Streamlined Energy and Carbon Reporting: what you need to know

Christian Crawford examines the concept of Streamlined Energy and Carbon Reporting (SECR) as a key aspect of the government’s drive towards Net Zero.

He takes a look at:

• Who needs to report
• What needs to be reported
• Scopes
• First steps for companies affected
• Opportunities for companies

Whilst SECR only affects entities and groups of a certain size, many businesses are now choosing to voluntarily disclose their carbon data alongside other areas on which they are focusing from a sustainability point of view. 

Sustainability disclosure is becoming a more detailed process for larger companies, but is likely to filter down to smaller companies over time. 

SECR reporting is a useful tool for businesses to demonstrate their awareness of their carbon impact and how they are addressing it. 

Who needs to report?

• Quoted companies
• Large unquoted companies and LLPs per Companies Act
• Includes charitable companies, FCA regulated and PLCs
• Turnover > £36m
• Gross Assets > 18m
• Employees > 250

Currently only quoted companies and large companies (including charities) and LLPs are required to report.

Large companies are those that meet two of the above threshold criteria for two consecutive periods.

Whilst companies do not have to report in their first year of exceeding the thresholds, they should be gathering comparative information for the report in the following year.

Alongside this, the business and group also need to have an energy usage of over 40MWH (around 9 houses worth of annual electricity usage, or 4 houses annual gas usage). If the business falls below this limit then it does not need to report, but must disclose it is a low energy user.

Group reporting

There are some differences when it comes to group reporting.

The top company is required to disclose the combined figures for both themselves and all qualifying subsidiaries, i.e. those that meet the size thresholds. This means they do not need to include the information for small and medium subsidiaries.

However, it is typically encouraged to include all businesses, unless the information is not available or forms an insignificant part of the Groups energy usage.

Qualifying subsidiaries are also not required to disclose their individual information in their own accounts if this is included in the group report, although they should disclose this fact. Large subsidiaries cannot take advantage of this exemption if their parent is overseas.

Disclosure requirements

So what exactly needs to be included in the disclosure?

Large companies and LLPs need to disclose:

• UK energy use, which as a minimum is gas and electricity usage as well as transport for the current year and the comparative year. If the business operates mainly offshore (i.e. at sea) then it should disclose usage relating to those activities as well. 
• Associated greenhouse gas emissions of that energy use
• At least one Intensity ratio. An intensity ratio divides the total emissions by a normalising factor in order to give comparable data between organisations and between periods. Examples in the guidance include total production, full time equivalent staff numbers, turnover and office floor space. Explanation of the choice of ratio(s) is recommended but not required.
• Energy efficiency action taken during the year. This needs to be as a narrative. The previous figures should be in a table. This can include things like renewable energy usage, but this is voluntary
• Methodology used in the calculations, i.e. conversation factors used. Allows comparability and for people to re-perform if needed.

Energy use disclosure is split into different categories or scopes.

Scope 1 cover emissions from activities under the company's own control, which is going to be gas use and also fuel costs for vehicles under its own control.

Scope 2 emissions is for purchased energy from another source and is where electricity use is categorised.

Scope 3 is for other indirect emissions, and can be a very broad area as can cover, for example, emissions embedded within the supply chain. For SECR, the minimum requirement is to disclose emissions from business travel in modes where there is no control, e.g. employee owned vehicles, train, flights etc. 

Data sources

So where should companies obtain their data?

Main sources should be from meter data, supplier invoices or annual statements.

Whilst this is very straightforward for gas and electricity, gathering all the data from petrol receipts, for example, could be very time consuming. It is therefore important to set up appropriate data collection points.

Where information is not available, usage can be estimated either by direct comparison to previous years data, a pro-rata extrapolation if invoices cover several months, or benchmarking exercises. This isn’t ideal, but should be used as the final port of call. 

Given the level of involvement, many business are outsourcing this process to consultants to calculate their figures.

From an audit perspective as regards the information and disclosure, there are no specific external assurance requirements on disclosure, but as with anything that is contained within the Strategic and Directors reports the auditor has to ensure the information disclosed is:

• consistent with the financial statements
• been prepared in accordance with applicable legal requirements?; and
• free from material mis-statements

If any issues are identified, this may lead to a qualified audit report.

The directors could be fined if the information is late or incorrect.

So what does the auditor need to do?

The following would be carried out by the auditor:

• Consistent with the financial statements – review the data to ensure it matches the auditor's understanding of the business. For example, if it is a travel business, there would be an expectation of high travel emissions.
• Legal requirements – have the minimum reporting requirements been met?
• Free from material misstatements – a sense check needs to be made of the numbers and calculations.

First steps for a company to take

So what are the first steps a company should take if it is looking like it may need to disclose, or is wanting to voluntarily disclose? 

SECR reporting offers great opportunities for companies. There are potential operating cost savings once energy usage is understood, either by dealing with wastage or by switching to renewables for example.

Reporting can also be a differentiator from competitors. This is why there is quite a big advantage to disclose the SECR reporting in the Strategic report, as this can include lots of other nuggets of information, actions and policies to paint a certain picture. 

A full review of operations and practices could also lead to R&D tax claims being available.

More regulation in future

Over time, regulation is going to become more prescriptive and will filter down to smaller businesses.

Since April 2022, business with more than 500 employees and over £500m turnover need to do make further disclosures about actions taken in working towards net zero.

The overall aim is to align IFRS sustainability disclosure with UK GAAP.

Further regulation in the pipeline is the green taxonomy. This defines which economic activities classify as environmentally sustainable. Certain companies will be required to disclose the proportion of activities that are ‘taxonomy-aligned’. This will include six environmental objectives, with the first two being climate change mitigation and climate change adaptation. 

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