Navigating the new world of Streamlined Energy & Carbon Reporting

On 18 July 2018, the government announced the outcome of the public consultation on SECR.  Organisations were seeking clarity on what to do and what to expect, as a result, we held a live webinar.

SECR is part of a package of changes announced by the government which aims to reduce the burden of the current suite of reporting requirements while further incentivising energy efficiency and reducing carbon emissions. If your organisation is a UK registered quoted or large unquoted company or LLP, SECR will apply to you.

If you would like to know when reporting will need to be done, who will qualify and how this should be done, we have a recording of the webinar and the accompanying slides available on this page here.

A large number of good questions came out of the discussion and we were not able to answer all of them during the webinar, so we have responded to them below. If you still have questions and would like to speak to us, do not hesitate to get in touch.

If a University isn’t required to partake in ESOS does this mean that they’re exempt from SECR?

  • All organisations (including universities) which meet the SECR qualification criteria will have to comply.
  • The SECR qualification criteria are not the same as ESOS qualification criteria. ESOS is unaffected by SECR. They are separate regulations and you may qualify for one and not the other. If you qualify for both, you must comply with both, but you may use information collected for ESOS to inform any energy efficiency action reported for SECR.

If reporting is through the Directors’ report in the Annual Report – how will BEIS monitor reporting? (We don’t report to Companies House).

  • SECR reporting will be through Annual Reports submitted to Companies House, but organisations which do not submit annual reports to Companies House can report voluntarily. Company reporting is regulated by Companies House and FRC.

 We are an HE organisation. Presumably be required to comply with SECR. Questions: 1) will the CCL rate be fixed year in year out or will it vary, 2) If we have no energy efficiency actions for a particular year would there be a penalty for inaction?

  • I) The annual CCL rates are not fixed and are published by HMT on their website. In April 2019 rate for electricity will be 0.00847 £/kWh and for gas 0.00339 £/kWh
  • 2) Company reporting is enforced by Companies House and FRC. However, there will be more about enforcement in the SECR guidance due to be published in January 2019. No penalty for inaction although there may be reputational impact.

Could you expand on what you mean by verified energy use for quoted companies?

  • Expert verification of energy data is not mandated in SECR, but it assures accuracy of published information. We will offer a SECR verification service. It will be similar to CRC internal audits in some respects but will reflect the SECR requirements.

Do you have to stick with the same intensity metric year on year?

  • There will be more on intensity metrics in the guidance to be published in January 2019, but the intention is that companies can choose the most appropriate metrics, as is the case with mandatory GHG reporting. companies will need to publish their previous year’s figure from the second year of exporting.

What are the UK energy use Scope 1 and Scope 2 emissions, where are they defined and can you explain further what you mean by reporting underlying energy use?

  • Scope 1 and 2 are defined in the GHG Protocol. In summary, Scope 1 emissions are greenhouse gas emissions released on an organisation’s site or from their vehicles. For example emissions generated by gas boilers and vehicles. Scope 2 is purchased electricity, heat and steam.
  • Large unquoted companies and LLPs are required to report UK energy use and associated Scope 1 and 2 emissions. As a minimum, energy use in scope will be gas, electricity and transport. Quoted companies already report global emissions and will now be required to report their global energy use. There will be more detail in the guidance.

Do we report location or market based emissions, or both?

  • There will be more detail in the guidance. Mandatory GHG reporting currently requires dual reporting.

Will complex Groups be able to nominate one legal entity to report on behalf of other group members, even if they are not related as parent-subsidiary or have different overseas parents, as is the case currently in the CRC.

  • SECR information will be in the relevant company’s directors’ report or the parent’s group report if it is included here. The details around reporting will be covered in the guidance and the draft regulations might be helpful in the meantime (see below for link).

Can you say when the reporting timeframe is? Firstly what does the first report needs to refer to (eg Jan 17 to Jan 18). So if my company fy runs 31 jan to 31 jan, is the report for the 19/20 year (out early 2020) is the first one due?

