to comply with SECR?
The new SECR reporting framework will apply to all quoted companies and apply to large UK incorporated unquoted companies; those with at least 250 employees, or annual turnover greater than £36m, and an annual balance sheet total greater than £18m. (Two or more of the criteria apply to a company within a financial year).
Currently the requirement for reporting on GHG emissions is for quoted companies only. SECR would extend the number of companies that report information in annual reports from ~1,200 to ~11,900 (similar to ESOS organisational reporting).
Large businesses (and other large undertakings) are already measuring their energy use under ESOS on a 4-yearly basis, but under ESOS there is no requirement for public disclosure. CRC currently covers approximately 4,000 organisations, (which unlike SECR had a 6GWh inclusion threshold).
What exemptions are there to SECR?
- De-minimis threshold of 40,000 kWh, for companies using low levels of energy to be exempt from reporting, similar to ESOS (this equates to approximately 500 organisations).
- Unquoted companies where it would not be practical to obtain some or all of the SECR information.
- Disclosure of information which the Directors think would be seriously prejudicial to the interests of the company.
- There is no exemption for energy used in other schemes – e.g. Climate Change Agreements (CCA) / EU-Emissions Trading Scheme (ETS).
- There is no exemption for Limited Liability Partnerships (LLPs), as they’re required to report under SECR through an equivalent to a directors report (this equates to approximately 230 large LLPs).
How will companies be expected to report?
The method of reporting under the SECR framework will be annual (Director’s) reports.
Electronic reporting will be voluntary for SECR information from 2019, although the Government will keep mandatory electronic reporting as an option for the longer term. At this stage the Government are not considering holding a central repository (electronic or otherwise) for collating all reporting.
Energy consumption associated with Scope 1 and 2 emissions (electricity, gas, and transport as a minimum) are to be included. Similar to mandatory GHG reporting. Scope 3 consumption emission reporting will be voluntary. Disclosure will also be of global energy, not just UK energy.
However, if it is not practical for a company to obtain some or all of the information relating to its global energy use, the current MGHG regulations exempt participants from disclosing this, as long as they state what information is not included and why.
An intensity metric is also required to be published, unless this could seriously prejudice the interests of the company, although this option should only be used in exceptional circumstances.
So, what will UK quoted companies registered in the UK be required to do?
- Where practical, disclose Scope 1&2 emissions according to the GHG methodology (Scope 3 will remain voluntary) and publish an intensity metric in their annual reports and;
- Should additionally be required, where practical, to report on global energy use.
- Provide a narrative commentary on energy efficiency action taken in the financial year, though they won’t be required to specifically disclose ESOS recommendations and how they have been taken forward (although they can do so). This will apply to both quoted, large unquoted companies, and large LLPs. The idea behind disclosing annual energy efficiency actions is to incentivise action outside the 4-yearly ESOS cycle.
Guidance will be published (detailing good practice) as the Government do not intend to define specific methodologies to be used in the legislation – this guidance is expected to detail transparency and consistency of reporting when considering issues such as on-site generation, green and renewable energy tariffs, business travel, carbon offsetting, and the increasing prevalence of ultra-low emission vehicles.
How you can get ahead
We can help you get a head start on SECR by working with you now to create a carbon footprint of your existing portfolio, applying a similar methodology to that of Mandatory Carbon Reporting or GHG reporting.
The benefit of this will be that you’ll be able to streamline your reporting process and get a head start on year-on-year comparisons. By the first real reporting period you will then be able to make a year-on-year comparative analysis which will help support stakeholder engagement.
To find out more about our Carbon services call 01527 511 757 or email email@example.com