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FRC thematic review on Streamlined Energy and Carbon Reporting

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FRC publishes thematic review on Streamlined Energy and Carbon Reporting

The Financial Reporting Council (FRC) has published a Thematic Review (Review) on reporting on emissions, energy use and related matters under the Streamlined Energy and Carbon Reporting (SECR) regime, which came into force in the UK on 1 April 2019 (introduced by the Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018), and which applies for financial years beginning on or after 1 April 2019. The Review therefore considers the first year of reporting under this regime.

The Review will be of interest to UK companies (and LLPs) which are in scope to report under SECR (see further below). The Review can be read easily by companies, as it highlights real life examples of reporting and best practice by a sample of companies.

Which companies are in scope of SECR?

Broadly, the SECR applies to UK incorporated quoted companies (ie in the UK, companies on the Official List, but not AIM companies), ‘large’ UK incorporated unquoted companies and ‘large’ LLPs. In essence, UK unquoted companies and LLPs will qualify as ‘large’ if they meet two or more of the following criteria:

  • More than 250 employees;
  • Turnover of more than £36 million; or
  • Balance sheet total of more than £18 million.

Parent companies will have to comply where, broadly, two or more of the criteria are met by the group.

The reporting requirements are detailed, broadly relating to emissions, energy consumption, the principal measures taken to increase energy efficiency (if any) and the methodologies used for calculation, and differ depending on the type of in scope entity. There is a useful summary at pages 6-7 of the Review.

What did the Review find?

The Review has looked at how a limited sample of companies and LLPs in scope have reported in line with the new SECR requirements, and highlights examples of emerging good practice.

However, the FRC found that more needs to be done to make the SECR disclosures understandable and relevant for those reading the annual report (such as investors). In particular, entities in scope need to explain more clearly how information is calculated, which operations and emissions are included in their reported numbers and the level of third-party assurance obtained over the information. They also need to consider how to integrate these disclosures with other narrative reporting on climate change, especially any emission-reduction targets.

The FRC also sets out their key expectations for disclosures made under the SECR regime in 2021 (see section 9).