SECR

Simplifies Energy and Carbon Reporting

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WHAT IS SECR?

Who will need to comply with SECR?

SECR is the UK government’s new mandatory energy and carbon reporting scheme which has been introduced to replace and simplify previous reporting schemes such as CRC. The scheme broadly follows the existing reporting system under the Energy Savings Opportunity Scheme (ESOS); however, SECR will be implemented through the existing mechanism of directors’ reports within annual company accounts. This is in line with existing reporting mechanisms such as the mandatory reporting of greenhouse gas (GHG) emissions by listed companies.

SECR is a UK-wide reporting scheme for quoted and unquoted companies with at least 250 employees, or an annual turnover greater than £36m and an annual balance sheet totalling over £18m. This is defined as a large company by the Companies Act 2006 and includes large limited liability partnerships (LLPs).

The reporting framework is intended be part of part of mainstream financial reporting and encourages the implementation of energy efficiency measures, enabling organisations to reduce costs, improve profitability and reduce carbon footprint. Full guidance on compliance with the new SECR framework can be found here. When does SECR start? SECR was introduced from April 2019 to coincide with the end of the current CRC Energy Efficiency Scheme. Business need to comply for their full financial year starting on or after 1 April 2019.

To reduce the complexity and administrative burden, UK subsidiaries that qualify for SECR will not be required to report on energy or carbon usage if they are covered by a parent’s group report. Where a parent company is not registered in the UK but has subsidiaries that are, these subsidiaries will be in scope if they qualify for SECR in their own right. Companies which are not registered in the UK are not obliged to file annual reports at Companies House and will therefore not be in scope for SECR. Similarly, organisations not registered as companies – for example, public sector organisations, some charities and some private sector organisations – are not in scope of the SECR framework. There will be an exemption for ‘very low energy users’, which the government suggests will comprise entities that use 40,000 kWh or less in a 12-month period. There will also be an exemption for entities who cannot practically report.

SOCOTEC HOUSE - BRETBY BUSINESS PARK - ASHBY ROAD - BURTON UPON TRENT - DE15 0YZ TEL: 0845 603 2112 - [email protected]

These criteria will broadly align SECR reporting with ESOS and mandatory greenhouse gas reporting (MGHG), and will thereby increase the number of organisations that are required to measure and report on their energy consumption and carbon emissions. Around 4,000 private and 1,200 public sector organisations complied with the CRC, while approximately 11,900 companies and 230 LLPs will be required to report under SECR. What are companies required to report? It is mandatory for companies to report UK energy use: Scope 1 direct emissions › Combustion of Natural gas › Fuel use from transport (road, rail, air, shipping where journeys start and end in the UK)

How will businesses report for SECR? Companies will need to report under SECR as part of their Directors’ Report, which is included in the Annual Report submitted to Companies House. Reporting via Annual Reports is mandatory; electronic format reporting was voluntary for the duration of 2019, although mandatory electronic reporting is an option for the longer term. The Department for Business, Energy & Industrial Strategy (BEIS) is giving further thought as to whether or not a centralised mechanism for collating published energy and carbon data will be required. Benefitting from SECR

Scope 2 indirect emissions › Electricity – purchased and used for operations (not sold on) › Transport – (business travel in rental cars, use of an employee’s own car for business use) › Reporting on scope 3 emissions is voluntary

Measuring and reporting energy usage and emissions can drive improvements in energy efficiency, which is vital to business productivity and can help companies to better understand the risks facing them. Reporting is equally important in helping to raise awareness among decision makers (such as directors of companies, members of LLPs, investors, employees and other stakeholders) regarding the energy and carbon impacts of their business.

Both kWh and CO2 must be included in the report. Where information has been converted to kWh from other units (ie litres of fuel), the conversation factors must be detailed in the methodology.

Energy and Clean Growth Minister, Clare Perry, stated that the new requirements are expected to result in a 20 percent boost for energy efficiency by 2030 and support overall economic growth.

Companies are also required to include at least one intensity metric, such as kWh/£ T/O or kWh/m2. The report should also include: › ›

Methodology used within the calculation, and if any information has been able to collected and therefore excluded, this needs to be disclosed. Narrative commentary on energy efficiency action taken over the course of the financial year. Companies won’t be required to specifically disclose ESOS recommendations and how they have been taken forward (although they are free to do so). The idea behind disclosing annual energy efficiency actions is to incentivise action outside of the four-yearly ESOS cycle.

As this information will be in the public domain, there is a reputational risk for organisations who could be perceived as not acting in relation to Climate Change Action and moving towards Net Zero carbon. There is an exemption on disclosing SECR information where it is not practical to do so, or information which the directors believe would be seriously prejudicial to the interests of the company.

How can SOCOTEC help? However, while the SECR is intended to make reporting easier for businesses, it is still likely to take a fair amount of time and resources to achieve compliance. Many large unquoted companies will have to report on energy and carbon for the first time. Data collection, emissions calculations and reporting implications will naturally vary from business to business, and navigating this complex reporting landscape and translating energy saving opportunities into measurable action could prove challenging. SOCOTEC can help you get a head start on SECR by working with you to collate your property energy and transport data, meaning your business will be able to streamline its reporting process and get a head start on annual comparisons. By the first real reporting period, you will be able to make a year-onyear comparative analysis, which in turn will help TO support investor engagement. For more information on how SOCOTEC can support you with SECR, contact us here.

SOCOTEC HOUSE - BRETBY BUSINESS PARK - ASHBY ROAD - BURTON UPON TRENT - DE15 0YZ TEL: 0845 603 2112 - [email protected]