Green » SECR – What you need to know and how to prepare for 2019

Streamlined Energy and Carbon Reporting (SECR) is the new instrument for organisations to collect, measure and report on their carbon emissions which will replace the current CRC scheme and expand to include all large companies. It will encompass c12,000 companies who will be required to comply with SECR from 1st April 2019.

The Department of Business, Energy and Industrial Strategy (BEIS) recognised that the range of energy efficiency policies can create complexity and add administrative burdens to those that qualify and in response, the UK government announced reforms to improve the tax and reporting regime in 2016 which are now being rolled out. The information required must be included in Directors’ Report and if not complete could result in penalties from Companies House.

What is involved?

The main objective is to increase the incentive for organisations to save energy through improving energy efficiency in order to reduce energy bills and carbon emissions.

This is expected to drive behaviour changes by raising awareness of energy efficiency with board-level company directors and boost the importance of energy efficiency in relation to the effect on an organisation’s reputation.  As a result of publication of this information within company accounts, it will increase transparency for investors and others so that companies can be held accountable for their actions.

Meanwhile the tax element of the CRC is being transferred over to the Climate Change Levy, which is a chargeable element on business electricity usage, with rates for electricity and gas being significantly hiked from 1st April 2019. Organisations budgeting for their 2019/20 energy spend will need to factor in this rise.

 

SECR Framework Objectives

·       Increase incentives to save energy by improving energy efficiency.

·       Drive behaviour changes by raising awareness of energy efficiency with key decision makers.

·       Boost the importance of energy efficiency in relation to organisational reputation.

·       Increase transparency for investors so that companies can be held to account.

·       Reduce the overall administrative burden on participants.

 

 

Which companies will be affected?

The qualifying criteria of the scheme is moving away from consumption thresholds to be more in line with schemes such as ESOS. It is anticipated as a result of this that the SECR scheme will encapsulate an additional 7,900 companies who will be required to report on their carbon emissions for the first time. Whilst public sector organisations will not be required to comply at this time, it is important to note that they are being encouraged to do so on a voluntary basis.

SECR qualifying criteria

·       All quoted companies.

·       All large UK incorporated unquoted companies and LLPs fulfilling at least two of the following conditions in the financial year:

–   at least 250 employees

–   an annual turnover of £36m+

–   an annual balance sheet of £18m+

·       Qualifying UK registered subsidiaries of parent companies not registered in the UK.

·       Public bodies which include limited company or LLP elements.

 

What do finance directors need to do to prepare?

The implications are varied but the main requirements are:

  1. Report all UK energy use including total underlying energy use such as transport.
  2. Reporting on energy efficiency action taken in the last 12 months. (It is important to note that if you don’t have these in place you will need to implement new structures and systems in order to do this).
  3. Companies will be required to include this data and information within their Directors’ report.
  4. Be prepared for increased Climate Change Levy (CCL) charges:
    • Revenue generated from the sale of allowances in the CRC scheme (set to be abolished in March 2019) will continue via an increase in the CCL rate, a non-commodity charge found in utility bills.

Scheme enforcement

As the information reported through this scheme is included in Directors Reports, it is anticipated that the Conduct Committee of the Financial Reporting Council will be responsible for monitoring compliance.

Should company reports not meet the requirements, Companies House may reject the report submission, with a late filing penalty regime applying for non-compliance.  The Conduct Committee also has authority to apply to the courts for an order requiring directors to prepare revised reports where the reporting requirements have not been met.

We anticipate a transitional period which will require organisations who qualify to review and make changes to how they collect data, report and demonstrate energy efficiency changes. In our experience even companies large enough to have their own energy teams are seeking our support as there is a lot of ground to cover if you are starting from scratch to ensure they comply.

What next…

Final guidance on the practical implementation for SECR is expected to be published by the end of January 2019, which will reflect requirements from April 2019. A draft guidance document has been released for sector review, with BEIS accepting comments and clarification queries accepted until mid January 2019.