Energy Insight: Streamlined Energy and Carbon Reporting (SECR)
Your organisation may be affected by the UK government’s Streamlined Energy and Carbon Reporting (SECR) framework, which will come into effect from 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 new energy and carbon reporting framework that will replace the existing 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 act upon improving their energy efficiency, which should translate directly into environmental and financial benefits. The government estimates that introducing SECR will deliver benefits of £1,549m from 2019 to 2035.
Introducing a reformed reporting framework became a government priority upon the recognition that the range of energy efficiency policies created complexity and reporting burden to affected businesses and industry. Having been designed through an extensive consultation process, SECR is a product of the UK government’s commitment to work together with stakeholders to deliver long-term benefits for businesses and the environment across the UK. 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.
When will SECR become effective?
The SECR framework will become effective from 1 April 2019. This is when the current phase of the CRC Energy Efficiency Scheme is due to close.
Organisations qualifying for SECR will need to meet their obligations by disclosing their energy and carbon information accordingly in their Director’s report or in the equivalent section within their annual report for financial years beginning on or after 1 April 2019. This is different to Energy Savings Opportunity Scheme (ESOS) which operates in four-yearly reporting cycles and has no public disclosure requirement.
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.
How is SECR different from existing energy and carbon reporting schemes?
SECR is designed to simplify and reduce administrative burdens of energy and carbon reporting compared to existing schemes so that greater effort can focus on maximising the benefits of the process – improving energy efficiency, reducing energy bills and saving carbon. This reform stems from the government’s recognition that businesses are increasingly aware of their energy consumption and there is no longer a need to make them report on energy and carbon in the same prescriptive way as in 2010, when the CRC scheme was introduced.
BEIS ran an extensive consultation from October 2017 to January 2018 that collected views from stakeholders across the UK on how to best design a simpler, better energy and carbon reporting framework. 155 written responses were received from a variety of organisations and individuals, ranging from trade associations to non-departmental public bodies. 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 seeks to streamline data collection and reporting requirements while looking for synergies with existing frameworks such as CRC, ESOS and Mandatory Greenhouse Gas (MGHG) reporting scheme. The government estimates that introducing SECR will reduce average annual administrative costs across all organisations by around £1.9m from 2019 to 2035, as administrative costs reduced from closing CRC should offset the additional administrative burdens of introducing SECR.
SECR also has a larger scope with the hope of bringing the benefits of energy and carbon reporting to more businesses, 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.
Not all stakeholders are convinced that the SECR framework will serve as the breakthrough needed towards a simpler and better fit for purpose energy and carbon reporting landscape. 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 why the thinking in the design and implementation of SECR is not as joined-up as it could have been with existing schemes, especially ESOS.
How will the introduction of SECR impact my organisation?
The impacts of the new reporting framework 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 are 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 are implemented to compensate for the reduced tax revenue due to closing the CRC scheme.
- Those organisations who do not currently 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.
Does my organisation need to report under SECR?
Four groups of organisations will 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.
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 must include 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 (GHG) calculations: It is required to include details of the calculation methodology as well as a suitable carbon intensity metric. The carbon intensity metric is to express 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 will 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 disclosed. This marks a major change in the energy efficiency reporting landscape as those reporting under ESOS will not currently be required to publicly disclose their 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 an option for the future.
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 must firstly assess your organisation against the qualification criteria and determine if you will need to report under SECR. Next, you should review your data collection and reporting systems already in place as it is likely that you would have been required to report your energy use and emissions under existing frameworks such as CRC, ESOS, MGHG, Climate Change Agreements (CCA), or EU Emissions Trading Scheme (ETS). Taking advantage of systems and information that you already acquire can make complying with SECR significantly easier. You should then identify any additional data collection and reporting procedures that you will need to implement in line with SECR, especially if you are reporting in the energy efficiency landscape for the first time.
You should also thoroughly examine the corporate structure of your organisation and identify parties that will have to be involved in the reporting efforts. Communicating reporting obligations and strategies across your organisation is key to achieving effective and efficient collaboration, and avoiding overlaps in the work carried out by different parties.
It is also key to be familiar with the SECR guidelines to acquire a complete understanding of your responsibilities. 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?
The main outcome of reporting for SECR should be the identification of cost-effective and practicable energy efficiency measures. Making most of the scheme 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:o 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.