The UK has committed to being carbon net neutral by 2050. In order to achieve this, the Government has established a framework for carbon reporting called Streamlined Energy and Carbon Reporting (SECR). This requires certain companies and LLPs to disclose their energy use and carbon emissions on an annual basis, as well as all measures taken to reduce usage and the savings made.
Reporting will be made in the directors’ report for a company and a new Energy and Carbon Report for LLPs. Reporting on environmental sustainability can improve the incentive to save energy through efficiency, reduce costs, reduce emissions and ultimately enhance a businesses’ brand.
When does this legal requirement apply from?
Periods commencing on or after 1 April 2019, but comparative data is not required for the first period in which the reporting applies.
Where does the requirement derive from?
SECR has been implemented through The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 which insert the relevant reporting requirements in Schedule 7 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and adds the new provisions into the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 (the “LLP Regulations”).
Who does it apply to?
Unquoted companies and LLPs that are large – meeting two out of three of the following criteria for two consecutive years:
- Turnover greater than £36m
- balance sheet total greater than £18m
- more than 250 employees
Charities, academies and other not-for-profit organisations constituted as companies that file financial statements at Companies House are within scope.
The legislation also amends the existing requirements for quoted companies that are already reporting on Greenhouse Gas (GHG) emissions, however the specific requirements for quoted companies are not considered here.
Where does information need to be reported?
For companies, in the directors’ report and for LLPs in a new “Energy and Carbon Report” included with the financial statements.
What is the territorial scope of this requirement?
For unquoted companies and LLPs, it applies to the energy consumption and carbon emissions that arise in the UK (and UK offshore area).
How do the requirements apply to groups?
For groups, the parent company or LLP that heads the group (as applicable) must make the required statements on the basis of the group as a whole (including all UK subsidiaries that individually meet the size criteria but excluding those UK subsidiaries that do not meet the size criteria and excluding any overseas subsidiaries). This applies even if the parent would not meet the requirements to report on a standalone basis (i.e. the parent was itself not large).
Any subsidiary in that group meeting the requirements to make the disclosure in its own right will be exempt from disclosure provided that its parent has made the made the disclosure and the subsidiary has disclosed that fact.
For UK businesses meeting the above criteria, company or group reporting is required regardless of whether an overseas parent company or group has published a similar report.
When is the report required to be issued?
As the report forms part of the directors’ report for companies and an individual Energy and Carbon report for LLPs, the report will be issued within the financial statements and therefore subject to the normal filing deadlines.
Are there any exemptions from reporting?
After undertaking a calculation, where a company has consumed less than 40MWh of energy per annum in the UK, disclosure is not required. However, a statement will be required to be made in the directors’ report or Energy and Carbon Report (for LLPs) that the entity is a low energy user and clearly, the entity will need to undertake an exercise to determine that its energy consumption falls below the threshold.
A company need not report its information if in the opinion of the directors it would be “seriously prejudicial’ to the interests of the organisation (e.g. such as specific sensitivities arising from restructuring or acquisitions by an organisation in the run-up to producing the relevant report). The relevant report must state that the energy and carbon information is not disclosed for that reason. However, use of this exemption is expected to be rare and may be questioned by the Financial Reporting Council.
What needs to be reported for unquoted companies?
UK (and UK offshore) energy use and related Scope 1 & 2 Greenhouse Gas emissions.
| Scope 1 – Direct greenhouse gas emissions |
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| Scope 2 – Indirect greenhouse gas emissions |
Conversion factors exist to calculate these figures.
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| Intensity metric for year on year | E.g. Tonnes of CO2e per FTE, tonnes of Co2 per £ of turnover |
| Narrative explanations | · Methodologies used within the calculation (recommended to use a widely recognised standard)
· Energy efficiency actions taken in the year (if any) |
What are the implications for auditors?
As part of our overall responsibilities in an audit of financial statements, we are required to state in the auditor’s report whether, based on the work undertaken in the course of the audit, the information in the Directors’ Report:
- Is consistent with the financial statements
- Has been prepared in accordance with applicable legal requirements, and
- Contains any material misstatements.
If this information is materially inconsistent with the financial statements or the auditor’s knowledge obtained in the audit, or otherwise appears to be materially misstated, we consider the implications for our auditor’s report.