03 August 2018

There are significant changes pending to carbon reporting in the UK. The next year will see the closing of the CRC Energy Efficiency Scheme (CRC), the key domestic tool for reporting on and accounting for carbon emissions.

On 18 July 2018, in a response to consultation, the government confirmed that the reporting element of the scheme is to be replaced by a new regime, the Streamlined Energy and Carbon Reporting system (SECR), which is intended to be incorporated into the annual reports filed at Companies House. This change of approach to reporting will require action by those companies currently subject to CRC. It may also extend to companies that have, to date, avoided involvement with CRC.

Requirement to report and to surrender allowances under CRC

The CRC operates on the basis of qualification years and compliance years. If an undertaking met the relevant requirements during a compliance year (2012-13 for current Phase 2 of CRC), then that undertaking would be obliged to comply with the CRC’s requirements for reporting on energy usage and accounting for such usage. This is done through purchase and surrender of allowances throughout the relevant compliance phase (Phase 2 ends in 2019).

Broadly speaking, if an undertaking did not meet these requirements it would not be required to comply with either the reporting element of the CRC or the need to purchase or surrender allowances.

Carbon reporting from 2019 and increase to Climate Change Levy

By contrast, from 2019 all quoted UK companies, all 'large' unquoted companies (as defined in the Companies Act 2006), and all ‘large’ Limited Liability Partnerships will be required to report their energy consumption and greenhouse gas emissions as part of their directors’ reports (or in equivalent form for LLPs). However, low energy users (i.e. those using 40,000kWh or less in the year of reporting) that would otherwise be subject to the SECR will not be required to report. This aligns with the threshold applied under the Energy Savings Opportunity Scheme.

While the reporting obligation is to continue in this new form, the financial element of CRC (the revenue from the purchase of allowances under the scheme) will be replaced by an increase in Climate Change Levy, intended to ensure that closure of the CRC will be revenue neutral.

Actions for business

This change is representative of a growing trend of company reports being used as a vehicle for public disclosure of information relating to environmental impact.

In tandem with these mandatory requirements, there is also a move towards voluntary disclosure of ESG (environmental, social and governance) impact and greater use of ESG policies by funds and investors who want to make a virtue of sustainable finance. Such transparency will be seen by many as a positive move, but it does bring with it risks.

Scrutiny from those who seek to hold businesses to account, such as NGOs and campaign groups, is on the rise, and businesses must ensure that reporting is precise and evidence-based to avoid accusations of ‘greenwash’, or worse.

How can Burges Salmon help?

For further information in respect of obligations during the phase out of CRC, or transition to the new regime, please contact Michael Barlow, Stephen Lavington or your usual Burges Salmon contact.

Key contact

Michael Barlow

Michael Barlow Partner

  • Head of Environment
  • Head of Water
  • Head of ESG

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