SECR: is British business ready?
The Government’s Streamlined Energy and Carbon Reporting (SECR) policy comes into force on 1st April, meaning that many large organisations will have new obligations for gathering and reporting their energy use and carbon emissions data. The reporting will need to be done for financial years starting on or after that date.
But when Monday morning rolls round, how many of the organisations who fall under the scope of the new rules will actually be ready to meet their new obligations?
Companies quoted on a stock exchange are already used to fulfilling certain carbon reporting obligations, but SECR updates the rules and extends the requirements to other kinds of company. Now it’s not just quoted companies who have an obligation to report, but any company or LLP that meets the Companies Act definition of “large”. The Impact Assessment on SECR carried out by the Department for Business, Energy and Industrial Strategy (BEIS) estimates that 11,900 organisations will fall under the scope of SECR, including the estimated 1,200 quoted companies that already come under the scope of Mandatory Greenhouse Gas (MGHG) reporting. (This number is expected to change from year to year as the circumstances of individual companies change.)
Hub industry experts estimate that only about 30% of businesses coming under the scope of SECR are even aware of the new legislation. We asked BEIS for their own estimate of how many organisations are likely to be ready for the 1st April rollout, but they couldn’t give us an answer.
The Government’s environmental reporting guidelines explain in detail which organisations need to comply with SECR and what they need to do. However, this information doesn’t benefit organisations who aren’t aware of SECR in the first place and don’t realise that it will affect them. Since publishing the guidelines and publicising them with a press release in late January, BEIS does not seem to have done anything further to make businesses aware of their new obligations. There hasn’t been any kind of formal notification, whether by email or letter.
There is therefore no evidence to contradict our expert’s assessment that roughly two-thirds of affected organisations currently know nothing about SECR at all.
Asked what they are doing to promote awareness of SECR, a BEIS spokesperson told the Energy Advice Hub: “BEIS will continue to work with Companies House and the Financial Reporting Council to support implementation, and to monitor how organisations respond to the new reporting requirements as part of its overall responsibility to review the impact of the legislation on businesses and the wider economy.”
Companies House has the power to refuse to accept accounts that don’t meet the SECR requirements and impose civil penalties if necessary. If a company’s annual report doesn’t meet the SECR rules, the Conduct Committee of the Financial Reporting Council can apply for a court order asking for a revised annual report. So it seems that BEIS will be working with these bodies to monitor and enforce compliance, but has done less than is necessary to ensure that companies actually know about SECR in advance of Monday’s reporting start date.
But there is some good news for unwittingly non-compliant organisations. While ESOS Phase 1 imposed fines of up to £50,000 for non-compliance, it seems that BEIS is taking a softer line on SECR. The BEIS spokesperson told us: “We do not see penalties as a key driver for action.” Perhaps the best “driver for action” of all would be to make more businesses aware of the new regulations.
BEIS response to our article
BEIS responded to our article on 2nd April 2019 with the following statements:
What proportion of companies that fall under SECR do you estimate are actually aware of it?
“We expect that the vast majority of companies should be aware of SECR given many of the estimated 11,900 in scope will also be participants in the Energy Savings Opportunity Scheme (which covers all large undertakings in the UK), quoted companies already reporting much of the required information under the existing MGHG Reporting requirements or CRC participants; and given the significant stakeholder engagement we did as part of the original consultation and more recent engagement set out below. Many of the companies we spoke to as part of the ESOS evaluation survey work indicated they were aware of SECR.”
Have you written to affected companies and what else are you doing to promote awareness of SECR?
“Beyond the work we did to promote the recent publication of the guidance, our direct communication with business has been via the Environment Agency newsletters, including those on ESOS, CRC, Climate Change Agreements which go to many of the SECR population as well as organisations which may not be in scope. We have also engaged directly with key business, trade and professional bodies (such as the CBI, Make UK, Major Energy Users Council, Retail Energy Forum, Emissions Trading Group and the accounting bodies) as well as energy managers associations (such as EMA and IEMA) via speaking slots at conferences and webinars and contributions to newsletters. BEIS is not the enforcement body for SECR and will continue to explore other direct communication channels with business via Companies House, who alongside the Financial Reporting Council, are the enforcement bodies for SECR. We are also aware of significant promotion activities on the upcoming SECR and ESOS deadlines by a range of private sector organisations.”
Is there any kind of grace period for companies that weren’t aware of their obligations under SECR?
“There is no grace period and companies are expected to comply from the first financial year that starts on or after 1 April 2019. We announced the date for implementation in July 2018 and the first SECR reports are expected to be filed at the earliest in April 2020. We did , consider the option to require SECR disclosure in any Annual Reports published after 1 April 2019, but the final decision was for the requirement to apply to financial reports for years starting from 1 April to give organisations time to put systems in place and to align with their current corporate reporting cycles.”