Published on the Hollis website, February 2019
The Streamlined Energy and Carbon Reporting (SECR) framework – which replaces the much-criticised Carbon Reduction Commitment (CRC) scheme – will be introduced on 1 April 2019. Although schemes like SECR and CRC might be perceived as a burden they offer a means for businesses to measure and reduce their environmental impacts – crucial measures in the face of global environmental challenges such as climate change.
Many businesses will be pleased to see the back of CRC, but the new framework still requires a complex raft of carbon and energy reporting with overlapping data and submissions. In fact, SECR broadens the scope of the old scheme so that from April the number of businesses that will be obligated to report their greenhouse gas emissions under SECR will be treble that under the old regime – affecting an additional 8000 businesses.
Businesses need to assess whether they will fall under SECR and start planning now if they do. The mandatory reporting demanded by SECR will undoubtedly generate more paperwork but, with greater awareness of energy consumption it is anticipated that the scheme will also generate considerable energy cost savings.
Who does SECR apply to?
Effectively most large businesses will be subject to SECR. All quoted companies fell under CRC and they will continue to be covered by SECR. SECR will also apply to ‘large’ unquoted companies and LLPs. ‘Large’ means those that have two or more of:
· More than 250 employees
· Turnover more than £36m
· Annual balance sheet more than £18m
There are some exemptions, most notably for businesses that consume less than 40MWh. However, under the CRC the threshold was 6000MWh – so the new SECR limit will encompass many more businesses. To put this in perspective, it’s roughly equivalent to just 2.5 times the typical annual domestic consumption.[1]
With regards to landlord/tenant arrangements, the guidance states that the party responsible for the consumption of energy should take the responsibility for SECR reporting, and this should include energy consumption in rented serviced areas, where a tenant should report on energy consumption, despite not being directly responsible for its purchase. If energy consumption data is not available through sub-meters, for example, estimates should be used.
What are the benefits of SECR?
Although there will be additional paperwork and reporting, the government foresees that businesses reporting under SECR will reap benefits too: from 2019-2035 the government forecasts savings of £1,549m.
The savings will – it is anticipated – come about through more energy efficiency awareness. It is hoped that by increasing transparency in reporting, it will become clear to company management that energy is a real bottom line cost and that there are genuine opportunities to cut energy use. Keeping tabs on energy consumption - and introducing measures to address wastage and inefficiencies identified – should mean that businesses will use less energy, bringing carbon savings and saving money.
Further, businesses should also benefit from boosting their green credentials. This is becoming increasingly important as consumer choice continues to shift towards ethical and environmentally responsible businesses. Landlords will also benefit from the increased transparency as carbon and energy reporting becomes normalised. Tenant reporting obligations will also help landlords meet their own sustainability targets and energy efficient properties will be more attractive to tenants
What SECR will require
As under the CRC, the new framework will require energy and carbon data to be integrated into the annual directors’ report that quoted companies and some LLPs must send to Companies House. Bespoke energy and carbon reports will be required from other businesses covered by SECR.
The reports must include information relating to Greenhouse Gas (GHG) emissions, total energy use and an intensity matrix (emissions expressed as a ratio relating to, for example, revenue or the number of employees). Additional information must also be provided explaining what energy efficiency measures have been actioned over the financial year.
It’s worth noting that most businesses that are taking part in the Energy Savings Opportunity Scheme (ESOS) are likely to be captured under SECR too and data gathered for ESOS will also be useful when producing SECR reports.
[1] Calculated using ‘medium user’ data from: https://www.ofgem.gov.uk/gas/retail-market/monitoring-data-and-statistics/typical-domestic-consumption-values