  • The first report will start for reporting years commencing on or after April 2019. So if your FY runs from 1 Feb, the first year will be 1 Feb 2020 to 31 Jan 2021.

Will there be any specific guidance relating to Private Equity (LLP) firms? e.g. will they be expected to report against each fund?

  • The draft regulations make provision specifically for companies and LLPs rather than funds. There will be more on this in the guidance and in the meantime, the draft regulations will be helpful.

Smaller companies not versed with the DEFRA conversion factors will struggle with interpreting the needs. Can the DEFRA data be made more user friendly for SMEs – perhaps with linked guidance for the SECR?

  • SECR will only apply to quoted companies and large unquoted companies and LLPs. So SMEs are not affected by SECR, unless reporting on a voluntary basis. To qualify as a large company, see the Companies Act definition.

In terms of the UK energy use, does the electricity element of electric vehicles go into the transport section or the overall electricity consumption?

  • In the draft regulations, consumption of fuel used for the purpose of transport includes purchase of electricity. There will be more detail about reporting on transport in the guidance

CRC was a revenue generator – where is this revenue going to captured instead?

  • The revenue is captured by increases in CCL from April 2019.

In CRC, suppliers have an obligation to provide annual supplier statements.  Will this requirement be retained for SECR?

  • No decision at present, it’s a supply licence condition.

The draft regulations, The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, are published here: https://www.legislation.gov.uk/ukdsi/2018/9780111171356/contents

Further reading: Have a look at our blogs on the topic of SECR

UK Government announcement means energy & carbon reporting for many more companies in 2019.

The new energy and carbon reporting framework: will your company be affected?

The new energy and carbon reporting framework: will your company be affected?

There are significant changes on the way to how businesses report their energy and carbon emissions.

On 18 July 2018, the government confirmed that the the CRC Energy Efficiency Scheme will close on 31 March 2019 and be replaced by a new reporting framework, Streamlined Energy and Carbon Reporting (SECR) from April 2019.

Around 4,000 companies (and 1,200 other public and private sector organisations) are currently obliged to report their annual carbon emissions under the CRC Energy Efficiency Scheme (the CRC scheme). However, the government estimates that around 11,900 businesses will be required to report annually on their energy and carbon performance under SECR, many for the first time.

The new reporting requirements demonstrate the growing trend for company reports to be the vehicle for public disclosure of information relating to environmental impact. Draft regulations¹ covering the new reporting requirements have been published alongside the regulations dealing with the closure of the CRC scheme. These documents give the details for the transition to the proposed SECR framework from April 2019.

Final decisions a business must take on complying with the new scheme will need to wait until the legislation is completed. However, whether you are an energy manager or company secretary, it is essential that you understand how your company may be affected by the new scheme.

Join our webinar “Navigating the complexities around SECR” on Tuesday 18th September at 15:00-15:45, to hear from our panel of experts, including Gary Shanahan, who heads the Business and Industrial Energy Efficiency, Tax & Reporting team at BEIS and find out how your organisation may be affected. Register here.

SECR – essentials you need to know now
When will the new energy and carbon reporting regulations come into effect?
If approved by Parliament in their current form, the regulations will be effective in financial years beginning on or after 1st April 2019.

Who is affected by the new regulations?
The regulations apply to UK companies (in contrast to ESOS, which applies to undertakings, a broader designation) and limited liability partnerships (LLPs).

Quoted companies
Currently, all quoted companies report on their global greenhouse gas emissions and intensity metric as part of their directors’ reports. They will now have to include their annual energy consumption and any energy efficiency actions made in the reporting year, in addition to their current reporting obligations.

Large unquoted companies
For the first time, large unquoted companies must provide information in their directors’ report on their UK carbon emissions and energy use.

