The best kept SECRet?

On 1 April, the Streamlined Energy and Carbon Reporting (SECR) regulations came into effect and apply to all companies within scope from their first financial year beginning on or after that date. But are you ready for them? James Whittingham, Senior Sustainability Consultant at Luminous, highlights what, if any, changes you need to make in your monitoring and reporting programme.

Overview

Reporting does not stand still – and that includes reporting of carbon matters. 2019 will be the year that organisations need to strengthen activity to tackle their carbon emissions in terms of target setting as well as action and subsequent reporting. Moreover, organisations will need to collectively put pressure on government to provide a clear vision about their planned efforts to tackle climate change head-on. Certainty is key for business as it provides a clear pathway to help frame investment decisions, among other things. There are potentially multiple rewards for those organisations that can present a good story about reducing carbon emissions which will benefit today’s investors and future generations. 

Why and what’s new?

There was a stark wake-up call presented to business and society in the Intergovernmental Panel on Climate Change (IPCC) report published in the last quarter of 2018 about the need to not exceed a 1.5ºC rise in temperature above pre-industrial levels, rather than the previous 2ºC figure. There is consensus that there is only around 10 years available in which to slow down emissions in an effort to stabilise the climate.

In recent years, the UK government has been reasonably successful at taking the issue of energy usage, and therefore carbon emission reduction, reporting and disclosure, in what at times has largely been an issue on the margins of concern for many stakeholders, and dragging it into the boardroom, most notably via The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013.

The SECR requirements will help the UK government to meet its goal ‘to enable businesses and industry to improve energy efficiency by at least 20 per cent by 2030’. Impacted organisations will need to disclose greater breadth and depth regarding their energy usage and carbon disclosure. 

These latest changes will give all organisations which are reporting their energy and greenhouse gas (GHG) emissions (whether on a mandatory or voluntary basis) greater credibility and provide an opportunity to build trust in the data, methods and action they are taking to reassure external stakeholders they are playing their part. Organisations impacted by these changes have the additional task of navigating a comprehensive set of guidance notes which runs to more than 150 pages.

Who will the SECR regulations impact?

All large UK-registered quoted companies – these PLCs will continue to report their global greenhouse gas emissions and an intensity metric in their annual reports. The SECR regulations will also require these PLCs to report their total energy usage and to outline what action has been taken in the last reporting period to tackle energy efficiency. 

More UK organisations, including large organisations and Limited Liability Partnerships (LLPs), not listed on the London Stock Exchange, need to comply, increasing the scope from c. 1,000 to c. 12,000 companies – which is significant.

LLPs and ‘large’ companies – as defined by the Companies Act 2006 definition of ‘large’ – which fulfil at least two of the following criteria in the financial year:

• At least 250 employees

• Annual turnover greater than £36 million

• An annual balance sheet total greater than £18 million.

What steps should a qualifying organisation take?

The new SECR provisions require organisations to revisit their arrangements regarding energy data collection.Qualifying organisations should ensure they have good management systems in place to track and report energy usage.

Furthermore, a qualifying organisation must calculate carbon emissions and present appropriate KPIs – accounting for and disclosing scope 1 and scope 2 (direct use of energy/electricity) carbon emissions is the minimum.

Organisations should record, summarise and communicate their energy efficiency actions.

How could these additional requirements improve the resource-efficiency story for an organisation?

The additional provisions contained within the SECR regulations create an opportunity for proactive companies. Qualifying organisations can take the initiative and demonstrate how addressing energy and carbon reduction is a win-win. For example, if there is a project that has yielded a financial, resource-saving and carbon reduction benefit, they should calculate and present all three gains in a compelling way – with visually interesting graphics – rather than just one (the financial saving often being the default benefit presented). And if there is a carbon or energy-saving project that’s replicable within the business and will lead to additional savings, with modest additional effort and investment, report preparers should state that opportunity, too. Investors want to see how investment in sustainability is creating business benefits.