Risk & Economy » Climate change » SECR Reporting – Are you recording and reporting?

In 2018 The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, Statutory Instrument 1155, was passed which made changes to the level of reporting required within the Directors Report with effect for financial years commencing on or after 1 April 2019. We are therefore in the first reporting period.

This legislation implemented the consultation work carried out by The Department for Business Energy and Industrial Strategy, BEIS, which resulted in the Streamlined Energy and Carbon Reporting policy, commonly referred to as SECR. This was required after the end of the Carbon Reduction Commitment scheme and widened the scope to include many more organisations and types of organisation as well as specifying performance reporting in the Directors Report. The SECR reporting has not replaced other required reporting regimes such as ESOS, GRG and sector Climate Change Agreements.

The increase in scope over the CRC Energy Efficiency Scheme, has brought in many companies who are currently reporting under ESOS, widening the catchment to broadly 11,900 organisations. As the title implies LLP’s are within the scope. All quoted companies need to comply but other limited companies or LLP’s will also be obliged to do so if they hit two of the following criteria:-

  • Turnover exceeding £36m
  • Balance Sheet Value over £18m
  • Employees over 250

There is a de-minimis hurdle but this is set at a very low figure of 40 MWh that it is difficult to see it coming into play.

Emission reduction steps required in director report

The situation with group reporting is interesting and different to CRC reporting in that subsidiaries may be excluded if they do not meet the criteria in their own right. It would be worth checking the detail on this before reporting though as the rules are complex. It is thought there may be a tendency to overreport for marketing purposes.

What is needed to be reported depends on whether the organisation is a quoted company or not. All companies in scope will be required to report usage of Gas, Electricity and direct Transport, plus the greenhouse gas implied within the usage and at least one measure of intensity relevant to the industry.

These measures could be similar to those used in activity-based costing, such as floor area for retail, or output for manufacturing, and in many cases more than one could be used as long as they are consistent over time. In addition quoted companies are required to include global emissions in tonnes of Carbon including other gases as required by the Kyoto protocol, and if possible Scope 3 emissions from the supply chain. A narrative on steps to reduce emissions is also required in the Directors report. The requirement for the reported figures to be externally verified is not mandatory, but it is expected consistency will be applied.

Although there is no direct penalty for not complying with SECR specified it could result in Companies House rejecting the Directors Report and a subsequent late filing penalty. We will not know how this is enforced until accounts are filed in late 2020. BEIS have not (so far) put in other non-compliance penalties such as exist with the ESOS scheme.

During the initial year of reporting a prior year comparison is not required, but will be from then on.

Energy KPIs

The inclusion of many more organisations within scope has brought tracking of energy use, and KPI’s on energy into the routine accounting arena rather than periodic exercises on annual or periodic compliance reporting. This could result in duplication within an organisation as Sustainability Managers are also capturing much of the data required to comply within their systems. In larger organisations some of this data can reside within an Enterprise Resource Management system, but LLP’s and mid-sized organisations may have not invested in that level of shared data and may have a major data collection and aggregation task in linking consumption to intensity drivers.

One solution to this is to look at what systems are being applied in the energy sector that have been built around reporting and recording energy usage. By utilising this type of system, where energy usage is directly feeding off meter readings, KPIs aligned to SECR reporting can be brought in as part of the monthly report. With some systems it is also possible to combine this data collection and consolidation with billing validation allowing consistent data between usage recording and the accounts.

About the author: Martyn Young ACMA is a director of ZTP, an energy software and management consultancy.

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