What is a large unquoted company?
This follows the definition in the Companies Act 2006. In summary, a company meeting two of the following conditions in the financial year is a large company:
● Turnover: at least £36m
● Balance sheet total: at least £18m
● Number of employees: at least 250

Many different types of organisation are unquoted companies and will need to assess their qualification. For example, many universities are registered as companies and will be in scope if they reach the qualification threshold.

Corporate groups
UK subsidiaries that qualify for SECR will not be required to report where they are covered by a parent’s group report (although they may report individually on a voluntary basis). Group reports will be covered by the new regulations.

Overseas companies
Companies that are not registered in the UK are not obliged to file annual reports at Companies House, and therefore fall outside the scope of SECR.

Limited liability partnerships
In summary, members of large limited liability partnerships (LLPs) will have to prepare new annual energy and carbon reports after April 2019 (see the section on unquoted companies for qualification criteria). Parent LLPs preparing group accounts must prepare consolidated energy and carbon reports, relating to the undertakings included in the consolidation. In the case of parent LLPs, the qualification criteria are aggregated and are met by the group. Failure to comply with the requirement to prepare an energy and carbon report will be a criminal offence and subject to a fine.

What will be included in the energy and carbon reports?

Quoted companies
In addition to current reporting requirements in their directors’ reports, quoted companies will report their global annual energy consumption and a description of any actions taken to increase energy efficiency.

Unquoted companies
Unquoted companies must include in their annual directors’ reports their emissions in tonnes of carbon dioxide equivalent and their annual energy consumption from UK activities, including fuel consumed for transport.

The report must also include a description of any measures taken to increase energy efficiency during the financial year and an appropriate intensity ratio, which expresses the company’s emissions in relation to a quantifiable factor associated with the company’s activities.

LLPs
Large LLPs will be required to prepare an energy and carbon report for each financial year. The information to be provided is the same as by large unquoted companies.
The LLP’s energy and carbon report must include the names of the members of the LLP and the name of the designated member signing the energy and carbon report.

Exceptions
A company is exempted from the reporting requirements if it consumed 40,000 kWh or less of energy in the UK in the reporting period.A qualifying company or LLP is also exempted if the disclosure is considered by the directors to be seriously prejudicial to the interests of the company.
If obtaining the required energy and carbon information is not practical, the company must state what information is not included and why (a “comply or explain” provision).

Some final words about CRC closure
The CRC Energy Efficiency Scheme (Revocation and Savings) Order 2018 deals with the arrangements for CRC closure and will come into force on 1 October 2018. It revokes the CRC Energy Efficiency Scheme Orders 2010 and 2013, while allowing the scheme to operate until the end of the phase (31 March 2019), with the final allowance surrender date on the last working day of October 2019. The CRC Registry will continue to operate for this purpose and participants will have access to their CRC accounts until 31 March 2022. After this date the Registry will be closed.
To the relief of participants who purchased too many allowances in advance and have a surplus in their compliance accounts, repayment of surplus allowances may be applied for during the period 1 April 2022 and 31 March 2025.

Join our webinar “Navigating the complexities around SECR” on Tuesday 18th September at 15:00-15:45, to hear from our panel of experts, Including Gary Shanahan, who heads the Business and Industrial Energy Efficiency, Tax & Reporting team at BEIS. Register here.

¹The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018

Related Blogs:

UK Government announcement means energy & carbon reporting for many more companies in 2019.

Reaching Enlightenment with a Smart Building Gateway

The Internet of Things is growing at a staggering rate – there are now 3 connected devices for every human on the planet, and that number is growing exponentially.

But is your building keeping up with the pace?

Every day the built environment undergoes dynamic changes to its occupancy patterns, air quality and plant operation. Whilst these changes may seem subtle or routine, they can have a major impact on energy use, carbon emissions and occupant wellbeing.

These impacts often go undiagnosed, which is part of the reason that building emissions are nearly four times higher than design estimates (even amongst modern, well designed buildings!)

With increasing energy costs and tenant demand for sustainable, productive working environments, making sense of these changes has never been more important.

