(Somewhat) Streamlined Energy and Carbon Reporting (SECR)

The scope of SECR is different from both CRC and ESOS in terms of what needs to be reported and who needs to report. The number of undertakings obliged to report is predicted to be almost 12,000, increased from around 1,200 under the directors' reports legislation prior to unquoted companies being brought into scope; around 4,000 organisations reported in the last stage of the CRC and around 6,000 under ESOS. Deciding on the precise boundaries of the reporting requirements can be somewhat complex, particularly for international or multi-layered groups, or private equity/investment structures.

Quoted companies already bound to report their greenhouse gas emissions in accordance with Schedule 7 have expanded requirements.

Unquoted companies and LLPs which meet two or more of the qualifying conditions must comply with new reporting requirements – again note that these criteria are not the same as those under ESOS. The qualifying conditions are:

LLPs are within the scope of the new regime; however, other forms of partnership are not currently covered.

Public bodies are not covered (but are already obliged to report emissions), whereas charities and not-for-profit companies who file reports with Companies House must report if they meet the thresholds.

Entities that are not registered in the UK are not obliged to file reports at Companies House and will therefore fall outside the regime except, notably, for the purpose of determining the turnover of the group.

CRC and ESOS both operated a "one in, all in" approach to groups - even small subsidiaries had to be accounted for if the group qualified. Under SECR, entities which are part of a consolidated group for accounting purposes should prepare an energy and carbon report on this same consolidated basis; however, subsidiaries which do not meet the thresholds in their own right do not need to be included in the report.

A UK parent entity of a group which meets the thresholds above must report, even if it, alone, would not meet the thresholds. Again, the energy and carbon performance of companies within the group which do not themselves meet the threshold can be excluded, which may result in a group report reflecting very little actual energy and carbon usage, or the parent taking advantage of the de minimis exemption (see below).

Companies and other entities not subject to mandatory reporting may report on a voluntary basis, which may be relevant where emissions or energy from operations are difficult to allocate to one group company. On the other hand, there is no option for a company which is part of a consolidated group to voluntarily disaggregate in order to report separately rather than as a group (though it could do both).

The rules outlined above apply equally to fund structures where asset management entities manage a number of portfolio companies. However, the grouping rules are less aggressive than under both CRC or ESOS and will follow the more natural groupings used for accounting purposes.

For example, portfolio companies will in nearly all cases not be consolidated into the accounts of the parent fund or management entity and would not therefore need to be included within these parent entities' energy and carbon report(s). The portfolio companies would, however, need to consider their own qualification positions (both for themselves and any group subsidiaries), and report as required.

Asset managers may wish to draw portfolio companies' attention to the SECR regime, but in doing so, should be careful not to cross the line of actively managing, supervising or controlling the portfolio companies' compliance programmes.

Finally, LLP asset managers should be sure to consider their own compliance position. Although LLPs are in scope, their mechanism for reporting is different from companies' (see below). 

Reporting is part of in scope entities' Companies House annual filings. For companies, the information will be contained in their directors' report. LLPs will need to file a separate carbon and energy report.

Therefore, the timetable for reporting will vary according to the organisation's year end. The requirements apply from 1 April 2019, so any entity with a year beginning on or after that date must comply with SECR in their next set of reports. For example, an entity with a 31 December year end must file a SECR-compliant report shortly after 31 December 2020.

See the table for information which must be reported by quoted and unquoted companies; there are minor differences. LLPs must report largely the same information as limited companies though they do this via a standalone Energy and Carbon Report (as LLPs do not file directors' reports). Second and subsequent year energy and carbon reports must include the previous year's information, which will spotlight those entities whose environmental impact is remaining static or worsening over time.

There is a de minimis exception for organisations consuming less than 40MW of energy per year in the UK. This could be useful for UK branches where the group qualifies due to the size of overseas subsidiaries but the entity itself has no material operations. The directors' report should note that the company or group has low energy usage and has not therefore included an energy and carbon report.

An organisation need not report its energy and carbon usage where, in the opinion of the directors or members as the case may be, disclosure of the required information would be "seriously prejudicial" to the organisation's interests.  The Government's guidance on SECR makes it clear that this provision will apply in exceptional circumstances which may be questioned by the Financial Reporting Council. Examples given are where specific sensitivities arise from restructuring or acquisitions by an organisation in the run up to producing the relevant report, or when there are exceptional commercial sensitivity considerations. Reports must state that this exception has been relied on.

There is also an exception from reporting where it is impractical for the entity to obtain some or all of the information. In this case the report must state what information is excluded on this basis and why, and the guidance further suggests that an indication should be given of the materiality of the missing information.

Whereas companies can include a statement in their directors' report to the effect that they rely on an exception to the requirement to include an energy and carbon report, LLPs will need to file a separate energy and carbon report with no substantive content, just a statement that they rely on a particular exception.

Enforcement of SECR falls to the Conduct Committee of the Financial Reporting Council (FRC), rather than the Environment Agency which was the regulator for both CRC and ESOS. The Committee has powers of investigation and may also apply to the courts for an order requiring the organisation to prepare a revised report. FRC enforcement activities, however, tend to be cooperative in nature; formal investigations are low volume and focused on serious accounting breaches rather than administrative matters. Directors commit an offence if they knowingly or recklessly file a non-compliant report. Similarly, LLP members who fail to secure compliance with the requirement to prepare the energy and carbon report commit an offence. It is more likely that shareholders and investors will hold companies to account for their failure to report.

The Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 SI 2018/1155 amended the Large and Medium Sized Companies and Group (Accounts and Reports) Regulations 2008 SI 2008/410.

Schedule 7, which already required the disclosure of greenhouse gas emissions by quoted companies as part of the directors' report, is expanded to cover energy consumption and energy efficiency action.

A new Schedule 7A details the new requirements on medium and large unquoted companies to disclose greenhouse gas emissions, energy consumption and energy efficiency improvement activities.

Similar changes are made to the Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 SI 2008/1911, with the insertion of a new Part 5A requiring the production of an energy and carbon report.