2021’s biggest SECR mistakes: did your business make any of these?
Businesses that have been in scope of the Streamlined Energy and Carbon Reporting (SECR) regulations since they came into force will now be in their third year of collecting data for reporting purposes. But that doesn’t mean that all businesses are following best practice. In 2021 the Financial Reporting Council (FRC) published a review of how SECR reporting is going, based on a small sample of UK businesses, and shared some of the common mistakes it found. Was your business guilty of any of these?
Not reporting energy use
All businesses in scope of SECR are required to report both their annual energy consumption and associated emissions. The guidance words this slightly differently for quoted companies as compared to large unquoted companies and limited liability partnerships, but the requirements are the same. Two businesses surveyed by the FSC reported their emissions but not the underlying energy use. This is not adequate; SECR requires both.
Conflating Scope 1 and Scope 2
SECR requires businesses to report both their Scope 1 (direct) emissions and their Scope 2 emissions (those arising from the consumption of purchased energy). Two companies surveyed by the FRC gave just one total figure for emissions in both scopes. SECR requires you to provide separate subtotals for each scope as well as giving a total figure for overall emissions in all scopes.
There is no legal requirement to get your SECR reporting independently verified, but the guidance encourages it. Many of the companies in the FRC’s sample did in fact obtain some kind of third-party assurance for their SECR disclosures, which is good practice. However, not all of them gave details beyond a simple claim that their report had been “audited” or “verified”. It is important to state which body checked the report and what the process involved, or claims to be “audited” are worthless.
Many of the businesses in the FRC’s survey sample went beyond the legal minimum and linked their SECR disclosures to emissions reduction targets. Some modelled best practice by sharing the details of their climate strategy, including timescales for achieving the longer-term targets. However, others were not so clear and, crucially, left out the metrics. Disclosure of any emissions reduction target should include a metric, whether that is absolute emissions or an intensity ratio.
Not explaining methodology
Some of the companies surveyed by the FRC did not fully explain their methodology for gathering and analysing energy and climate data. The FRC suggests including a brief summary of your SECR methodology in your annual report, but making a more detailed explanation available in a separate report for anyone who needs more information.
Only reporting CO2
SECR requires businesses to report their emissions of six greenhouse gases, and recommends reporting on a seventh if relevant. Their impact on the environment varies greatly; for example, a tonne of nitrous oxide has nearly 300 times the global warming impact of a tonne of carbon dioxide. For this reason, emissions of all greenhouse gases are expressed in terms of carbon dioxide equivalent, or CO2e. But the FRC found that a few businesses did not seem to be clear on this, and reported simply on “CO2” rather than “CO2e”. This probably means that they did not gather data on their emissions of any other gases apart from CO2, which could lead to a highly inaccurate picture of their climate impact.
SECR may not be new any more, but the FRC’s research shows that many businesses are still struggling with the complexity of the requirements. Some are not submitting adequate reports, while others are meeting the legal minimum requirements but not following best practice. If some of the pitfalls listed above look familiar, your business may benefit from expert advice in 2022.