What is SECR reporting?
SECR, which stands for Streamlined Energy and Carbon Reporting (link resides outside ibm.com), is a sustainability reporting framework which is mandatory for large organizations in the United Kingdom (UK). It looks at not only the greenhouse gas (GHG) emissions produced by the organization, but also the efforts taken to improve energy efficiency.
The SECR framework aims to promote transparency for stakeholders around an organization’s energy and carbon use, while also encouraging cost savings and emission reductions. Rather than simply reporting on energy and emissions in isolation, the SECR framework contextualizes an organization’s emissions by requiring organizations to provide a narrative (explanation of efforts undertaken), methodology (using an independent standard such as GHG Reporting Standards (link resides outside ibm.com)—Corporate Standard) and intensity ratio (comparing emissions data with a business metric).
When was SECR introduced?
The SECR policy was implemented on 1 April 2019, when the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 (link resides outside ibm.com) commenced. SECR’s introduction also coincided with the end of the Carbon Reduction Commitment (link resides outside ibm.com) (CRC) Energy Efficiency Scheme.
CRC was a complicated reporting framework that only impacted around 2,000 organizations. It was also used for taxation reporting and did not align to other global standardized ESG reporting frameworks.
The introduction of SECR also aligned with recommendations of the G20 Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (link resides outside ibm.com), to support organizations to make sustainability improvements, while also providing information for investors and stakeholders.
Is SECR mandatory? Who needs to report on SECR?
For over 11,900 organizations across the UK, SECR is a mandatory annual reporting requirement. It is a requirement for:
- All quoted companies (i.e. companies listed on the public exchange), who are already required to comply with greenhouse gas reporting
- ‘Large’ unquoted companies that are incorporated in the UK
- ‘Large’ Limited Liability Partnerships (LLPs)
As per the Companies Act 2006, companies are considered ‘large’ if they meet at least two of the following criteria:
- A turnover of at least £36 million
- A balance sheet of at least £18 million; or
- At least 250 employees
However, there are exemptions. Organizations that use a low level of energy (40MWh or less over the reporting period) are not required to comply with SECR. Public sector organizations and those undertaking public activities, such as charities, universities, hospitals and academies are also not required to submit SECR reporting, however they are still encouraged to report on their energy and carbon use in a similar manner.
When measuring the 40MWh threshold, an organization must consider all the energy from gas, electricity and transport fuel usage in the UK that they are responsible for.
Although many organizations are currently exempt from mandatory reporting because they are not within the scope of the requirements, the government is encouraging voluntary participation to support transparent ESG reporting.
How do you calculate and report to SECR?
Requirements for Streamlined Energy and Carbon Reporting differ depending on the type of organization. At a minimum, an organization will need to report:
- Energy use which includes gas, purchased electricity and transport fuel, along with GHG emissions
- Information around methodology used to measure energy use and emissions
- A narrative description of efforts taken to improve energy efficiency over the last 12 months
- An intensity ratio which is used to compare emissions data with a business metric, to allow for comparison with similar businesses and previous years
- Equivalent figures from previous years as a base for comparison on changes and improvements
Scope 3 emissions reporting, which relates to upstream and downstream supply chain and is anything outside of an organization’s operational or financial control, is not currently a mandatory element. However, it is voluntary and should be considered to get the most accurate picture of an organization’s impact.
Some aspects of the SECR framework are flexible to provide simplicity and encourage compliance. For example, while no methodology for SECR is explicitly required, all methodologies must be disclosed, and they should be robust and accepted processes for measuring energy use and greenhouse gas emissions.
Another example is the intensity ratio requirement. An organization may look at tonnes of CO2e per sales revenue, while another may measure tonnes of CO2e per square meters of floor space. The intensity ratios are not prescribed but are open, so that the most relevant indicator is disclosed for context.
From 2020-2021, the prior year’s figures are also required to be disclosed for comparative purposes.
SECR disclosures should be accessible to stakeholders and easily understood. This information needs to be included in a company’s ‘Directors’ Report,’ ‘Strategic Report’ or equivalent, each financial year.
How to report to SECR with ESG software
Collating ESG data from different sources and ensuring its accuracy is a laborious process for many organizations, particularly for those who are new to SECR and are mandated to report on their footprint.
Sustainability software greatly simplifies this process by consolidating emissions and energy information in one platform, along with calculating GHG emissions. Envizi’s ESG reporting software, for example, does this heavy lifting for organizations and tracks targets year-on-year in an auditable platform to support accuracy, compliance and easy data management.
Envizi also supports the SECR framework through a visual PowerReport dashboard. This report allows users to take the required quantitative usage data out of Envizi, and have it matched to requirements laid out in SECR data.
What is the future of the SECR framework?
The Streamlined Energy and Carbon Reporting framework is still relatively new, however it has forced many organizations to look at their environmental impact for the first time and report on it in a transparent way.
In recent years the UK government has taken further steps to encourage emissions reporting and reductions. For example, in mid-2021 a transportation decarbonization plan (link resides outside ibm.com) was announced to achieve net zero emissions across the sector. In November 2021, new legislation was introduced to make electronic vehicle (EV) charging points mandatory (link resides outside ibm.com) in new homes and buildings. These steps suggest that Scope 3 emissions reporting, which relates to emissions outside a business’ operational or financial control, will become integral to SECR instead of a voluntary inclusion.
While the current focus of SECR is on reporting results and setting benchmarks through intensity ratios and year-on-year comparisons, a move will likely be made to include targets. The government has set targets (link resides outside ibm.com) for decarbonization and sustainability. To help organizations achieve them, greater emphasis is likely to fall on private industry, who will be encouraged to improve their environmental impact, instead of simply reporting on their emissions footprint.
