Energy Insight: Streamlined Energy and Carbon Reporting (SECR) framework
Your organisation may be affected by the UK Government’s Streamlined Energy and Carbon Reporting (SECR) framework, which came into effect on 1 April 2019. It is important to understand what this means for you and what actions you will need to take.
What is SECR and why is it important?
SECR is the UK Government’s energy and carbon reporting framework, replacing the CRC (Carbon Reduction Commitment) Energy Efficiency scheme from 1 April 2019. SECR introduces new reporting requirements as well as significant changes to existing ones.
The SECR framework is among the policies put in place by the Government to deliver on its Clean Growth Strategy which seeks to enable businesses to improve their energy productivity by at least 20% by 2030. SECR requires large businesses to publicly report on energy use, carbon emissions and energy efficiency measures. The Government hopes that the required transparency around energy and carbon emissions will encourage businesses to improve their energy efficiency, translating into environmental and financial benefits. The Government estimates that introducing SECR could deliver benefits of £1,549m from 2019 to 2035.
Introducing a reformed reporting framework became a Government priority upon recognition that the existing range of energy efficiency policies created complexity and reporting burden for businesses and industry. Experiences of businesses reporting under SECR will demonstrate the extent to which it reduces complexity and reporting burden, and whether it can really be described as a ‘streamlined’ framework.
How is SECR different?
SECR intends to simplify and reduce administrative burdens of energy and carbon reporting compared to other reporting schemes. This is meant to free up more effort to focus on maximising the potential benefits of the process – improving energy efficiency, reducing energy bills and saving carbon. The Government estimates that, in relation to the CRC, introducing SECR could reduce average annual administrative costs across all organisations by around £1.9m from 2019 to 2035.
Some stakeholders express doubt that SECR can serve as the long-awaited reform needed in this landscape, with concerns that SECR will not simplify reporting processes in all cases, and that it could introduce additional reporting burden to organisations in certain circumstances.
The need for a reform in the reporting landscape stemmed from the Government’s recognition that businesses are increasingly aware of their energy use and thus a less-prescriptive method of reporting on energy and carbon was needed. The design of SECR involved a consultation that collected views from stakeholders across the UK. The consultation outcome confirmed that mandatory reporting is important and should align with best practice in the UK and internationally, but it should not impose unnecessary administrative burden on those reporting. The SECR framework therefore intends to streamline data collection and reporting requirements while looking for synergies with other frameworks such as CRC, Energy Savings Opportunity Scheme (ESOS) and Mandatory Greenhouse Gas (MGHG) reporting scheme. However, some energy professionals working in the field suggest that SECR, with its different qualification criteria and scope of reporting, fails to establish continuity from existing frameworks, especially ESOS.
Implications of the introduction of SECR were also challenged at the Energy Institute’s Energy Efficiency Conference 2019. The audience expressed concerns around how ‘streamlined’ the new framework really is, whether it will be any more successful than existing schemes at incentivising businesses to act on the data they are reporting, and that the design and implementation of SECR is not as joined-up as it could have been with existing schemes, especially ESOS.
On the positive side, results of a survey by Inenco alongside The Energyst and Energy Institute suggest that SECR should help to improve industry awareness of energy efficiency, with 56% of respondents saying energy reporting has raised the profile of energy efficiency in their organisation. However, industry preparedness to comply with the scheme was shown to be lacking. Around half of survey respondents were unclear of what is required to comply with SECR, and 75% indicated that senior managers are not fully aware of the new scheme.
Does my organisation need to report under SECR?
SECR has a larger qualification scope than existing frameworks, meaning many will be reporting for the first time. SECR will apply to an estimated 11,900 organisations across the UK. This compares to around 4,000 organisations required to report under CRC and 1,600 required to report under MGHG.
Four groups of organisations need to report under SECR:
- UK incorporated companies listed on the main market of the London Stock Exchange, a European Economic Area market, or whose shares are dealing on the New York Stock Exchange or NASDAQ
- Unquoted large companies incorporated in the UK, which are required to prepare a Directors’ Report under Part 15 of the Companies Act 2006. These are companies that meet at least two of the following criteria in the financial year for which they are reporting:
- have at least 250 employees
- have an annual turnover greater than £36m
- have an annual balance sheet total greater than £18m
- Large Limited Liability Partnerships (LLPs) that meet at least two of the above criteria. These LLPs would already be obliged to report under the ESOS Regulations 2013, and are also likely to have been obliged to report under CRC.