Could a Smart Building Gateway be the solution?

Smart Building Gateways provide a greater understanding of building performance, by optimising energy & comfort, and reaching data enlightenment.

A recent Carbon Credentials’ connected building “CAPP” project (Collaborative Asset Performance Programme) saw a 21% energy cost saving achieved immediately at no capital cost. Prior to being connected this London office building was believed to be operating well, with site personnel unaware of the savings potential that existed.

But once the gateway was deployed, enormous potential was seen for improved operational control thanks to the data insights enabled by the Smart Building Gateway that were simply not possible using existing industry-standard BMS trending and visualisations.

So how can you achieve similar results?

It might be easier than you think. With IoT costs dropping and more flexible solutions entering the market, there is no better time to embrace intelligent building energy performance.

Carbon Credentials offers flexible solutions that enable powerful insight on performance without interfering with your building operations or security.

We then work in collaboration with your team, leveraging data insights to drive meaningful reductions in energy & carbon, and improved operation and comfort.

Related Blogs

Why do so many strategies for technical energy reduction rely on new buildings?
How Will the Internet of Things Drive Energy Performance?
Digital Disruption in Commercial Real Estate – Opportunity or threat?

5 things you need to do before the CDP Questionnaire deadline

This year, the deadline for submitting to the investor request is the 15th August
and the deadline for the supply chain questionnaires following shortly afterwards on the 29th August.

For 2018, CDP updated the questionnaires across each of the programmes including an increased focus on the TCFD recommendations.

Within the Climate Change questionnaire, 18% of the questions are new, with the remaining 82% of the questions in the 2018 climate change questionnaire have either no change, minor changes, or some modifications from their 2017 counterparts.

The evolution in the questionnaire is accompanied by an updated Online Response System (ORS).

5 things you should be doing ahead of the CDP deadline

Provide a complete disclosure

CDP encourages companies who fully disclose information within their response, so make sure you’ve answered all the relevant questions, avoid answering ‘Unknown’ and don’t leave any boxes blank

Get online

With so many CDP documents, from the guidance, to the scoring methodology, to the technical notes, it can be difficult to make sense of it all. The new ORS contains a helpful synthesis of the guidance and scoring methodology for each question at the click of a button

Check your numbers

Ensure all breakdowns of emissions and energy consumption reported within your disclosure are consistent throughout the response

Tell CDP about your company

In many instances points are awarded for answers that are company-specific and contain examples that differentiate your response from similar organisations

Get an expert second opinion

An independent response check conducted by a third party is a great way to add value at a low cost

 

As an accredited consultancy partner Carbon Credentials receives training each year from CDP to deliver the CDP Response Check service.

The Response Check is a high level ‘checking’ service for CDP responding companies that have completed their annual CDP response.

Carbon Credentials has delivered a large number of Response Checks in its 6 years as an accredited CDP consultancy partner and has advanced the standardised process to provide its clients with more nuanced and detailed feedback to help clients to improve the quality of their disclosure.

If you would like to improve your submissions please get in touch with us at info@carboncredentials.com

Related Links

Case Study  – Find out how we helped ISG with their CDP score

Find out more about our CDP Services

Leveraging ESOS Phase 2 – Insights from Phase 1 & questions you need to start asking

ESOS is the mandatory UK Energy Savings Opportunity Scheme. All large UK organisations (non-public sector) must comply with these regulations.

They are the UK’s transposition of Article 8 of the EU Energy Efficiency Directive, dictating that companies in the UK undertake comprehensive assessments of energy use and efficiency opportunities at least once every four years.

The ESOS Phase 1 deadline was 5th December 2015, and we are now in Phase 2. All qualifying organisations must measure their total energy consumption for buildings, industrial processes and transport, conduct audits, and report compliance by the 5th December 2019.

With ESOS comes a number of risks and opportunities for business.

During Phase 1, we supported 49 clients through 300 audits, in addition to DECs, ISO 50001 and Article 8 guidance. Through this, we identified £31m of savings on energy.

