Climate change and the environment: A focus on SECR

Whilst COVID-19 has been the main focus for businesses for the first half of 2020; it hasn't gone unnoticed that climate change and wider environmental issues have often hit the headlines and board minutes alongside. Improved ESG (Environmental, social and corporate governance) has been seen as a positive response to the crisis and as a means by which we can drive change in businesses for good.

Increasing legislation and external stakeholder pressure requires organisations to act on climate change issues and publicly report on their successes and failures.

The result of a survey published in February 2020 by The Chartered Governance Institute in association with the Financial Times showed FTSE350 boards are devoting more time to the issue of climate change. Almost all boards that responded to the survey have discussed issues relating to climate change at least once in the past year (96%), with nearly half returning to the subject several times. The intensity of focus for some is considerable. One in ten companies have returned to the discussion six or more times over the last six months, whereas six months ago none reported more than five discussions and 28% had never discussed climate change risks at all. While just 11% have concluded it is a major risk, this is almost double the 6% who viewed it as a major risk in summer 2019. In the face of increasing scrutiny from the public and media, boards are clearly considering the implications for their business.

Legal requirements such as Streamlined Energy and Carbon Reporting (SECR), Non-Financial reporting requirements and section 172 all push environmental matters into the limelight for businesses – many of which may not be prepared.

What is SECR?

SECR (Streamlined Energy and Carbon Reporting) is the UK Government's mandatory energy and carbon reporting regulation. The associated legislation extends the scope of the Mandatory Carbon Reporting (MCR) regulations. Company annual reports need to include more detailed reporting on greenhouse gas emissions, energy usage and energy efficiency going forward.  The new regulation also heralds the replacement of the former CRC Energy Efficiency Scheme (CRC EES) tax scheme for large energy users; instead replacing this with increased climate change levy (CCL) on the bottom line of energy billing for all businesses.

The SECR regulation is designed to help business start reporting on environmental performance in a straightforward manner and publish data that enables the non-financial decision-making needs of investors and wider stakeholder groups.

Which companies does SECR affect?

SECR affects all UK incorporated quoted and 'large' unquoted companies and limited liability partnerships (LLPs). UK incorporated 'large' businesses are those that meet two of (AIM listed to be considered against 'large criteria'):

  • Turnover greater than £36m
  • Balance sheet total greater than £18m
  • Number of employees more than 250

Companies that use 40,000 kWh or less of energy in the 12-month reporting period and unquoted companies where 'it is not practical to obtain information', are exempt.

It should be noted that charitable companies, and companies owned by universities, academies and NHS Trusts may also be captured by the requirements.

What does SECR mean for your business?

If you qualify, you will need to publically report energy use and associated greenhouse gas emissions relating to your organisation in the Director Report section of your annual report. This should also include an intensity ratio and information relating to energy efficiency action for the reporting year.

What are the SECR reporting requirements?

SECR requirements differ according to your company's category:

UK incorporated quoted companies

  • Declare in the Director's Report on the annual quantity of Greenhouse gas (GHG) emissions and energy consumed from their global use of energy in their operational estate and vehicles (also known as scope 1 and 2 emissions)
  • State what proportion of energy consumed relates to emissions in the UK and UK offshore areas
  • Include meaningful carbon intensity metrics to be monitored year on year
  • Describe the principal measures taken to increase their energy efficiency.

Large UK incorporated unquoted companies and LLPs

  • Report in the Directors Reporting (or in a separate Energy and Carbon report in the case of LLPs) on the annual quantity of GHG emissions and energy consumed in the UK, arising from their use of electricity, gas and vehicles (owned or indirectly used for business purposes)
  • Include meaningful carbon intensity metrics to be monitored year on year
  • Describe actions taken to increase energy efficiency relevant to the reporting year

The government guidance on SECR can be found here.

To learn more about SECR, watch our webinar on-demand to understand further the newest developments, what you need to do, and potential pitfalls across the environmental corporate governance landscape.

Free consultation

As a part of the webinar, Avieco a market-leading sustainability consultancy, is offering a free consultation to help answer your specific SECR questions. Contact Avieco and speak to a sustainability expert

Julie Craig, Director, Avieco

Julie Craig is a Director at Avieco, a market-leading sustainability consultancy.

Julie leads the expert reporting service, advising clients on legally required and voluntary environmental and social disclosures such as SECR, TCFD, Non-financial legislation and CDP.

She specialises in the non-financial reporting landscape, particularly where legislative requirements and guidance/frameworks overlap, conflict or compliment. Julie has worked with wide-ranging sectors on reporting issues from manufacturing and chemicals, to automotive, logistics, professional services and media, including clients such as Johnson Matthey, Croda, Porsche, the Ministry of Justice, Rathbones, Dentsu Aegis Network.

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