10 things you should know about the new energy and carbon reporting regulations

In summer 2018, the UK government announced it’s plans for the Streamlined Energy and Carbon Reporting (SECR) regulations for businesses. Last week saw the publication of the Environmental Reporting Guidelines, including SECR which is due to come into effect this year.

Here are 10 important things you should know about the latest acronym to grace the environmental reporting space.

1. It supercedes the Carbon Reduction Commitment (CRC)

The SECR continues the reporting requirements of the CRC, which draws to a close this October. However, this is not a like for like replacement; the SECR contains many significant changes and new reporting requirements.

2.  The scope of compliance has changed

Both total energy consumption and carbon emissions will have to be reported. These must include, as a minimum, the sum of electricity, gas and transport fuel expressed in units of consumption (e.g. kWh for electricity and gas), and Scope 1 and Scope 2 emissions along with an intensity ratio and information relating to energy efficiency activities

3. Exempt from CRC? Keep reading!

If you were exempt from CRC, this does not mean you are exempt from SECR. The new regulation means a large increase in the number of companies that need to comply. Currently there are only 2,000 CRC participants (many from the state sector).  SECR will mandate reporting for almost 12,000 companies. The new regulations apply to:

UK incorporated Quoted companies (as defined in section 385 of the Companies Act 2006)

UK registered unquoted companies that satisfy two or more of the following criteria:

– Have more than 250 employees.

– Have an annual turnover great than £36 million.

– Have an annual balance sheet total greater than £18 million.

Large Limited Liability Partnerships (LLPs) that meet two or more of the above criteria.

Large unregistered companies that are required to produce directors’ reports under the Large and Medium-sized Companies and Groups Regulations 2008.

4. Disclosure against other frameworks might make this easier

If you participate in any of the following schemes, you might already have much of the information that you’ll need in order to comply: CRC, Energy Savings Scheme (ESOS), Climate Change Agreements (CCA) Scheme, EU Emissions Trading Scheme (ETS) or Mandatory Greenhouse Gas (MGHG) reporting as well as other voluntary environmental reporting frameworks.

The guidelines encourage making use of normal accounting procedures to “streamline” the process, but we recommend that you get acquainted with the full requirements to identify any required changes in advance.

5. Get set from April 2019

Companies need to be prepared to report for financial years that start on or after 1st April 2019. For example: if your financial reporting year runs from April to March you must gather the required information from April 2019; if it runs from January to December, then you must start from January 2020.

The data should cover the same period as the financial year if possible, but if this is not the case, then this must be made clear in the report.

6. The regulation requires disclosures in annual reports

Companies need to disclose their energy and carbon information in their Directors’ Report as part of their annual filings to Companies House. This is intended to make environmental reporting a normal part of business disclosures.

7. Believe it or not, this is designed to be “streamlined”

If your company is a first time “responder”, then it might not feel like it.  However, if you have been reporting under CRC, ESOS and MGHG, then this regulation can bring significant efficiencies in collecting and reporting data. Alignment with other frameworks avoids the need for a whole new data collection process.  Reporting in main annual financial filings also aligns with recent updates in the environmental disclosure landscape, namely, the Task Force on Climate-Related Financial Disclosures (TCFD), which recommends exactly this to ensure that businesses are properly integrating climate-related risk into their businesses.

8. You should start planning now

If you are not sure if you must comply, now is the time to review the regulations and assess whether you are in or out. If you must report for the first time, you will need to set up processes for data collection and calculation in order to ensure you are reporting ready and therefore compliant when the time comes.

9. This is part of the government’s Clean Growth Strategy

The aim of this strategy is to help business and industry to improve their energy productivity by at least 20% by 2030. Part of this is the creation of a level playing field of energy and emissions reporting among large organisations, and greater transparency for investors (who are increasingly demanding it).

10. There is good news and bad news..

The demise of the CRC will be popular amongst CRC participants as, whilst their Climate Change Levy (CCL) costs will rise to compensate for the reduced tax revenue from CRC, costs will be more than offset by the savings from not having to buy and surrender CRC allowances. Unfortunately, all other companies will feel the impact of CCL rates increasing significantly: Electricity by 45% and gas by 66%. In the long term, gas intensive companies will be particularly impacted, as gas costs are planned to increase year on year to equalise with electricity CCL rates by 2025.

Having said this, not many regulations in business provide the opportunity to make savings. If you comply and then act on any energy savings opportunities you identify during the process, there are very real improvements in cost and energy efficiency to be gained. It might also set you up to satisfy your investors, if not now, then in the future.

If you have any questions about the new regulations and next steps for you, get in touch and ask for our compliance experts, Gavin Tivey or James Ramsay.