We recently hosted a webinar where we asked organisations involved in Phase 1, what cost savings they achieved. This was the outcome:

Evidently ESOS Phase I was not a runaway success.

It was viewed as a tick-box exercise and not recognised and utilised as an opportunity to drive cost savings for businesses.

Our work with Village Hotels highlights what could be achieved – we enabled £460,000 in energy savings in 2017.

Download Quick Guide to ESOS

In addition to energy cost savings, there are opportunities to be strategic about your method of compliance. For example, if you submit to GRESB (Global Real Estate Sustainability Benchmark), you can increase your points in the Building Assessments questions by either opting for ISO 50001 or maximising asset coverage through your audits. Therefore you can seize an opportunity to kill two birds with one stone.

Cost saving opportunities lie with your choice of pathways. We explain the pathways in our guide, but in summary, there are three approaches available to you: low-cost compliance; high-value audits; or ISO 50001.

We can help you decide which path is best for your organisation.

The path you choose will depend on your ambitions for the ESOS process. It’s important to consider these options and how your business wants to approach ESOS – is it about compliance, or performance? Starting earlier will help ensure that all options are available.

In our recent webinar, we heard that 50% of our audience were likely to opt for the ‘performance’ route for ESOS Phase 2, 38% will ‘comply’ at minimal cost, and 12% will go for ISO 50001.

We are hoping the attitude and approach to ESOS changes this time through Phase 2.

Our challenge to you is this: are you going to do the same thing as first time around, or are you going to work strategically to identify your opportunities and make a change, as Village Hotels did?

If you’d like to have a conversation about which path is right for you and how you can start to prepare, please get in touch with our team.

Contact us

Or download our Quick Guide to ESOS Phase 2 Compliance – Make ESOS work for you

Related Links

ESOS Webinar – Take A Strategic Approach to ESOS

How can you get more value out of the ESOS process?

ESOS Phase 2 – are you ready?

 

Today marks the Earth Overshoot Day

Today marks the Earth Overshoot Day – the day when we have used more from nature than our planet can renew in an entire year.

Currently, we’re using 1.7 earths through our carbon emissions we produce, our waste, our overfishing, our overharvesting of forests and other resource consumption. Our planet cannot absorb the amount of carbon dioxide we emit into the atmosphere nor can our ecosystems replenish at the rate we consume.

This infographic shows the trend in the date by which we reach this day year-on-year:

Despite the fact we seemed to reach a relative plateau in 2011, this year we reached the

date of over-consumption sooner than last year. This is worrying that despite our efforts, we aren’t doing enough.

We aren’t short of solutions. Global Footprint Network highlights four major areas for improving sustainability: food, cities, population, and energy. Here are some of my favourite examples:

Food 

  • ALDI’s Love Food Hate Waste has enabled them to donate 112 tonnes of food waste to FareShare
  • Since Pret opened, it’s been doing it’s Charity Food Run – giving away all unsold food to the homeless
  • UK Harvest is a fantastic charity working to eliminate hunger and food waste through education and the redistribution of quality surplus food

Cities 

  • Naturvation is a project funded by the European Commission to explore nature-based urban innovations. You can explore their atlas of solutions here
  • A number of cities now run off 100% renewable energy, including Aspen, Colorado. Since the ratification of the Paris Climate Accord, the number of cities getting their energy from renewable sources has more than doubled
  • China is building a new ‘Forest City’ where all the buildings will be covered in over 40,000 trees and 1 million plants.

