Carbon reporting … en route to no carbon at all?

New business energy and carbon reporting rule changes don’t affect SMEs … yet … although early volunteers for SECR can benefit. Meanwhile, how big is the UK’s real carbon footprint, can zero-carbon be achieved and is our 80% greenhouse gas reduction target about to get much tougher?

Corporate carbon moves into the firing line

Beware – SECR is coming! In fact, for many “large” companies, SECR arrived on 1^st April 2019. Most SMEs, however, will have to wait a while for “streamlined energy and carbon reporting” to fundamentally change how they work.

The alternative, which the Low Carbon Programme recommends, is to volunteer for the best practice scheme designed to help investors assess companies and their proactive climate change commitments.

SECR?

What exactly is SECR (Streamlined Energy and Carbon Reporting)? This does seem to be proving to be a bit of a mystery for many UK companies.

SECR is the Government’s method of choice for encouraging business and industry to use less energy, raise productivity, cut costs, increase growth and radically reduce their greenhouse gas emissions (GHG), including carbon.

However, BEIS (Department for Business, Energy and Industrial Strategy) has been accused of introducing SECR very quietly. So quietly, in fact, that with only guidelines and a press release published in the New Year, outlining the full details now is particularly important.

But first, it may help to summarise why carbon made dramatic headlines again during April.

The good, the bad and the unexpected

One piece of good news is that Britain broke its own record for the longest continuous period of electricity generation without coal and carbon – more than 90 hours, which is the longest since 76 hours and 10 minutes in April 2018. The UK is also said to have done relatively well compared to the rest of the world in cutting its carbon emissions for the sixth year running – albeit at a slowing rate.

But while a new Government/wind sector agreement for 30% of UK electricity to come from offshore wind by 2030 is positive, other news is less reassuring. Greta Thunberg has questioned whether the UK has really cut its carbon by some 42% since 1990.

Lies, damned lies, and statistics

The young Swedish climate activist says the official figure only covers “terrestrial emissions”. With aviation, shipping and embedded carbon in imports, the figure is nearer 10%, she told MPs recently.

The Department for Business, Energy and Industrial Strategy (BEIS) says the question is complex when global supply chains are involved; its approach follows the UN Framework Convention on Climate Change and Kyoto Protocol.

Also in April, MPs on the BEIS Committee claimed that 15-years of “turbulent” government policy have held back vital development of the carbon capture, utilisation and storage (CCUS) technology needed to achieve zero-carbon. They want more clarity and funding for rapid development.

Political action

But MPs have passed a non-binding motion urging the Government to declare an environment and climate emergency. Scottish First Minister Nicola Sturgeon declared a “climate emergency” in her April SNP conference speech. The Welsh Government has made a similar move.

This was one of the demands of Extinction Rebellion members who, after ten-days of direct action in London, said they were disappointed in a meeting with Environment Secretary Michael Gove that he declined to back a climate emergency motion tabled by Labour leader Jeremy Corbyn.

Perhaps the most far-reaching development moving into May is recommendations from the Government’s advisory body, the Climate Change Committee (CCC) that the UK must legislate for a net-zero emissions goal by 2050. More details are mentioned later.

Meanwhile, SECR is designed to help working businesses tackle carbon.

Aiming at the corporate and private sector

From October 2013, companies listed on the London Stock Exchange, in the European Economic Area, or on the New York Stock Exchange or NASDAQ, have had to measure and report their GHG emissions through a robust independent standard that not only presents all data clearly but also shows how it differs from information given in conventional consolidated financial statements.

It was soon recognised that measuring, managing and reducing carbon emissions is an effective way for companies generally to identify their carbon footprints and set important environmental targets within their supply chains.

Until recently, the rules only applied to large listed companies. Now, as a result of the Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, they are being trickled down to large unlisted businesses through SECR.

Under SECR, qualifying organisations must include new energy and carbon reporting data in their annual reports to cover forthcoming financial years starting within the 12-months leading up to 31^st March 2020.

BEIS has communicated via Companies House and the Financial Regulatory Council, Environment Agency newsletters, business trusts and professional bodies – plus EMA and IEMA – and estimates that some 11,900 organisations are affected at this stage – including circa 1,200 quoted companies.

However, because SECR will only apply to financial years starting after 1^st April 2019, companies have time to prepare. The earliest reports will be submitted in April 2020, meaning that companies can put new systems in place and synchronise them with existing corporate reporting cycles.

Moving forward

SECR builds on – but does not replace – existing requirements, such as Mandatory Greenhouse Gas (MGHG) reporting for quoted companies, the Energy Saving Opportunity Scheme (ESOS), Climate Change Agreements (CCA) Scheme, EU Emissions Trading Scheme (ETS) and Climate Change Levy increase. It also coincides with the end of the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme.

