In April 2019, BEIS introduced Streamlined Energy and Carbon Reporting (SECR). SECR is new reporting legislation that requires qualifying companies to disclose key energy usage and greenhouse gas emissions in their annual accounts published on Companies House. This article seeks to explain why SECR is a significant new compliance overhead, and how good data management for climate impacts can reduce these overheads, reduce the cost of compliance, and bring spill-over benefits to companies.
Disclosure means exposure
SECR is novel for businesses in several ways. While SECR came in as the CRC ended and is often labelled its replacement, it serves a different purpose to the CRC. The CRC in large part was a taxation framework. There is no direct cost associated with complying with SECR. The tax revenue the CRC was intended to generate was instead carried over into the Climate Change Levy, whose rates rose significantly in April 2019.
SECR is purely a disclosure framework. It also impacts many more companies than similar legislation. The CRC impacted around 2,000 companies, while ESOS impacts around 4,000. Both these regulations require companies to measure their energy usage, and in the case of the CRC, disclose it to the Environment Agency. The CRC required a yearly assessment of energy usage, but only included utilities in its scope. While ESOS requires a complete assessment of company energy usage, it only requires this assessment to be made every four years. For ESOS, disclosures of energy usage and emissions are not made public.
SECR, in contrast, requires a broad assessment of energy usage and emissions to be made on a yearly basis, and for it to be publicly disclosed in the same way finances are, as a new section in yearly published accounts. Furthermore, SECR impacts close to 12,000 companies. Thousands of these companies will never before have been expected to assess a broad scope of their energy and emissions, let alone make these assessments on a yearly basis or publicly disclose them.
Companies disclose their finances for the purpose of transparency. With energy and emissions now brought into yearly accounts, the definition of transparency for companies has effectively been expanded to include elements of sustainability. Because the disclosures are public, companies are motivated to make them high quality.
The need for 2020 Vision through software solutions
For companies without a grasp on sustainability data management, making high quality yearly disclosures for SECR could be daunting. While utility energy data are accessible and easily associated with emissions, many companies will be expected to go well beyond this scope in their disclosures. Transport, process, fugitive, and LULUCF emissions, for example, require data that is often not immediately accessible and documented modelling of that data that will be unique to the company. Preparing yearly energy and carbon reports could become a significant overhead cost for companies without embedded processes for handling sustainability data.
Information technology is crucial to sustainability data management. Software solutions for companies to log their climate impacts have huge potential to reduce the overhead costs of preparing energy and carbon reports. When selecting this software, companies should look for the following capabilities:
- Creating detailed and flexible corporate structures
- Attributing climate impacts to specific corporate entities
- Modelling of emissions using up-to-date government methodologies (in the UK, Defra methodologies should be supported)
- Uploading data in bulk or periodically using templates
- Creating reports that output processed data in the format needed for SECR
Implementing sustainability data management into operations brings fundamental change
Implementing sustainability data management, especially using software, and making continuous collection of sustainability data an operational policy, can make companies much more reactive to their climate impacts as well. Impacts can be viewed in real time, rather than revealed retrospectively. Software solutions can also enable companies to impose targets on key climate impacts they wish to reduce. Effective monitoring and targeting alone is estimated to reduce absolute emissions by up to 5% thanks to the behaviour change it encourages.
SECR is intended to make sustainability disclosures a norm for businesses. Disclosure and action are inseparable. Companies with the most effective systems for monitoring and disclosing their climate impacts are in the best standing to manage and reduce their emissions over time.
Nick Fedson – Sustainability Analyst, Alfa Energy
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