Population

  • This is an issue very close to my heart. Achieving gender equality is imperative for stabilising population growth so society can live within its means. Educating girls and providing access to family planning is particularly key. UN He for She is driving this mission – take the pledge of support here
  • Each year, 12 million girls are married before the age of 18. UNICEF is working to help achieve SDG 5 and end child marriage which traps girls (often before age 15) in a cycle of poverty
  • A McKinsey report found a positive link between increased diversity and improved financial performance. Companies such as De Beers have made commitments to invest in projects to advance women and achieve parity in numbers of women and men appointed to senior leadership by 2020

Energy

  • Here at Carbon Credentials we’re working to enable a global low carbon economy. We’ve helped companies such as Tesco to understand and commit to GHG emissions reductions that are in line with the Paris Agreement, through setting Science-based Targets
  • There are some incredibly exciting innovations happening that aim to transform energy-intensive processes into carbon neutral ones, such as Rocky Mountain Institute’s Sunshine for Mines
  • The FSB have developed a set of voluntary, climate-related financial disclosures (TCFD) for use by companies to provide information to investors and other stakeholders, in order to increase transparency and drive improved performance. We are helping our clients to align with these requirements

Collaboration is key to driving these solutions. We’re making great strides but there’s still work to do.

To find out how your company can do its part, contact me at francesca.wiley@carboncredentials.com

Download the new CRC Reporting Guide 2018 Edition

Our annual CRC guide has been very popular and I am pleased to introduce our fifth guide for the 2017/18 reporting season.

It has been announced by the government that CRC is closing, with the final compliance year being 2018/19.

We have therefore decided to simplify and shorten the guide this year, to make it as user-friendly as possible in the final years of CRC reporting.

The guide includes reporting top tips and insights on what is likely to replace CRC.

We also include details on other mandatory and voluntary carbon and energy reporting frameworks, which are likely to be increasingly important in the future.

To get your copy click here

 

 

 

How can you get more value out of the ESOS process?

[Update July] Are you aware of the government’s response to the Streamlined Energy and Carbon Reporting (SECR) consultation?Published on 19th July 2018, it makes recommendations that will soon be written into legislation and come into force from April 2019.

If your organisation qualifies for ESOS, it’s very likely that it will also need to report under the new guidelines, as the qualification criteria are very similar (see our blog: UK Government announcement means energy & carbon reporting for many more companies in 2019). The SECR recommendations dovetail well with ESOS – firms will be required to report on energy consumption and energy efficiency actions – although there are additional requirements – reporting will be on an annual basis, in alignment with company reporting, and firms must also report on carbon emissions.

[Update June] Watch our ESOS Webinar replay:”Take a strategic approach to ESOS Phase 2; Why now is the time to choose the right path“.

How can you get more value out of the ESOS process?

With the second phase of ESOS (Energy Saving Opportunity Scheme) coming down the track in 2019, now is a good time to consider the best approach to get value out of the process.  

Phase 1 of ESOS resulted in a great many businesses taking a first positive step by undertaking energy audits but unfortunately many did not follow through on any of the recommendations made by their auditors.

Many of these audits were undertaken as tactical quick fixes to meet a compliance deadline.

In contrast, some businesses took a more strategic approach and delivered significant cost reductions on the back of the Phase 1 ESOS audits.  One example is Village Hotels who have now saved over £500k in energy costs, from starting with ESOS audits, identifying opportunities and then expanding to deliver an energy cost transformation strategy across the group.

As a result of the analysis undertaken for ESOS compliance, Village Hotels identified a series of risks associated with its current energy performance levels across its hotel portfolio as follows:

By identifying these risks, Village Hotels was able to take action to alleviate them.

The difference in their approach was their appetite to drive business value and not just tick a compliance box. This strategic intent led to a clear business case and importantly a commitment at board level to follow through to implementation.

How can you reach board level commitment?
A strategic approach can allow your business to identify a full spectrum of energy cost transformation. Using ISO 50001 is a good way to lay the foundation, but it is not the only way. A systematic approach to driving energy cost transformation, underpinned by a solid business case is essential to reaching board level commitment. We have found that energy cost transformation can be delivered through the following seven steps:

  1. Understand the current state and identify the gaps
  2. Create a long-term vision with senior level buy-in
  3. Build a prioritisation of opportunities to be captured
  4. Compile a clear business case
  5. Secure approval and board level commitment
  6. Put in place the right data management process to underpin the overall programme
  7. Initiate implementation and roll out projects

These steps can be tailored to your organisation. If you are aiming to reduce energy spend, achieve compliance at lower cost, and position your business to win new clients, then we think you should consider an energy cost transformation approach.

