United Kingdom - Streamlined Energy and Carbon Reporting: Mandatory Emissions Reporting

Background

The UK's Streamlined Energy and Carbon Reporting (SECR) policy, in force since April 2019, is a major step in the country's efforts to improve transparency in corporate reporting of greenhouse gas (GHG) emissions and other climate-related statements. The SECR policy is implemented by the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 ("the 2018 Regulations"). Previously, the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013 ("the 2013 Regulations") mandated quoted companies to provide information on their greenhouse gas (GHG) emissions and other environmental matters in their Directors’ Reports. The SECR, as set out in the 2018 Regulations, expands the scope of the 2013 Regulations with new requirements for the information to be included in the Directors' Report for not only quoted companies (as required by the 2013 Regulations) but also for large unquoted companies. Moreover, the 2018 Regulations also mandate Limited Liability Partnerships (LLPs) to prepare a new type of report called the "Energy and Carbon Report".

The foundation for the SECR was also laid by earlier programs like the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme and the Energy Savings Opportunity Scheme (ESOS) which both require in-scope companies to monitor, audit, and report their energy consumption. The SECR expands and simplifies the reporting requirements while also requiring a greater number of companies to report their GHG emissions. The SECR framework fits within the UK’s broader climate goals as laid out in the UK government's Clean Growth Strategy, including its commitment to attaining net-zero emissions by 2050, by encouraging businesses to track, manage, and reduce their GHG footprint.

What does the SECR require companies to report?

The SECR requires in-scope companies to disclose their energy use, GHG emissions, and associated energy efficiency actions in their annual reports. Depending on the type of company (see section below), these emissions disclosures are to be included in either the Directors' Report or the Energy and Carbon Report that form part of the annual report. Specifically, companies must disclose their Scope 1 (direct) and Scope 2 (indirect) emissions and an intensity metric such as emissions per square meters of floor space. Moreover, companies must detail the methodologies used to calculate the emissions figures. Reporting on Scope 3 emissions (e.g. from supply chains or business travel) is not mandatory. While the SECR prescribes no methodologies, it recommends "robust and accepted" tools such as the greenhouse gas reporting protocol. Similarly, while not prescribing a fixed format for the report, the SECR provides a reporting template that companies are encouraged to use for purposes of consistency. The disclosures must be done yearly, in line with the company’s financial reporting cycle.

Which companies are required to report under the SECR?

The SECR applies to quoted companies, large unquoted companies and large limited liability partnerships (LLPs) to disclose their GHG emissions and other environment or energy-related information. as defined below:

• Quoted companies: These are companies that are listed on the London Stock Exchange or the Stock Exchange of any European Economic Area State or the New York Stock Exchange or Nasdaq.

• Large unquoted companies and large LLPs: These are companies that meet two of the following criteria: an annual turnover of £36 million or more, a balance sheet total of £18 million or more, or 250 or more workers.

According to an estimation by the Department for Business, Energy & Industrial Strategy, about 11,900 companies fall under the scope of the SECR, substantially greater than the 1,200 companies previously covered by the CRC scheme.

Penalties for noncompliance

Depending on nature of the breach, failure to comply with SECR provisions could result in enforcement action on two fronts: the Conduct Committee of the UK Financial Reporting Council or Companies House. The Conduct Committee monitors and reviews the annual reports of companies (including their Directors’ Reports or Energy and Carbon Report) to verify that they provide the required SECR information. When a breach of SECR requirements is identified, the Conduct Committee engages with the company to make corrections or additional disclosures, avoiding court involvement. On the other hand, Companies House, which examines and stores company and LLP information including annual accounts may reject accounts that do not conform to SECR requirements. Moreover, late filling of annual accounts to Companies House are liable to civil penalties. For private limited companies and limited Liability partnerships (LLPs), Companies House has established fines ranging from £150 for filing less than a month late to £3,000 for filling over six months late while for public limited companies, the range rises to between £750 and £15,000.

According to enforcement data released by the FRC, in the year ended 31 March 2024, 17 financial sanctions were imposed totaling £48.2 million (before settlement) and 40 non-financial sanctions. For late filling of annual reports by UK companies, enforcement data released by Companies House shows that between April 2023 and March 2024 £155.5 million was imposed in fines on 292,438 private limited companies, £1.3 million was imposed on 498 public companies, and £1.8 million was imposed on 3,824 LLPs. While not strictly in relation to SECR breaches, these general enforcement data from the FRC and Companies House give an indication of the consequences for noncompliance with SECR provisions.