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On 1 April 2019, the new SECR framework will be introduced requiring additional carbon emissions, energy use and efficiency reporting by quoted companies, large private companies and large limited liability partnerships (LLPs).
The new reporting requirements will apply to financial years of companies starting on or after 1 April 2019. They will run alongside closure of the CRC from the end of the 2018/2019 compliance year (revenue lost from closure of the CRC will be recovered through an increase in the climate change levy).
We briefly outline below the key changes coming into play – for greater detail, please see the revised Environmental Reporting Guidelines published by the UK government. These are designed to help companies and LLPs comply with their obligations under the new regime and set out where and when they need to report.
A "large" company or LLP is one which meets two or more of the following criteria within a financial year:
Where a company or LLP moves across these thresholds in a financial year, smoothing provisions will apply.
Chapter 2 of the revised Environmental Reporting Guidelines sets out in detail the additional reporting requirements imposed. These vary according to the type of entity involved and can involve reporting on:
We recommend referring first to the flowchart set out on page 32 of those guidelines, which guides you through the applicability of the new regime to your business.
Also, helpfully, the guidelines above include reporting templates (at pages 49 and 52) which organisations are strongly encouraged to use to facilitate consistency of disclosed information.
For a company, reporting will be through the directors' report, as part of the company's annual report. For LLPs, reporting will be through a new "energy and carbon report" (equivalent to a directors' report) for each financial year.
Yes, if the company or LLP uses 40,000 kWh or less of energy in the relevant financial year or if disclosure of energy usage would be "seriously prejudicial to the interests of the company". Statement(s) to this effect will need to be included in the directors' report or energy and carbon report.
There are also exemptions where a company or LLP is included in group reports (subject to certain conditions).
Although not strictly an exemption, note that disclosure is only required to the extent it is practical to obtain the SECR information. Where any such information is not included, the directors' report or energy and carbon report must detail this and give reasons why.
UK subsidiaries qualifying for SECR in their own right will not be required to report where they are covered by a UK parent's group report (subject to certain conditions). They can, however, report on a voluntary basis.
Where a parent company is not registered in the UK, any of its subsidiaries registered in the UK who qualify for SECR in their own rights will need to report.
Non-UK incorporated companies will not need to report as they are not required to file annual reports at Companies House.
If a LLP is a parent LLP and members of the LLP prepare group accounts, the energy and carbon report must be a consolidated (group) report.
Failure to prepare the necessary SECR disclosures and report on them will constitute a criminal offence punishable by a fine.
Companies and LLPs need to assess whether they are likely to be captured by the new SECR regime and think through how they are going to collect the data required to ensure compliance.
This is only a brief overview of the proposed changes and we recommend seeking specific legal advice if your entity or group structure is likely to be caught by the new framework.
As with many recent and upcoming legislative changes, the SECR regime seeks to impose and ensure greater corporate accountability and social responsibility on UK business entities.
The SECR regime will run alongside the existing Energy Savings Opportunity Scheme (ESOS). The UK government has indicated that it will review how the SECR framework will interact with ESOS following completion of its evaluation of the impact and effectiveness of the first phase of ESOS.
(1) A quoted company in this instance is a company whose equity share capital is included in the Financial Conduct Authority's Official List (i.e. not the AIM), is officially listed in an EEA State or is admitted to dealing on either the New York Stock Exchange or NASDAQ.
If you would like detailed advice on any of the above matters, please do get in touch.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2019. Specific advice should be sought for specific cases. For more information see our terms & conditions.
25 March 2019
by Alison Johnson