It will help you to achieve ESOS compliance at the same time. ISO 50001 can be a great platform to drive this transformation, but you need to consider how it will meet your organisation’s needs.

Our expert team is ready to help you comply with phase 2 of the Energy Savings Opportunity Scheme (ESOS) – and go beyond compliance to implement savings and drive real performance improvement.

Find out more about how we can help

Related blog posts

ESOS blog, part 1 – Phase 2. Are you ready?

ESOS Phase 1 Enforcement

Join our ESOS Webinar

Tackling Scope 3 for Science Based Targets

[Updated] Organisation completing science-based targets (SBTs) often experience challenges throughout the target setting process. Carbon Credentials has helped numerous clients satisfy the requirements set by the Science-Based Target initiative (SBTi) as many find the Scope 3 emissions assessment can often be the most troublesome requirement.

So what are Scope 3 emissions?

The Greenhouse Gas Protocol (GHG Protocol) is the most widely used accounting standard for GHG emissions. In another blog, my colleague Kyna wrote about the use of emission scopes for allocating emissions for investor reporting. The same methodology is also drawn upon by the SBTi to provide the basis for long-term target setting.

This GHG Protocol categorises an organisation’s emissions into three “scopes”.

  • Scope 1 emissions (direct emissions) are defined as emissions from sources that are owned or controlled by the organisation. This might include, for example, natural gas combusted in a boiler at a company’s head office.
  • Scope 2 emissions (indirect emissions) are emissions from purchased electricity, heat, steam or cooling consumed by the company, but generated elsewhere.
  • Scope 3 emissions (other indirect emissions) are emissions that occur as a consequence of the operations of the organisation but are not directly owned or controlled by that organisation. For example, emissions from waste generated by a company are defined as Scope 3 emissions.

The GHG Protocol Scope 3 guidance outlines the 15 different Scope 3 categories and each should be assessed in terms of their materiality in order to understand what an organisation should report on. A summary of the three scopes of emissions and their definitions can be seen in the infographic below.

Figure 1 A breakdown of how different emissions are categorised into Scope 1, 2, or 3.

Scope 3 emissions are especially important for organisations because they often make up the largest portion of the overall footprint. The challenge organisations face in quantifying Scope 3 lies in the degree of control they have over these activities and the collection of data associated with them. Paradoxically, the most significant emission reductions can be made by targeting Scope 3 activities. By calculating Scope 1, 2 and 3 emissions, an organisation can understand its full climate change impact and prioritise efforts to reduce emissions.

What does the Science-Based Targets initiative require for Scope 3?

Previously, the SBTi only recommended that companies submitting targets undertake a Scope 3 screening, but this is now a requirement of the process. This means that organisations must look at all relevant Scope 3 categories and determine their significance.

The SBTi requires that if Scope 3 emissions make up over 40% of total Scope 1, 2, and 3 emissions then the majority of Scope 3 emissions must be included in the target. The “majority” is defined as the top 3 categories or 2/3 of total scope 3 emissions.

In terms of ambition, it is not a requirement that Scope 3 targets are in line with a 2 degrees scenario, but that the targets are challenging and robust. The organisation must demonstrate that their Scope 3 targets are addressing the main sources of GHG emissions within their value chain in line with current best practice.

So how do I begin with setting a target on my Scope 3 emissions?

So far, most organisations have focussed on Scope 1 and 2 emissions and many are not yet even measuring Scope 3. The graph below demonstrates that over twice as many UK CDP respondents are setting Scope 1 & 2 targets versus those companies that are setting Scope 3 targets.

