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.

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.

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

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