The UK’s Streamlined Energy and Carbon Reporting (SECR) regulation supports climate transparency in UK companies. It addresses the underlying need to assess the climate change risk and energy efficiency across the economy.
Climate change is not only a risk to the environment, but to the economy as a whole. One of the world’s largest reinsurance companies, Swiss Re, reports that with no policy change, the world could lose 18% of its GDP by 2050.
The UK has taken a proactive approach to support investors seeking to assess climate performance alongside financial performance. This has remained a challenge due to the lack of high quality data provided by companies.
The UK implemented its SECR in order to update its carbon accounting disclosure regulations and expand the number and type of companies subject to its review.
📖 What is SECR Reporting?
The UK’s Streamlined Energy and Carbon Reporting (SECR) regulation requires certain companies such as quoted companies, large unquoted companies, and limited liability partnerships (LLPs) to annually report their energy emissions and Scope 1 and 2 carbon emissions.
The UK implemented SECR on April 1, 2019. The regulations require large businesses and charitable organisations to report their energy and carbon emissions annually. The impacted entities must also report the efficiency measures they’ve implemented each year.
As this regulation came into force, the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme ended. SECR requires roughly 11,900 UK incorporated companies to disclose their emissions. Compared to the CRC, the SECR affects many more companies.
The SECR does not affect a number of other emissions reporting requirements, which remain active:
- The Energy Saving Opportunity Scheme (ESOS)
- Climate Change Agreements (CCA) Scheme
- EU Emissions Trading Scheme (ETS)
- Mandatory greenhouse gas (GHG) reporting for quoted companies
✅ Why is SECR Carbon Reporting beneficial?
The SECR is designed to offer a win-win solution through carbon accounting. It helps businesses lower their costs and reduce climate change impacts by supporting energy efficiency measures. In this sense, it brings both economic and environmental benefits.
The SECR also promotes stronger climate change and energy cost visibility within organisations. It exposes the costs of energy. It also gives other stakeholders information on companies’ contribution to climate change.
👉 The carbon emissions data that SECR requires from businesses is also valuable to investors. It will support better investment decision-making as the world transitions to a more sustainable economy with a lower carbon footprint.
🙋 Who is required to report on SECR?
The SECR impacts an estimated 11,900 companies incorporated in the UK. These businesses fall under three main categories. All companies that meet the following criteria are obligated to report their emissions and energy consumption unless they are exempt:
Quoted companies of any size: These companies are already subject to existing greenhouse gas reporting regulations, so the 2019 update doesn’t significantly affect them.
Large unquoted companies incorporated in the UK: The definition of “large” under the Companies Act 2006 means a company meets two of the following conditions:
- An annual turnover of over £36m
- More than £18m in total assets on the balance sheet
- More than 250 employees
Unquoted companies have expanded reporting obligations.
Large limited liability partnerships (LLPs): LLPs which meet the same definition of a “large” company under the Companies Act 2006 need to submit an annual Energy and Carbon Report.
Other entities: Charities, not-for-profit companies, and other organisations with public activities should check their obligations under the SECR.
While public bodies are not included in SECR, they are subject to other carbon emissions reporting requirements.
All other entities are encouraged but not required to report their annual carbon emissions according to SECR requirements.
Exemptions: SECR includes a few situations which would allow companies to remain exempt from its carbon reporting requirements.
If either quoted or large unquoted companies and LLPs use less than 40MWh over the annual reporting period, they are granted a statutory de minimis exemption.
To receive the exemption, they should confirm they are a low energy user in a report statement. For a group report, the parent group and its subsidiaries should meet the low energy user threshold in its energy use.
Details on group- and subsidiary-level reporting: In some cases, a group-level report is required. A group-level report should contain the energy use and carbon emissions data for the parent group and all subsidiaries.
If a subsidiary would not otherwise be required to report under SECR independently from the group, it may omit its energy and carbon details in the group report.
Reporting companies should note that this specific guideline is treated differently than in the ESOS and the CRC Energy Efficiency Scheme.
When subsidiary companies subject to SECR have already reported their energy and carbon information in a parent’s group-level report, they don’t need to file a separate report.
📝 What are the elements of the disclosure?
SECR reporting requirements vary depending on the type and size of business or organisation. Below we’ve outlined how quoted companies, large unquoted companies, and LLPs should report their carbon emissions and energy use.
Quoted companies 📕
Quoted companies are already required to report their Scope 1 and 2 worldwide GHG emissions. The emissions should be reported in tonnes of carbon dioxide equivalent (CO2e) covering the seven gases listed in the Kyoto Protocol.
For now, reporting Scope 3 emissions is voluntary. Companies are strongly recommended to report Scope 3 emissions if they are material to business operations.
These are carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocar- bons (PFCs), and sulphur hexafluoride (SF6), and nitrogen triflouride (NF3).
They should also report their selected emissions intensity ratio for the current and previous years. This should be stated in their Directors reports.
Emissions intensity ratios define GHG emissions in relation to the scale of business operations. Intensity metrics help regulators compare companies’ energy efficiency with counterparts of a similar size. Examples of intensity metrics include tonnes of CO2e per sales revenue or per square metres of total floor space.
