As part of its simplification of energy regulation the Government has introduced new legislation for carbon and energy reporting by businesses – known as the SECR (streamlined energy and carbon reporting).
The Government has opted to use companies’ and LLPs’ annual reports as the reporting vehicle as this aligns with existing mandatory greenhouse gas reporting for quoted companies and the recommendation of The Financial Stability Board’s Taskforce on Climate-related Financial Disclosures to incorporate climate change disclosures in mainstream financial reporting.
The relevant regulations, the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, come into force on 1 April 2019 and will be applicable to financial years starting on or after 1 April 2019.
The regulations require large unquoted companies and LLPs to disclose annually carbon emissions, energy consumption, a description of any energy efficiency measures implemented during the relevant financial year and an intensity metric in respect of the UK and, if applicable, the offshore area. Companies are required to include the information in the directors’ report. LLPs will be required to produce and file an equivalent known as an “energy and carbon report”. After the first year, the reports must provide information for the current year and the preceding year.
To be excluded from the SECR reporting regime on the grounds of size, an LLP or unquoted company must satisfy two or more of the following requirements:
• turnover - not more than £36m
• balance sheet total - not more than £18m, and
• number of employees – not more than 250.
There are also provisions setting out the requirements for group reports where applicable and specific threshold tests to determine group qualification for the SECR. Additionally, there are provisions dealing with the classification of LLPs and companies which move across the threshold in different years for the purpose of SECR qualification. Broadly, a change in size must persist for two years to affect SECR classification.
The regulations also provide for the directors’ offences contained in sections 415 and 419 of the Companies Act 2006, which concern the failure to provide a directors’ report and the provision of statutorily non-compliant reports, to apply to members of LLPs in respect of energy and carbon reports.
There is an exception for small energy users (single entities or a group) which consumed 40,000 kWh or less of energy in the UK during the period to which the relevant report relates. They are only required to report their small energy user status. The SECR also introduces requirements for quoted companies to include information in their directors’ report on global energy consumption and any energy efficiency action taken.
The Government is due to publish final detailed guidance on the SECR.