Government publishes new plan for Streamlined Energy and Carbon Reporting (SECR) regulations

On 18th July the UK Government, after a 3-month consultation process, proposed the new Streamlined Energy and Carbon Reporting (SECR) regulations. This proposal outlines the new mandatory reporting framework to replace the existing Carbon Reduction Commitment (CRC) Energy Efficiency Scheme ending in October 2019.

The new SECR regulations are designed to reduce complexity in the energy and carbon 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.

SECR will apply to approximately 11,900 companies and 230 LLPs. The Government is currently reviewing whether public sector bodies will be included in SECR with a decision due before the draft legislation is provided. The new regulations are due to come into force from April 2019 and full details are to be provided once the draft legislation has been produced in the coming months.

The key requirements for inclusion are:

• All companies listed on the stock exchange and large UK incorporated unquoted firms with at least 250 employees or an annual turnover greater than £36m, and an annual balance sheet total greater that £18m, 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 regardless of listing.

There is an exemption to the SECR for unquoted companies if it is difficult to obtain some or all of the SECR information, or if the company directors believe disclosing the information would be “seriously prejudicial”. It is anticipated that the failure to disclose due to “seriously prejudicial” reasons would only be used in exceptional circumstances and may be questioned.

What do you have to do?

Companies falling within the scope of the SECR will be required to:

• Calculate and report UK energy usage, including electricity, gas and transport.
• Report Scope 1 and Scope 2 Greenhouse Gas Emissions, including an intensity metric.
• Scope 3 will be voluntary.
• Where practical, listed companies are required to report on global energy usage and greenhouse gas emissions.

Benefits of SECR and reporting

From feedback received by 155 business the Government recognised that the current complexity of reporting policies was a key driver for making reforms to its current tax and reporting regime. Consequently, SECR shows a clear policy intention to replace the reporting aspects of the CRC with a new mandatory reporting regime that broadly follows the existing regimes under the Energy Savings Opportunity Scheme (ESOS). SECR has also been designed to align with Climate Change Levy (CCL) and Mandatory Greenhouse Gas Reporting (GHG).

As a result, the below reporting requirements have been drafted;

• To reduce the burden of additional reporting the SECR requirements are expected to be published in companies’ Annual Reports.
• SECR information must include a section on energy efficiency action taken in the financial year. There will be no compulsory disclosure of ESOS recommendations and how they have been acted upon, although reporters can of course comment on this if they wish to do so.
• The general consensus is that the reporting obligation will normally fall upon the highest UK company in a corporate group (as that is usually the entity that submits group accounts) and that non-UK companies will be exempt from reporting.

Because scopes 1 and 2 GHG methodology will need to be provided it is important to ensure that:

• the SECR also contains a suitable, widely recognised independent standard is used, such as the GHG Protocol Corporate Standard;
• the accounting approach covers emissions from all activities for which they are responsible globally;
• all relevant greenhouse gases are included.

As with CRC, SECR will be implemented through directors’ reports within annual company accounts rather than requiring additional filings with Companies House (or other regulators).

The Government argues mandatory reporting like this will drive behaviour change in UK businesses, by raising awareness internally of energy efficiency. Boosting transparency for investors will also increase their ability to hold firms to account.

Business Impacts

The most significant impact SECR has on the energy industry is the inclusion of over 10,000 business who were not previously required to comply with energy and carbon reporting. This is 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 compares to the 1,200 currently reporting under Mandatory GHG Regulations and the 2,000 participants in the CRC (which also includes the public sector).

A secondary impact of the abolition of CRC and implementation of SECR is the change in taxation on energy contracts from April 2019. Because CRC taxation will no longer be charged the UK Government has already published increases in CCL costs with rates rising from 0.583p/kwh to 0.847p/kwh from April 2019. This is to ensure the Treasury is fiscally neutral after the elimination of CRC.

How Beond can help?

Expect to see the first draft legislation in the coming months with a view to have mandatory SECR reporting for 2019 accounts.

As data collection, emissions calculations and reporting implications will vary from business to business it is important to plan accordingly. To check whether your business may be required to produce SECR energy and carbon reports, or to understand how to meet the data collection requirement please contact Beond on 0208 634 7533 or email us at info@beondgroup.com