Beyond emissions, quoted companies should report their annual global energy use. Companies should specify both their UK energy use and their offshore energy use in other countries.
If the first year of SECR reporting has passed, quoted companies also need to report an energy use comparison between the current and previous reporting years.
SECR requires quoted companies to describe whether or not they took energy efficiency measures over the course of the year. They should disclose a narrative description of their energy efficiency activities and how much energy savings they achieved.
Companies need to define the methodology they use. While there is no recommended methodology, SECR recommends any methodology that is widely used, comprehensive, and transparent.
Quoted companies should report these details in their Director’s Reports from April 1, 2019 forward. If energy use is important to the strategy of the company, it may include the information in the Strategy Report with an accompanying statement to explain.
Here’s a quick checklist for quoted companies to report in their current and previous year (after the first year):
- Annual Scope 1 and 2 GHG emissions
- Underlying global energy use
- One or more emissions intensity ratios
- Narrative report of energy efficiency measures
- Methodology details
Large unquoted companies and Large LLPs 📗
The SECR requires large unquoted companies and large LLPs UK energy use including the UK offshore area in three categories: electricity, gas, and fuel for transport. They should also report the GHG emissions from these activities with at least one emissions intensity ratio.
When reporting transport energy use, businesses should report their direct fuel purchases for company vehicles, but there is no need to report fuel used from a third-party operator. This excludes fuel used in flights, trains, public transport, taxi trips, freight or shipping for services contracted to a third-party.
Like quoted companies, large unquoted companies and large LLPs also need to provide a narrative description of their energy efficiency activities and their methodology details.
Also similar to quoted companies, large unquoted companies should report their energy use and carbon emissions data in their Directors’ Reports, or Strategy Reports with an explanation. LLPs may report in their Energy and Carbon Report.
Here’s a quick checklist for large unquoted companies and large LLCs to report in their current and previous year (after the first year):
- UK energy use for electricity, gas, and directly consumed transport fuel (includes UK offshore area)
- Greenhouse gas emissions from energy use
- One or more emissions intensity ratios
- Narrative report of energy efficiency measures
- Methodology details
Further recommendations 👍
The SECR requirements are considered a minimum to achieve successful GHG reporting to minimize climate change impacts. It recommends the following additional disclosures.
Companies are encouraged to disclose all material sources of energy use or GHG emissions beyond the required guidelines, including Scope 3 emissions.
Companies are also encouraged to report in line with science-based targets (limiting warming to 1.5 degrees Celsius by 2100), and use forward-looking scenario analysis as recommended by the Task Force on Climate-related Financial Disclosures (TCFD).
TCFD’s scenario analysis provides the short- (1-5 years ahead), mid- (10-20 years ahead), and long-term (30-50 years ahead) outlook for business activities related to climate change. It presents a climate emissions reduction strategy according to different warming scenarios under these timelines.
The climate risks assessed under TCFD include the financial risk from direct climate impacts like drought, storms, extreme temperatures, and sea level rise, and from indirect climate impacts like policy changes, market changes, technology shifts, litigation risk, and reputational damage risks.
SECR also recommends companies externally verify their reports as a best practice. External verification helps businesses ensure their provided data is accurate, complete, and consistent. With high quality data, stakeholders within and outside of the organisation can better assess companies’ performance.
Comply or explain 💬
In some cases, companies may explain why they couldn’t supply their energy and carbon emissions information within their annual SECR reports. Examples include situations when obtaining the information is uncommonly difficult or reporting would be prejudicial to the organisation’s interests.
Companies opting to explain should provide a statement about their omission. They are expected to take the necessary steps to comply in the future.
🔍 What are the emissions’ scopes and the information needed in SECR reporting?
The SECR requires Scope 1 and Scope 2 reporting, with a strong recommendation for Scope 3 reporting.
- Scope 1 covers the direct GHG emissions from a company’s operations.
- Scope 2 refers to the GHG emissions from the purchased energy and electricity from a utility used in operations.
- Scope 3 encompasses the broader value chain emissions for both upstream and downstream activities.
Scope 3 emissions are an important part of most companies’ carbon footprint, making up about 80% of the total carbon emissions. While there is currently no requirement to report these, this may change in the future.
Scope 3 emissions data is more challenging for companies to collect. It includes the supply chain emissions created when manufacturing and shipping products, as well as the emissions caused by the end-users when consuming the products, goods, or services.
Working with a specialised carbon emissions practitioner like Greenly can improve the quality of your reporting across all 3 Scopes.
🍀 What about Greenly?
Greenly works with companies to measure, report, and reduce their carbon emissions. Greenly works with a wide variety of company types for their carbon management.
In addition to support for complying with regulations like the SECR, Greenly supports businesses by prioritising the best steps to take to reduce carbon emissions. To make an even stronger impact, companies can offset their emissions with Greenly’s recommended products.
Greenly applies a widely-recognized ADEME methodology for its carbon footprinting service to provide GHG inventories for companies. Book a demo today.
🚀 if you enjoyed reading this article, here are a few more :
- What are the United Nations' Sustainable Development Goals?
- What is ESG reporting, and should you be doing it?
- What is sustainability reporting and why is it important?
- How to conduct a useful Life Cycle Assessment
- Everything you need to know about the three pillars of sustainable development