New Regulation will Drive a Tenfold increase in Mandatory Carbon Reporting

Yesterday the UK Government published its plans for the new Streamlined Energy and Carbon Reporting (SECR) regulations. It outlines the new mandatory reporting framework which will replace the existing CRC Energy Efficiency Scheme due to end in 2019.

The SECR is designed to streamline and reduce complexity in the carbon and energy reporting landscape as well as broaden the scope for reporting compliance. This will mean almost a tenfold increase in the number of companies required to comply with energy and carbon reporting legislation.

HIGHLIGHTS OF SECR

The paper documents the consultation process alongside the government’s response and agreed measures. These are the key messages:

All quoted and unquoted companies with at least 250 employees or an annual turnover greater than £36m, and an annual balance sheet total greater that £18m [1], must now comply with the new energy and carbon reporting legislation.

Companies using less than 40,000 kWh of energy in the reporting year will be exempt

To reduce the burden of additional reporting the SECR requirements are expected to be published in companies’ Annual Reports.

UK energy usage should be calculated and reported, and will have to include electricity, gas and transport (road, rail, air and shipping).

Scopes 1 and 2 GHG emissions (with methodology and an intensity metric) will be required. Scope 3 reporting is to remain voluntary.

THE IMPLICATIONS FOR BUSINESS

The most significant implication is the inclusion of businesses not previously required to comply with CRC. Now that unquoted companies are included, about 11,900 companies will fall within the scope of the SECR, roughly the number already in scope of the Energy Savings Opportunity Scheme (ESOS), although they will not have had requirement for public disclosure up to this point. This increases the number of companies required to report in their annual reports from 1,200.

Recognition from the government of the current complexity of reporting policies was a driver for making reforms to this tax and reporting regime. As such, it has been designed to align with the Climate Change Levy (CCL) and Mandatory Greenhouse Gas Reporting (MGHGR) to streamline disclosures, which will be welcome news to those already reporting against these.

The reforms also nod to the latest updates in the disclosure landscape, namely the increasingly influential recommendations of the Task Force for Climate-related Financial Disclosures (TCFD). The TCFD calls for “decision-useful” disclosure of energy and emissions information in mainstream financial reports. This has influenced the decision to use company annual reports for the new mandatory disclosures, to assist in embedding carbon and energy into wider corporate filings.

Data collection, emissions calculations and reporting implications will vary from business to business but there is time to prepare. For further details or to discuss how to align your current (or lack of) reporting with the new proposed regulations, contact us today.

[1] The definition of a large company under the Companies Act 2006