What you Need to Know about SECR

secr
Lord Rupert Redesdale

By Rupert Redesdale, Chief Executive at The Energy Managers Association

In April 2019, the UK government’s new Streamlined Energy and Carbon Reporting framework came into effect.

If you haven’t heard of Streamlined Energy and Carbon Reporting (SECR), you are not alone. Although over 10,000 companies will need to start collecting data and reporting on their energy, emissions and energy efficiency measures, there has been little publicity on the regulations.

If you have undertaken CRC reporting then the emission element is broadly similar, however around seven thousand companies in scope will not have reported before.

Additionally, non-compliance could lead to fines and in really exceptional cases prison sentence for Directors. No really, there is provision under the law. Although unlikely in reality, it is a good incentive to take SECR seriously.

The EMA has been involved with the development of SECR from inception. The genesis was David Cameron’s 2010 “let’s get rid of all this green crap” which led to the merging of most energy levies and taxes together, under one simplified regime.

The EMA views SECR as an excellent opportunity for increasing the importance of energy management in the UK’s largest companies. The final report is a public document which in the future could be seen as not only a means of measuring a company’s emissions but a barometer on their climate change reduction credentials. Financial institutions and shareholders will use the report to gauge the risk profile of companies that ignore energy as a major financial risk.

What is SECR?

This regulation was created in order to replace the mandatory greenhouse gas emissions reporting requirements for quoted companies and will come into effect immediately after the closure of the CRC Energy Efficiency Scheme for large UK energy users. It will operate in parallel with the Energy Savings Opportunity Scheme (ESOS) which also applies to large UK companies and will continue after the introduction of SECR.

The reporting itself has been developed by the Department for Business, Energy, and Industrial Strategy (BEIS) to align with best practice in the UK and internationally, and is intended to complement recommendations from the G20 Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD). The recommendations aim to improve transparency and investor information to underpin the transition to a global low-carbon economy.

Who needs to comply with SECR?

BEIS estimates that 11,900 companies across the UK will need to comply with the new regulations. That is a large increase from the approximately 4000 companies that were in-scope for the CRC Energy Efficiency Scheme. It also includes the approximately 1200 quoted companies already under the mandatory greenhouse gas reporting requirements.

Businesses that need to comply will be classified as ‘large’ under the Companies Act 2006 and have at least two of the following:

  • At least 250 employees
  • Annual turnover greater than £36 million*
  • Annual balance sheet greater than £18 million*

*Please note that the definition of ‘large’ companies is different from that of ESOS.

In addition, companies that have not previously been in scope, including large LLPs and unquoted companies, will need to report under SECR if they meet the criteria above. Low energy users (using less than 40,000kWh per year) will be exempt from reporting, however, such an organisation is required to state, in its relevant report, that its energy and carbon information is not disclosed for that reason.

Public sector organisations will be exempt from SECR and will maintain commitments under CRC if in the current phase. However, public sector organisations must meet SECR obligations if they include limited company or LLP elements and meet the above eligibility requirements.

Furthermore, UK subsidiaries will not have to report if covered by the parent company report. However, UK-based subsidiaries that are not covered by parent report will need to comply with SECR if eligibility requirements are met.

What needs to be reported?

The new SECR reporting requirement mandates that large non-quoted companies and LLPsin the UK must:

  • Report on their UK energy use (electricity, gas, and transport);
  • Report on their associated GHG emissions (scope 1 and 2 mandatory, scope 3 optional);
  • Include a carbon intensity Ratio in the report. The EMA is compiling a list of metrics that are most commonly used by different sectors and will make recommendations after consultation on which Ratios should be used as best practice by different sectors.
  • State the methodology they used in the report. There are a number of methodologies that can be used including the GHG Protocol, however, the EMA is building a methodology to provide consistency across the entire report. The methodology will include best practice across all reporting areas and be incorporated into an evaluation tool that will be available for all companies to use.
  • Report on all of their principal energy efficiency actions taken within the financial year;

Principal energy efficiency actions have a wide definition and this will be an area of considerable debate. The EMA SECR methodology will give clear guidance on how to define principal measures, best practice to follow, and list the main areas and processes that should be recorded in the report.

Quoted companies have been required since 2013, under mandatory greenhouse gas reporting requirements, to disclose their global scope 1 and 2 GHG emissions and intensity metric in their annual reports.

Therefore, reporting under SECR will add:

  • Global energy use (electricity, gas, and transport);
  • Report on all principal energy efficiency actions taken within the financial year.

How is the information reported?

The above information required by SECR will be reported by companies and LLPs in their annual director’s report submitted to Companies House. The report must be approved by the board of directors (company) or a named partner (LLPs).

As the information is to be included in the annual report, it must also be included in the audited financial statements and be approved by the auditor. Auditors must approve SECR information:

  • For consistency with financial statements;
  • Consistency with knowledge acquired by the auditor in the course of performing the audit;
  • Any need to further qualify the report.

Currently, electronic reporting to Companies House is voluntary from 2019 and it is not mandatory for director’s reports to be submitted electronically. However, this may become a requirement depending on the broader company reporting trends and context.

When will companies need to report?

Companies falling within the scope of SECR will need to report beginning on the first reporting period that falls after the April 2019 start-date.

For example, if a company’s reporting period runs from December 2018-December 2019, they will be required to collect data starting in December 2019 and reporting December 2020.

Tax Implications

With the closing of the CRC Energy Efficiency Scheme for large UK companies, the government will base revenue collected on an expanded Climate Change Levy (CCL).

CCL is charged by the government on electricity, gas, and solid fuels and are listed on business’ energy bills. The rates going forward are set out below:

CCL-Percentage-Increase-April-2019-electricity-gas

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