Streamlined Energy and Carbon Reporting: a step-change in environmental transparency requirements for large businesses

Sustainability reporting measures brought in at the start of the financial year will require large UK businesses to disclose for the first time details on their annual energy use and carbon footprint.

The Streamlined Energy and Carbon Reporting (SECR) regime came into force in the UK on 1 April 2019. The scheme introduces new mandatory reporting requirements in respect of a qualifying entity's greenhouse gas (GHG) emissions, energy consumption and efficiency, and applies for financial years beginning on or after 1 April 2019.

With the first full financial year since the introduction of SECR drawing in at the end of March, larger UK businesses that fall within the scope of the new regime will be pulling together the data and figures on their energy usage and associated emissions now required as part of their annual reporting obligations.

Which companies does the SECR apply to?

The SECR regime applies to three different types of UK-incorporated entities:

Quoted companies

These are companies that have equity shares listed on the main market of the London Stock Exchange; a European Economic Area; or which are admitted to dealing on either the New York Stock Exchange or NASDAQ.

Large unquoted companies

Whether a company (or a group of companies) is considered to be "large" for the purposes of the SECR is determined using the existing criteria for the preparation of company accounts, that is, in the relevant year, has the company (or its group) met at least two of the following requirements:

• a turnover of £36 million or more;
• a balance sheet total of £18 million or more; and
• 250 or more employees.

Large limited liability partnerships (LLPs)

The requirements that must be met for an LLP to be considered "large" are the same as for large unquoted companies (set out above).

If the SECR applies, what do companies or LLPs need to do?

The SECR obliges qualifying entities to report on two key factors:

• Energy use: the energy use relating to activities for which the company is responsible, and the purchase of electricity by the company for its own use.
• GHG emissions: the annual quantity of emissions in tonnes of carbon dioxide equivalent (CO2e) resulting from its energy use.

The primary difference between the reporting obligations of quoted companies as compared to large unquoted companies or LLPs is the geographical scope of the reporting obligations concerning energy use:

• Quoted companies are required to report on their global energy use. They are also required to include in their reporting the proportion of their energy use which takes place within the UK.
• Large unquoted companies or LLPs must report on their UK energy use.

In addition to reporting on energy use and associated emissions, all types of qualifying entity must also include in their report:

• at least one intensity ratio (a comparison of the company's annual emissions with an appropriate metric or financial indicator, for example square metres of floor space or sales revenue);
• GHG emissions and energy use from the previous year (globally for quoted companies, UK based for large unquoted companies and LLPs);
• the methodologies used to calculate the disclosures listed above; and
• information about energy efficiency action taken by the entity in the preceding financial year.

Though reporting on other types of energy use not specified above is not mandatory under the SECR, this may be reported on voluntarily (for example if such use forms a substantial part of the entity's energy use or emissions).

For quoted companies, the majority of the reporting requirements listed above were already in place before the introduction of the new SECR regime. Although there are new, additional reporting requirements placed on quoted companies, it is large unquoted companies and LLPs that are most affected by these new requirements.

How should the SECR requirements be reported?

For quoted companies and large unquoted companies, SECR reporting should form part of the annual director's report. For large LLPs, this information will need to be included in a new energy and carbon report.

What about subsidiaries?

If a qualifying entity has subsidiaries that are themselves quoted companies or large unquoted companies or LLPs, a parent group report should be prepared which includes the required information for any such subsidiaries.

Similarly, a subsidiary entity may not be obliged to report on its own energy and carbon information if this will be reported on at parent level. This approach differs from those taken under the Energy Savings Opportunity Scheme and CRC Energy Efficiency Scheme (formerly known as the Carbon Reduction Commitment).

Are there any exemptions?

The SECR contains a limited number of exemptions from reporting obligations on a "comply or explain" basis (that is, if the information required by the SECR is not provided in a report, an explanation must be given as to why). The exemptions are as follows:

Low energy users

Where a qualifying entity consumes 40 megawatt hours (MWh) of energy (or less) per year (globally for quoted companies, or in the UK for large unquoted companies and LLPs) during the period in respect of which the annual report is prepared, it is not required to report against the SECR requirements.
Importantly, where a group report is being prepared, this 40MWh threshold applies to the energy consumption of the qualifying entity's corporate group (see the the subsidiaries section above).

Seriously prejudicial

In exceptional circumstances, required information may be withheld where the directors/members consider its disclosure to be seriously prejudicial to the interests of the qualifying entity. Examples include exceptional commercial sensitivity considerations and sensitivities arising from restructuring.

Not practical to obtain

Information that is not practical to obtain does not need to be included within a report, though an explanation as to what information is omitted and why must be included.

Osborne Clarke comment

SECR may lead to lower energy and resource costs for obligated UK companies. It may also help to expose corporate risks as a result of climate change, as well as providing data which corporate investors, shareholders and other stakeholders are increasingly asking for in relation to a company's environmental performance.

However, the SECR requirements place greater reporting obligations on large quoted and unquoted companies and LLPs, and any subsidiary undertakings. Although the changes for large quoted companies are not overly onerous, those introduced for large unquoted companies and LLPs are more significant. Companies that fall within the scope of the SECR regime should ensure they are collecting the required data in respect of the first reporting year as this will need to be set out in their annual report.