An explanation of UK ESG regulation and legislation for SMEs

28th March 2024

In this second article in our series of ESG insights, our Responsible Business Lead, Fleur Lewis, focuses on the alphabet soup of ESG legislation acronyms.

An online search for ESG (Environmental Social Governance) legislation and regulation highlights a complex alphabet soup of national and international acronyms.

However confusing the landscape, different governments, bodies, boards, and regulators all have one thing in common in that they are driving towards agreeing common metrics that bridge the gap between finance and sustainability.

Whilst initially targeted at listed companies and larger organisations, regulation and legislation are starting to have a direct impact on the SME supply chain. Information requests on ESG and sustainability practices are now the normal convention for both private and public sector contracts, and consumers and employees are increasingly demanding transparency in this area.

In this insight, we highlight some of the key UK environmental regulations and legislation that SMEs need to be aware of.

Energy Savings Opportunity Scheme (ESOS)

Who needs to comply?

What needs to be reported?

A large UK entity that meets either one or both of the following conditions as at the qualification date of 31st December 2022:

Employs 250 or more people either in the UK or abroad, irrespective of the number of hours for which they are employed.

Has an annual turnover more than £44 million and an annual balance sheet total more than £38 million.

Total energy consumption in kWh relating to buildings, transport, industrial processes, and other energy uses.

An ESOS report must be submitted every 4 years within the reporting deadline (Phase 3 currently 5th June 2024) to avoid a fine. An annual progress report is also now a reporting requirement.

Further details: Comply with the Energy Savings Opportunity Scheme

Streamlined Energy & Carbon Reporting (SECR)

Who needs to comply?	What needs to be reported?
All UK listed companies, and companies that meet at least two of the following criteria: over 250 employees, £36 million in turnover or £18 million balance sheet.	Information on UK energy use in kWh – electricity, gas, and transport fuels. The information must form part of the Directors’ Report in the annual accounts.

Further details: Environmental reporting guidelines: including Streamlined Energy and Carbon Reporting requirements

Task Force on Climate-related Financial Disclosures (TCFD)

Who needs to comply?

What needs to be reported?

All UK listed UK companies, and large companies with over 500 employees and £500 million in turnover must comply with TCFD recommendations for financial years ending after 5th April 2023.

TCFD disclosure focuses on financial materiality, information relating to how climate-related risks and opportunities are likely to impact an organisation’s current and future financial position as reflected in its income statement, cash flow statement and balance sheet.

This is separate and distinct from impact materiality, which addresses the impact of an organisation’s activities on the wider environmental, social, and economic system from a climate perspective.

Further details: Task Force on Climate-related Financial Disclosure (TCFD) - aligned disclosure application guidance

Procurement Policy Note (PPN) 06/21

Who needs to comply?

What needs to be reported?

Any business that is bidding for public procurement contracts valued at £5 million or above.

Also from April 2024, any business that is bidding for NHS procurement contracts valued at £10,000 or above.

Organisations need to demonstrate that they are taking action to achieve Net Zero by 2050 in line with the UK Government’s target and have a Carbon Reduction Plan in place.

Further details: Procurement Policy Note 06/21: Taking account of Carbon Reduction Plans in the procurement of major government contracts

NHS England: Carbon reduction plan and net zero commitment requirements for the procurement of NHS goods, services and works

Minimum Energy Efficiency Standards (MEES)

Who needs to comply?	What needs to be reported?
Any business that is renting property either as a landlord or tenant.	From 1 April 2023, any rented commercial property must have an EPC certificate of E or above. It is proposed that this will be upgraded in 2027 to a requirement for a C rating or higher for any new lettings, and a B in 2030.

Further details: Non-domestic private rented property: minimum energy efficiency standard - landlord guidance

Whilst new and emerging ESG legislation will impact directly on the larger corporate entities, those SMEs and smaller organisations in their supply chain will be indirectly affected. This is already creating requests to SMEs for information on their environmental impact, their social policies, and their governance processes.

If you are interested in understanding more about sustainability and ESG, contact Fleur Lewis, partner and ESG lead, or visit our Responsible Business Hub to discover our latest Bishop Fleming Impact Report.

In our next insight in this series, we look at some of the key international ESG regulations and legislation and their impact on UK SMEs.

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