26 February 2019

The new regime of Streamlined Energy and Carbon Reporting (SECR) comes into effect from 1 April 2019, applying to the financial reporting years of relevant organisations (i.e. quoted companies, large unquoted companies and large LLPs) that start on or after this date.

We looked at the substance of the regime in November 2018. So what is new? Well, on 31 January 2019 the Government published its revised Environmental Reporting Guidelines (the “Guidelines”), including a new section specifically addressing SECR. There is greater detail on the application of the new regime, the nature of information required, and the way in which reporting should take place. We have picked out some key points of interest and those that have the potential to present challenges to business.

1. SECR does not replace all other carbon/efficiency reporting regimes

The CRC energy efficiency scheme is closing in 2019 and SECR is intended to replace the reporting element of that scheme. However, other existing reporting regimes will continue. In practice, it may be that SECR works in parallel with existing regimes (for example, there will be considerable overlap with SECR obligations if your organisation is already required to report on GHG emissions in its directors reports).

Similarly, information collected in respect of other similar regimes, such as the Energy Savings Opportunities Scheme (ESOS) may also be useful in the context of SECR. However, these other schemes will also continue, and companies will still be required to comply with any separate requirements: for example, undertakings required to comply with ESOS obligations will still need to have regard to this year’s deadline of 5 December.

2. Differences between SECR and other regimes

Despite certain similarities between SECR and the predecessor CRC Scheme, as well as the ongoing ESOS programme, there are important differences to note with regard to compliance.

Group Obligations

SECR obligations apply at a group level, and so entities that are required to prepare a group Directors’ Report must take into account the information of any subsidiaries that are quoted companies, unquoted companies, or LLPs. However, in such cases there is the option to exclude any energy and carbon information relating to a subsidiary which the subsidiary would not itself be obliged to include if reporting on its own account (e.g. if that subsidiary is not itself a quoted company, if it does not meet the criteria of being "large" (see below), or if it is a low energy user, consuming less than 40MWh during the period covered by the report). 

This is distinct from the position under CRC. In that case, if a group qualified for a phase of CRC (by reference to total relevant energy consumption in a given reporting year), then all subsidiaries were also required to participate in CRC. It is also distinct from ESOS: should a group be required to comply with that regime, then all subsidiaries must comply, whether or not they would individually meet the qualification threshold.

Definition of Large Company

Unquoted companies and LLPs are only required to comply with SECR if they are “large”. A company or LLP will fall within this category where it satisfies two or more of the following requirements:

  • Turnover of £36million or more
  • Balance sheet total of £18million or more, and
  • 250 or more employees.

ESOS compliance is also determined by reference to “large” undertakings, however in that case an undertaking is “large” where it meets one or both of the following conditions:

  • It employs 250 or more people, and/or
  • It has an annual turnover in excess of €50 million and an annual balance sheet total in excess of €43million.

(While €50 million is close to £36 million, the SECR balance sheet threshold of £18 million is considerably less than the €43 million under ESOS – approximately £33 million).

Low energy threshold

CRC provided that where a group of undertakings collectively consumed less than 6,000MWh of relevant energy in a qualification year then that group would not be required to participate in that phase of the regime. By contrast, SECR has a considerably lower threshold (less than 40MWh of relevant energy, as noted above). Often this will be considered on an organisation-by-organisation basis. However, where an organisation is preparing a group report, it is necessary to assess the energy consumption of the parent and its subsidiaries (while noting also the principle above whereby energy and carbon information relating to a subsidiary can be excluded where the subsidiary would not itself be obliged to include it if were reporting on its own account).

Organisations will need to consider the need for SECR compliance from first principles. Despite similarities with previous and existing regimes SECR introduces its own complexities, and specialist legal and technical advice may be required.

3. Guidance on serious prejudice/impracticality

The legislation establishing SECR provides that information may be excluded from the regime where it is “seriously prejudicial” to the interests of the organisation or is not “practical” to obtain. Guidance has now been given in respect of both of these exclusions:

Serious Prejudice

Business are encouraged to rely upon this only in exceptional circumstances, such as specific sensitivities arising from restructuring or acquisitions by an organisation in the run up to producing the relevant report, or when there are exceptional commercial sensitivity considerations. The relevant report will be required to state that information is not being disclosed for this reason. The Guidelines indicate that Government expectation is for such situations to be very rare and warns that use of this exclusion may be questioned by the Financial Reporting Council.


Should an organisation be in the situation where it is not practical to obtain all required energy and carbon information, it must state what is omitted and explain why in the relevant report. The Guidelines also recommend that the organisation set out the level of materiality and the steps that are being taken to acquire the information. It is likely that this latter recommendation extends to setting out those steps being taken to attempt to acquire the information.

It seems clear that “serious prejudice” is intended as having a high threshold, and is likely to be subject to regulatory scrutiny. Practicality will also be a factually specific matter, however organisations will be expected to demonstrate that appropriate efforts have been made. In both cases careful consideration should be given to the grounds that the organisation intends to rely on for omitting information from the report.

4. Enforcement

The Guidelines note that the Conduct Committee of the Financial Reporting Council is responsible for monitoring compliance of company reports and accounts with the relevant reporting requirements, and so will be responsible for SECR (a notable change from the Environment Agency’s responsibility in respect of ESOS and CRC). 

The Guidelines also emphasise that the Committee operates as far as possible by agreement with business and that, to date, it has not had recourse to the Courts. It remains to be seen whether this continues in respect of SECR.

5. SECR as a starting point, not necessarily an end in itself

The last point we note is perhaps one more of tone than of substance. At a number of points the Guidelines indicate that strict compliance with the letter of regulation should not be the end point. For example, organisations are encouraged - but are not required - to voluntarily set forward-looking science-based emissions reduction targets (and recommends the framework developed by the Task Force on Climate-related Financial Disclosures accordingly). The Guidelines also note that, while there is no requirement in the implementing legislation for independent assurance of emission and energy use data, or of narratives on energy efficiency action, this is recommended as best practice.

From this tone it appears that the Government may have higher hopes from SECR than simply a partial replacement for CRC, but rather as an opportunity for businesses to be more open in their carbon and energy reporting. This ambition ties in to the growing importance of ESG (environmental, social, and governance) criteria as a key metric for investors: if businesses are looking to develop their ESG profile, an enhanced form of SECR may present the opportunity to do this.

Our environment team has experience on advising on the full spectrum of carbon reporting regulatory regimes (including CRC and ESOS) and are able to advise on the requirements of SECR as applying to specific organisations, both in the context of basic regulatory compliance, and of the fresh challenges posed in respect of this new regime, and as a possible starting point for a positive and proactive approach to managing environmental risk and demonstrating improvements against ESG criteria.

For further information please contact Michael Barlow or Stephen Lavington.

Key contact

Michael Barlow

Michael Barlow Partner

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

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