- Large unregistered companies that operate for gain and are currently obliged to produce Directors’ Reports under the Unregistered Companies Regulations 2009, with the report needing to abide by the Large and Medium-sized Companies and Groups Regulations 2008.
The Government encourages all other organisations to report similarly, although this remains voluntary. SECR is within the scope of the same compliance rules as for financial reporting to Companies House and the Conduct Committee of the Financial Reporting Council is authorised to issue penalties and fines accordingly in cases of failure to meet reporting requirements under SECR.
How will the introduction of SECR impact my organisation?
The impacts of the introduction of SECR will vary depending on an organisation’s current situation. They are as follows:
- Those organisations already reporting under MGHG reporting scheme will see minor changes, except for the inclusion of energy use and energy efficiency measures in the reporting requirements.
- Those organisations that were reporting and purchasing credits in the CRC Energy Efficiency scheme will have the reporting aspects replaced by the new SECR legislation while charging aspects are replaced by increased Climate Change Levy (CCL) rates. The increased rates have been implemented to compensate for the reduced tax revenue due to closing the CRC scheme.
- Those organisations who do not/did not fall under either MGHG or CRC will see the largest change. They may need to implement whole new data collection processes and reporting systems to comply with SECR.
When can an organisation be exempt from SECR?
It is not mandatory for organisations that meet one or more of the following exemptions to report under SECR:
- Organisations that can demonstrate that they use very low levels of energy (40,000 kWh or less in the 12-month reporting period).
- UK subsidiaries that qualify for SECR but are already covered by their parent company’s group report.
- Unquoted companies registered outside of the UK (any qualifying UK registered subsidiaries will still have to report in their own right even if their parent company is exempt).
- Companies for which it is impractical to obtain some or all of their global energy use, so long as the excluded information is clearly stated, with justification of why this has been done.
SECR also includes a ‘comply or explain’ clause which may, in certain exceptional cases, enable some companies to justify exemption from publicly reporting on energy use if this information is deemed commercially sensitive.
It is important to note that having been exempt from the CRC Energy Efficiency scheme does not mean you are exempt from SECR.
What needs to be reported under SECR?
- Energy use: Energy in the scope of SECR includes all UK electricity, gas and transport energy use, expressed in units of consumption (e.g. kWh for electricity and gas). Quoted companies incorporated in the UK have to report on their total energy use on a global scale.
- Greenhouse gas (GHG) emissions: It is mandatory to report on all greenhouse gas emissions associated with energy use. Quoted companies incorporated in the UK have to continue reporting on their annual GHG emissions on a global scale including Scope 1 (direct emissions) and Scope 2 (energy indirect) emissions as already required by the MGHG reporting scheme. Reporting on Scope 3 (other indirect) emissions remains voluntary.
- Greenhouse gas calculations: Details of the calculation methodology as well as a suitable carbon intensity metric must be included. The carbon intensity metric expresses emissions as a ratio against at least one other quantifiable factor related to business activities (e.g. turnover, number of employees, production volume). The Government does not specify which methodologies or intensity metrics must be used in reporting, but the guidelines set out what is considered to be good practice.
- Energy efficiency actions: Energy efficiency actions taken over the previous reporting year will need to be publicly disclosed by providing a narrative description. This marks a major change in the energy efficiency reporting landscape as those reporting under ESOS will not currently be required to disclose any progress implementing the recommendations that come out of their assessment. The Government intends to review ways in which the SECR framework can better interact with ESOS in the future.
The current legislation does not require independent verification of assurance for the data and information reported under SECR. This is encouraged on a voluntary basis as it can help to ensure best practice. Reporting for SECR electronically will be voluntary from 2019, although this may change as the Government considers mandatory electronic reporting as a future option.
The reported data and information must be included in the Director’s report or in the equivalent section within an organisation’s annual report for financial years beginning on or after 1 April 2019. This is different to ESOS which operates in four-yearly reporting cycles. The data you report under SECR should ideally cover the same period as the financial year, but if this is not possible, deviations to a certain extent are allowed as long as this is clarified in your report.