[image] Figure 2 A comparison of the number of UK companies setting Scope 1 and 2 versus Scope 3 targets as reported in CDP 2016.

Figure 2 A comparison of the number of UK companies setting Scope 1 and 2 versus Scope 3 targets as reported in CDP 2016.

It can be difficult to set a target when there is no baseline data to compare against. Subsequently, there is a lot of uncertainty about how to get started on the journey. The process diagram below gives a high-level understanding of the steps to evaluating an organisation’s value chain impacts:

[image] Figure 3 A high-level process diagram demonstrating the steps for understanding Scope 3 emissions.

Figure 3 A high-level process diagram demonstrating the steps for understanding Scope 3 emissions.

The first step in the process is to perform an initial Scope 3 gap analysis. The gap analysis is where organisations can assess current reporting against the 15 Scope 3 emissions categories to determine whether all relevant emission sources are covered. This analysis will allow you to either move on to set your targets or demonstrate that more work must be done in this area.

What should I do next?

If the results of the gap analysis show you haven’t quite analysed everything you need to, firming up the Scope 3 reporting boundary will be of huge benefit and move you along the SBT process. Remember, a central requirement of the SBTi is to demonstrate that you have considered the relevance of emission categories included and can provide a justification for excluding the others.

By evaluating Scope 3 emissions against the GHG Protocol Value Chain criteria, a company can identify which emission sources are truly relevant to their organisation and should, therefore, be included within the target. My colleague Scarlett Benson will describe this process in more detail in the second part of this Scope 3 SBT blog series.

If you would like help understanding your Scope 3 emissions or developing a science-based target, please get in touch with one of our experts here.

Emma Watson, Consultant

[Updated March 2018. Originally posted July 31st 2017]

With 1 year to go, are you ready for CRC’s successor?

[Updated May 2018] Download our CRC Reporting Guide:2018 Edition


It seems hard to believe that in a few weeks we will be in the final year of CRC reporting (starting 1 April 2018). As discussed in my blog of 22 February 2018, we know what the government proposes to replace CRC with a streamlined energy and carbon reporting framework (SECR).

Whatever shape this framework takes, verified energy data and first-rate systems for managing energy consumption will be at the heart of the new reporting framework.

Which companies will be most at risk?

CRC targets both public and private sector organisations consuming over a minimum threshold of electricity. Although higher education and many public-sector organisations report to CRC, the SECR proposals on mandatory reporting do not apply to them. Instead, the government proposes voluntary carbon emissions reporting and energy efficiency measures supported by the loans scheme administered by Salix Finance for the public sector (see our blog of 4 December 2017 for details).

Large quoted companies are already obliged to measure and report their greenhouse gas (GHG) emissions in their directors’ report. Therefore, the government’s proposals for mandatory energy and carbon reporting post CRC are aimed at large unquoted companies.

In the SECR consultation, the government proposed that UK unquoted companies in scope should report on the following in their annual reports:

  • Total UK energy use,
  • Scope 1 and 2 GHG emissions associated with UK use, and
  • An intensity metric.

So, not only will large unquoted companies be reporting on their total energy use, they could also be reporting on their UK Scope 1 and 2 GHG emissions for the first time.

We don’t yet know when the new SECR reporting framework will start. However, whatever carbon and energy reporting scheme is put in place after CRC ends in 2019, participants will be expected to have embedded resilient energy data systems to ensure compliance with this mandatory scheme.

Well managed data & expert compliance advice

We have helped numerous companies improve data management and through our expert compliance advice, we have helped minimise their reporting and compliance risk. But we didn’t just help them manage their compliance data. We made it possible for them to visualise it, turning it into meaningful information that helped them communicate the story tells to internal and external stakeholders and got buy-in from senior management for energy efficiency projects.

Find out how we can help you.

Check out some of our other CRC Blogs:

What will replace the CRC Energy Efficiency Scheme, and when?

Response to the Streamlined Energy & Carbon Reporting (SECR) Consultation (summarised)