The pressure on businesses to work more sustainably increases every day. Customers increasingly use sustainability in their supplier selection criteria. Stakeholders often demand action, and legislation does its best to keep up. 

The UK government has introduced new energy and carbon regulation policies and schemes for large companies over the last decade, including the Streamlined Energy and Carbon Report (SECR), the Energy Savings and Opportunities Scheme (ESOS; for which the Energy Institute runs one of the biggest registers of qualified ESOS lead assessors), the Procurement Policy Notice 06/21 (PPN 06/21) and the Taskforce on Climate-related Financial Disclosures (TCFD). 

This legislation is moving in the right direction, but is far from perfect. Since I started preaching this gospel of sustainability in 2006, companies that believed in the message but (unfortunately) didn’t have budget allocated for it, now have no choice but to do it. They must understand their carbon footprint and be able to discuss reduction strategies at board level. 

UK government current action plan

During the last United Nations Climate Change Conferences [notably COP21 in Paris (2015) and COP26 in Glasgow (2021)], the UK agreed to meet specific climate targets, with commitments and objectives made to reduce carbon emissions. 

The UK government initially put in place just the ESOS legislation, which concentrates solely on energy and not carbon. Then it put in place SECR, which looks at just electricity and fuel use. Both of these pieces of legislation miss out the massive section of emissions which we know as Scope 3 emissions, loosely defined as everything a company emits except from electricity and fuel. By way of example, Scope 3 emissions track the fuel you use to drive to the airport for your return trip to New York, but ignore the actual flight itself. 

Fig 1 shows an example of client carbon emissions, including Scope 3. 

Fig 1: An example of client carbon emissions, including Scope 3

Source: Enistic Group

So, the current ESOS and SECR legislation only scratches the surface of the carbon problem and that’s why it has to change. Current legislation focuses more on reducing energy than carbon emissions. As such, the UK is definitely not in the position to reach its ambitious emission reduction goals by 2030 unless further legislation is introduced. 

‘Current ESOS and SECR legislation only scratches the surface of the carbon problem and that’s why it has to change.’ – Darryl Mattocks, Chairman, Enistic Group

A couple of years ago, the UK government launched a public consultation to seek views on proposed measures that could strengthen ESOS, improve the uptake of energy efficiency measures and increase the benefits for participating businesses. Following the 2020 Post-Implementation Review of the scheme, further consultation was completed in September 2021, then published and is currently being reviewed. 

The first official published feedback states there are ‘ideas and measures’ that the government plans to implement. An official list will be published in December 2022, defining what is needed for ESOS Phase 3. As most of our clients at Enistic will have significantly progressed with their ESOS assessments by then, I hope the changes aren’t too extreme.

From the feedback that they have currently received, we now know that the government intends to upgrade the scheme by improving the quality of audits, including some Scope 3 elements. It is probably going to require public disclosure of the high-level recommendations. However, I doubt whether they will go as far as to include making any of the recommendations made in the report mandatory. 

Whilst the changes proposed are a step in the right direction, the ESOS, SECR criteria and scope need to change drastically in order to meet the UK government’s climate change targets and future commitments.

‘The ESOS, SECR criteria and scope need to change drastically in order to meet the UK government’s climate change targets and future commitments.’

The United Nations (UN) has publicly stated that eliminating carbon emissions by 2050 is the only way to avoid the worsening effects of climate change. Albeit that we may be too late already. 

This carbon reduction requirement does not just apply to larger businesses, but all businesses alike. Sustainable companies are recognised and rewarded for their business practices. The need to be seen as sustainable is a powerful global trend. To assist them to reach their own targets, companies expect their suppliers to be working to improve their sustainability. Moreover, the British Retail Consortium advises its 170 members to report voluntarily on wider Scope 3 emissions when completing the SECR. However, only two of our clients in the past 18 years have carried out a carbon analysis voluntarily rather than out of legal necessity.

Additionally, investors increasingly require companies to monitor their carbon emissions and have a carbon reduction action plan, especially with the changes in financial regulations and pressures on investors. Last year, Blackrock and Legal & General carried out 53 interventions in companies which they felt had made insufficient progress with regard to the environment. Another 119 companies are on a growing blacklist for the same reason. They see what is coming and want to protect their investments.

The pressure on businesses across the world to be sustainable is on the rise and there is demand for corporates to have a Sustainability Policy coming from many directions. 

What is the UK government planning?

One possible scenario is that the UK government could decide to combine ESOS and SECR regulations. At the moment, there is a big overlap between them. If they increase the scope of SECR and ESOS, companies will need to comply with two pieces of legislation that are very similar. This definitely needs to be reconsidered. 

This is a problem not only for companies but also for carbon professionals such as ourselves. We don’t quite know what the future holds with regard to the regulations and need some clear guidance from the UK government. 

Fortunately there is light on the horizon. Our listed clients are now beginning to engage with TCFD. This is excellent news. TCFD addresses the problem at source and addresses the Scope 3 capture problem. The government has announced plans to roll out TCFD to all large companies before 2025. But no details have been published and they could possibly change their mind. 

The only thing we know for sure is that the TCFD report must include some form of greenhouse gas (GHG) Scope 3 analysis (generally using science-based targets (SBT) and must cover their global estate. This is driving investment into enterprise-level environmental reporting systems such as SAP, Plato or Oracle, which simplify many elements of the process – but involves a lot of work nonetheless. 

Most of our clients are nowhere near having what would be required for SBT or TCFD and are still only looking at basic compliance with the legislation. To make it easier to progress, here is our 10-point list of recommended actions for larger companies:

• Have a strategy in place – know precisely what you are aiming at. 
• Choose a good framework (PPN 06/21 or SBT are obvious choices).
• Monitor your legal requirements – they are probably going to change soon.
• Get senior management to sign off resources required. 
• Form a team and train them all on the software you choose so it’s a team effort.
• Involve the entire organisation, with ‘green champions’ and regular communications that have numbers and targets.
• Monitor and track your progress. 
• Communicate success – let people know that their help is making a difference. 
• Include your supply chain in this journey. They may not like it as it involves extra costs, but over time they will have no choice.
• Repeat the process on a regular basis. Assess the plan and re-evaluate if required. Remember the ISO mantra: plan, do, check, act.

Implications for companies with overseas operations and SMEs 

Companies with overseas operations will need to include them in the process, which will mean harmonising reporting frameworks and installing multi-access data collection software. Whilst this means significant work, SBT and TCFD are good choices. If you have a real desire to reduce emissions, backed up by sufficient resources to fund it, the SBTi Corporate Net Zero Standard is probably the best constructed and most international of the 19 different standards we work with.

Companies with fewer than 50 employees are probably not going to have to do much carbon emission compliance in the near future. But medium-sized companies (50–250 staff) are likely to be included in either ESOS or SECR in the future. This was discussed in the public consultation, but the results have not yet been published.

What’s next? 

Currently, the only thing all carbon professionals know definitely is that UK companies have a long way to go in order to achieve net zero and help the UK government meet its climate change goals. For that to happen, we need to move faster and with a clearer sense of direction. Things are changing, but the changes are too slow and carbon reduction professionals, like ourselves, need clearer guidance on what is going to happen. 

The only way to stop climate change and achieve the UK government’s goals is through new and improved corporate-focused legislation. When forced to, companies do react. Whilst the existing legislation is a good start, critical Scope 3 factors such as the implications for business travel and the supply chain need to be incorporated. Only with changes such as these do our national carbon reduction commitments stand any chance of being met.