What happened on 1^st April 2019 is that SECR updated the rules and extended the requirements not only to quoted companies but also to all unquoted companies or limited liability partnerships (LLPs) seen as “large” under the Companies Act 2006.

“Large” is generally defined as meeting two of the three following criteria within a reporting period: – having more than 250 employees; an annual turnover greater than £36 million; and/or an annual balance sheet greater than £18 million.

New requirements

Quoted companies, according to the Carbon Trust, must continue to report their “global scope 1 and 2” (direct and indirect) GHG emissions in CO₂-equivalent tonnes (all seven gases under the Kyoto Protocol) within their Directors reports, plus at least one emissions “intensity ratio” for current and previous reporting periods.

However, they must now also report their underlying global energy use split between the UK and offshore countries, again with previous year comparisons after the first SECR reporting period.

Unquoted large companies and large LLPs now have to report at a minimum their UK energy use from electricity, gas and transport fuels (in company vehicles, including reimbursement for employee business mileage, but not external air, rail or taxi journeys, or third party contractors), plus associated GHG emissions and at least one intensity metric – such as tonnes of CO₂/kWh for the energy sector, or tonnes of CO₂/m² for the property sector

Reporting must include a description of steps taken to improve energy efficiency in the relevant year, plus resulting savings if known. Where no measures are taken, this should be reported.

Although no specific methodology is prescribed, the selected methodology must be shown and be robust, transparent and widely-accepted. Scope 3 “corporate value chain” indirect emissions should also be given, with the voluntary disclosure of any additional sources of energy or GHG emissions.

Exceptions

There are of course exceptions. Although local authorities, government departments and statutory agencies are not covered by SECR, they report carbon in their annual reports under other legislation. Devolved administrations have their own systems. Not-for-profit bodies, such as companies and LLPs owned by universities or NHS trusts, come under SECR rules.

Another important area for clarification is the distinction between group and subsidiary level SECR reporting – the rule is to avoid duplication on an either/or basis. One other sub-group is companies within the SECR definition using no more than 40MWh. They must submit total energy calculations but also state why they are low energy users.

A further area for temporary exemptions is sensitive situations, such as takeovers, where releasing information could arguably be prejudicial. Also, if specified data cannot be collected in a specific year, it is important to explain why, the impact and how it will be provided in future.

Making waves at the top

Business is increasingly concerned about emissions. Legal & General Investment Management – covering £1 trillion of UK pension funds – believes the world faces a climate catastrophe that businesses must tackle urgently or risk losing shareholder support. Director of Corporate Governance, Sacha Sadan, says L&G is getting tougher with boards and managements.

In parallel, Bank of England governor, Mark Carney, and his counterpart, François Villeroy de Galhau, warn that companies and industries which don’t meet dangers facing the global economy “will fail to exist”. They add that: “Carbon emissions have to decline by 45% from 2010 levels over the next decade in order to reach net zero by 2050. This requires a massive reallocation of capital”.

Radical carbon update

The CCC says meeting the popular call for net-zero emissions by 2025 is not practical but can be achieved by 2050.

The Climate Change Act 2008 set the current 80% target which the CCC agrees has achieved a 43% cut since 1900, with economic growth of 66%. To meet a 100% target, it recommends big cuts in red meat-eating, millions of new trees, onshore wind turbines, more electric vehicles (EVs), less flying, less waste, plus more households replacing domestic gas boilers with renewable alternatives.

On CCUS, the Government’s 2030 ambitions have been described as “so broad as to be meaningless; BEIS select committee members say delay could double the cost of meeting the UK’s climate change targets from 1% of GDP in 2019 to 2% by 2050.

Final carbon footnote

UK greenhouse gas (GHG) emissions fell by 2.5% in 2018 compared to 3% in 2017 and 16% in 2016 – making a total of 43.5% since 1990. This means that theoretically at least, Britain is over halfway towards its self-imposed commitment of an 80% reduction by 2050. However, this was the easy half.

Specifically, UK CO₂ emissions fell by 2.4% to 364.1 million tonnes while global releases reached a 2018 all-time high, rising by 4.7%, 2.5% and 6.3% in China, the US and India. But there is potentially bad UK news on the horizon that needs urgent action.

Having beaten its first and second carbon budgets by 36 MtCO2e and 384 MtCO2e, with an 88 MtCO2e surplus predicted for the third from 2018 to 2022, BEIS acknowledges that the UK is on course to breach its fourth and fifth budgets by 139 million and 245 million tonnes of carbon dioxide equivalent (MtCO2e).