Are you ready? UK firms urged to prepare for new green reporting rules

The government has published updated guidance to help companies prepare for sweeping new climate change transparency rules, which will require more than 11,000 UK firms to report on their energy use and greenhouse gas emissions from April 2019.

Announced last year, the mandatory Streamlined Energy and Carbon Reporting (SECR) regulations will apply to also UK listed companies, as well as large unquoted companies and large Limited Liability Partnerships (LLPs). Any non-listed firm or LLC will have to comply with the new rules if they boast at least two of the following: 250 employees; an annual turnover of more than £36m; or an annual balance sheet total greater than £18m.

The reforms expand the number of companies facing binding green reporting requirements, meaning roughly another 5,000 firms will have to report on their energy, CO2 and efficiency measures than at present.

The compulsory rules are designed to simplify energy and emissions reporting requirements, and will replace the CRC Energy Efficiency scheme, which covers around 4,000 organisations, when it closes after the 2018-19 reporting year.

The measures are designed to improve corporate transparency for investors and help drive energy efficiency gains to deliver "substantial cost-effective bill and carbon savings". The new rules will also build on existing requirements under the Energy Savings Opportunity Scheme (ESOS), the government said.

Claire Perry, Minister for Energy and Clean Growth, urged businesses to take steps to prepare for the April rule change.

"If you don't measure it, you can't manage it," she said. "New simplified rules will ensure more than 11,000 large businesses report on carbon emissions and cut down the amount of energy they use. The UK is already a world leader in cutting emissions, doing so faster than any other country in the G20. By accounting for carbon emissions, investors and shareholders will be able to see the opportunity and potential savings from cutting down on energy waste and increasing the efficiency of their businesses."

The government argues streamlining the rules will make it easier for businesses to report on their energy efficiency and carbon emissions, estimating the changes could save companies around £20m overall in administrative costs.

The changes are part of a suite of policies being implemented as part of the government's Clean Growth Strategy in support of its target to improve energy productivity in the private sector by at least 20 per cent by 2030.

The reforms are also designed to dovetail with voluntary global guidelines from the Taskforce on Climate-related Financial Disclosures (TCFD) which were set out by the Financial Stability Board in 2017 and which are designed to provide investors with more detailed and consistent information on company's climate risk and decarbonisation strategies.

Meanwhile, compliance with the SERC regime will be monitored by the Conduct Committee of the Financial Reporting Council (FRC) which has the power to enquire into cases where it believes relevant disclosures have not been provided by companies.

At the same time the government's wider Environmental Reporting Guidance, which also covers water use, air pollution and waste, was also updated yesterday to take account of the forthcoming SERC changes, and although there is no prescribed formula for reporting on wider environmental metrics the new guidance includes a template for companies to draw on.

According to the SERC Guidance, companies will be required to include details about their UK energy use - including electricity, gas and transport - and associated Scope 1 and 2 emissions in their annual reports, while quoted firms registered in the UK will need to report their global energy use and CO2.

There is no requirement in the legislation for emissions, energy use data and details of energy efficiency actions to be independently assured, although the government said it "would recommend it as best practice".

"Voluntary independent assurance on the accuracy, completeness and consistency of energy use, GHG emissions data and energy efficiency action is encouraged as beneficial to both internal decision-making and for external stakeholders," the updated Guidance states.

It stresses that companies should use verifiable data to calculate energy consumption and use "where reasonably practicable", either through obtaining meter data from an energy supplier, manual readings, supplier invoices or annual statements from suppliers. And, when calculating energy consumption from transport activities, an organisation "may make reasonable estimations based on verifiable data", it adds.

Explicit reporting on renewable energy and associated emissions is not a mandatory requirement either, although the Guidance nevertheless includes suggestions on how to report on clean energy secured through dual use contracts as well as Power Purchase Agreements.

Meanwhile, suggested energy efficiency actions for inclusion in annual reports include LED lighting installation, replacement of heating, ventilation and air conditioning (HVAC) systems and upgraded building insulation.

On risk, the Guidance recommends firms consider the materiality of greenhouse gas levels for their business, encouraging companies to "consider whether the collection and reporting of certain emissions or operations beyond those required for SECR would provide additional value for users in the context of your company's overall emissions data and management".

More widespread, detailed disclosure on the emissions, energy use and efficiency actions within businesses has long been touted as a key part of ensuring shareholders are made fully aware of potential climate and low carbon transition risks facing their asset, and for board members to ensure appropriate action is taken in long term planning.

The new SERC rules taking effect in April look to go some way towards that aim, but the full benefits of greater UK company disclosure on environmental impacts are likely to only become clear further down the line, when company strategies start to show significant shifts towards low carbon models.

The government's guidance this week provides a timely reminder that thousands more businesses face significant new environmental reporting requirements and as such the administrative challenge is not to be under-estimated. But as leading green companies have shown time and again, reporting accurately and effectively on environmental metrics is a critical step towards cutting costs, tackling environmental risks, improving investor engagement, and ultimately developing corporate strategies that are compatible with a sustainable, decarbonising economy.