Under the SECR framework, brought in via the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 (SI 2018/1155), there are new requirements for certain companies to report on greenhouse gas emissions (GHG), energy consumption and energy efficiency action from 1 April 2019. The SECR was designed to simplify reporting and contribute to the Government’s Clean Growth Strategy to achieve clean growth whilst ensuring an affordable energy supply.
Who needs to report under SECR?
The introduction of the SECR reporting requirements will apply to quoted companies, ‘large’ UK-incorporated unquoted companies (including charitable companies) and ‘large’ Limited Liability Partnerships (LLPs).
To determine if you are a quoted company will depend on whether you are a company with equity shares listed on the main market of the London Stock Exchange, a European Economic Area or admitted to dealing on either the New York Stock Exchange or NASDAQ. If any of these apply, the company is obliged comply with the SECR reporting requirements. Otherwise, a company needs to determine whether they are regarded as a ‘large UK company’ or ‘large LLP’ as defined by the Companies Act 2006.
The definition of ‘large’ will be satisfied if the company fulfil two of the three qualifying conditions in the relevant financial year; a) at least 250 employees, b) an annual turnover greater than £36m and c) an annual balance sheet total over £18m. Once satisfied, the company is in the scope of SECR and the reporting requirements will apply regardless of whether it is in the public, charitable or education sectors. This includes Registered Providers or members of their groups that are registered companies and meet the definition of a large UK company. A “Registered Provider” can be a local authority entered on the Register or a body entered on the Register as a non-profit organisation or a profit-making organisation.
What needs to be reported under SECR?
Depending on the status of a company, there are different energy and carbon annual reporting requirements. It is important to note that the SECR regime supplements existing reporting requirements and does not replace existing requirements for organisations to include environmental and GHG information in their annual corporate reports under the Companies Act 2006.
In addition to disclosures in the Director’s Report, quoted companies must report the underlying global energy use that is used to calculate GHG emissions, information about energy efficiency taken in the organisation’s financial year and state what proportion of their energy consumption and emissions related to emissions and energy consumption in the UK. Whereas, unquoted companies and LLPs will be required to disclose energy and carbon information, including: UK energy use, associated GHG emissions, at least one intensity ratio, the previous year’s figures for energy use and GHG emissions, information about energy efficiency action taken and methodologies used.
Who is exempt from reporting under SECR?
Companies that are not registered in the UK are not required to report, including foreign parent companies of UK subsidiaries. Where reporting is impractical or would be “seriously prejudicial” to the organisation’s interest, there is also an exception. Other exemptions to the SECR reporting requirements include “low energy user” companies that use less than 40,000 kWh of energy in the reporting year and public bodies, although they remain subject to other reporting requirements such as the Greening Government Commitments. Charities and not-for-profit companies who do not file reports to Companies House and do not meet the qualifying criteria set out above, are also exempt.
Companies should be aware that they still need to make it clear to Companies House why they are exempt, either in the Energy and Carbon Report or Directors’ Report. If you are unsure about the company structure and whether you fall under one of the exemptions, please let us know and we can advise you on this.
Although an exemption may apply, the Government encourages all private sector organisations which fall outside of the scope of the new regulations to voluntarily report in a similar manner and our lawyers also deem this as good practice. With that in mind, it is worth considering applications for various government funded decarbonisation schemes if you haven’t already done so. We would suggest planning ahead and ensuring you have a strategy in place before proceeding as you will be required to report on current figures as part of the application process. For further information on the various government funded decarbonisation schemes, please see our article here.
Whilst the Government have published guidance on SECR, there are many grey areas which means it can be complex when organisations are interpreting the wording to decide whether they need to apply the changes set out. If you would like help in determining whether you are obliged to report under the SECR framework, please get in touch with any member of our dedicated team of energy lawyers, including Nathan Bradberry, Thomas Graham and Natalie Cernuschi.