SECR also encourages organisations to report in line with the recommendations by the Task Force on Climate-Related Financial Disclosures. These recommendations call on organisations to make disclosures on energy and carbon in order to help investors, shareholders, customers and other stakeholders to understand climate-related business risk and make informed decisions towards a low carbon economy.
What can I do to prepare for SECR?
You should first assess your organisation against the qualification criteria and determine whether you will need to report under SECR. Next, you should review your existing data collection and reporting systems, especially if you have reported your energy use and emissions under existing frameworks such as CRC, ESOS, MGHG, Climate Change Agreements (CCA), or EU Emissions Trading Scheme (ETS).
It is important to note that SECR does not directly match with any of these frameworks and there are significant differences in scopes and timescales (which has led to some of the previously-mentioned criticisms of the scheme). Nevertheless, carefully assessing the information that you already collect and taking advantage of this where possible can make complying with SECR significantly easier. You should then identify any additional data collection and reporting systems that you will need to implement to comply with SECR.
Examining the corporate structure of your organisation and identifying relevant parties for the reporting efforts can also be helpful. Communicating reporting obligations and strategies to these parties is key to achieving effective and efficient collaboration, and avoiding overlaps in work.
To acquire a complete understanding of your responsibilities, make yourself familiar with the SECR guidelines. SECR guidelines can be found in Chapter 2 of the latest Environmental Reporting Guidelines from BEIS published on 31 January 2019. The SECR guidelines were developed following a stakeholder engagement process and you can find details about the areas that were amended based on stakeholder feedback here.
How can the Energy Institute help?
Reporting on energy, carbon, and efficiency actions should increase transparency of an organisation’s energy use, and give an incentive to improve energy efficiency. Making the most of the SECR framework and proactively managing your energy use will save your organisation money by reducing waste and energy bills. Reducing carbon emissions will also help your organisation to play its part in the UK’s climate change mitigation effort.
The Energy Institute (EI) provides a variety of resources that can help you prepare for SECR, collect and report energy and emissions data, reduce carbon emissions, improve energy efficiency, develop energy management solutions, and make the most of the scheme.
Register of Professional Energy Consultants (RPEC): RPEC is the premier register for expert energy efficiency consultants with proven track records in providing energy efficiency advice and guidance to companies all over the UK and beyond.
Chartered Energy Manager: As the professional body for Energy, the EI is the only body by law able to offer chartered status in energy management. The Chartered Energy Manager status provides clients and employers with assurance of a high level of energy management expertise to national standards.
Energy Management Training: Our portfolio of energy management training is the most extensive available in the UK. Designed to support energy professionals throughout their career, our courses are available in-class, in-house or increasingly online from anywhere in the world. The EI’s experience and professional tuition keep us at the forefront of energy efficiency training.
- Level 1: Certificate in Energy Management Essentials: Available in-class as a 5-day course or online, provides a strong focus on energy auditing, which is perfect for preparing your internal staff for activities towards SECR compliance.
- Level 2: Energy Management Professional: A 200-hour online course and qualification, providing all the knowledge and skills required of a professional energy manager and covering more than 20 different topic areas.
- Level 3: Advanced Energy Manager: Designed for experienced energy managers, or those thinking of applying for Chartered Energy Manager status, this 9-day course allows delegates to demonstrably achieve the highest level of competence in energy management and further advance their careers by gaining the skills and knowledge required to function successfully at a senior level.
Bitesize online courses: Developed by industry experts, the EI’s short online courses provide the opportunity to develop your knowledge in over 30 specific topic areas in energy management. Each course is EI certified and can be completed from anywhere in the world, starting at any time.
Free online resources:
- Energy Essentials: a guide to energy management: a roadmap for newly introducing energy management into your organisation.
- Lighting Guide: a step-by-step guide for overseeing a lighting upgrade in an organisation.
- CPD Articles: a range of CPD articles published by the EI, covering a range of technical and commercial energy management topics.
Behaviour change: The EI helps you assess your organisation’s energy culture and support behaviour change across your workforce by offering a variety of resources and tools such as EnergyAware – an innovative 30-minute online tool that helps your staff create a customised, actionable checklist of behaviour changes and smart technology decisions that they can take away and implement.
Visit https://www.energyinst.org/exploring-energy/topic/efficiency for more on the EI’s offering on energy efficiency.