The essential CFO: Streamlined Energy and Carbon Reporting

Streamlined Energy and Carbon Reporting (SECR) was introduced by the government in 2019 to replace the Carbon Reduction Commitment (CRC) Scheme. SECR requires obligated companies to report on their energy consumption and associated greenhouse gas emissions in their financial reporting for Companies House. Organisations will also need to report on any energy efficiency measures and state emissions with reference to an intensity metric.

Does SECR apply to charities?

SECR applies to all quoted companies, large limited liability partnerships, and large UK incorporated unquoted companies, including charitable companies, if they meet two or more of the qualification criteria:

• 250 or more employees
• Turnover in excess of £36m
• Balance sheet in excess of £18m

It applied to the financial statements for accounting periods that commenced on or after 1 April 2019, meaning that all charities required to report will have done so at least once, and most now twice.

While there is no figure for how many charities are caught by the requirements, it is estimated that around 12,000 organisations overall in the UK need to comply.

What needs to be reported on?

Charities caught by SECR requirements will need to make public disclosures in their trustees’ annual report (TAR). This is divided into three scopes:

• Scope 1 – direct greenhouse gas (GHG) emissions
• Scope 2 – Energy indirect emissions
• Scope 3 – Other indirect emissions 

To provide context on the above, the following also needs to be included in the report:

• At least one intensity ratio – comparing emissions data with an appropriate business metric or financial indicator such as sales revenue or square metres of floor space
• Previous year’s figures for energy use and GHG emissions (except in the first year)
• Information about energy efficiency action taken in the financial year – including any significant changes in emissions since the previous year
• Methodologies used in calculation of disclosures, including the percentage of any estimated activity; any conversion/emission factors used and detail of any exemptions taken

Are there any other exemptions available?

If an obligated organisation calculates that it has consumed less than 40MWh in the reporting period, it is considered to be a low energy user and disclosure is not required, although a statement must be made in the TAR stating this.

Who is responsible for reporting?

As the company’s directors, charity trustees are ultimately responsible for the disclosures, as they form part of the TAR.

How important is it for charities outside of the thresholds?

Unincorporated charities of any size and incorporated charities that don’t meet the Companies Act definition of a large company are not required to make any climate related disclosures. However, all charities should be aware of the Task Force on Climate-related Financial Disclosures (TCFD) (see Task Force on Climate-Related Financial Disclosures | TCFD) (fsb-tcfd.org)).

TCFD is a global framework for companies wishing to report how climate change will affect their businesses. While currently a voluntary framework, the UK government reportedly plans to make it mandatory across the economy.

As this will be a step change in what all entities need to report, charities will need to start thinking about the implications of this and how they will obtain the required data to meet the reporting requirements. Planning and data collection now will lessen the burden of future mandatory disclosure.

Clearly, environmental reporting is here to stay, with requirements only likely to increase. For charities contracting from government, for example, environmental management is already being built into large government procurements.

The expectations of stakeholders, including donors, funders and beneficiaries, around an organisation’s environmental impact are also increasing so it is something charities of all sizes should be mindful of. Environmental charities should certainly pay regard to these issues, if they are not already doing so.

What are the challenges?

Anecdotally, a number of charity auditors have stated that adopting SECR requirements has not necessarily been straightforward and has in some cases required charities to reperform comparative data having discovered in year two of adoption that the initial data provided was not accurate. Collating the information can be a challenge, and some charities have engaged a third-party firm to assist in this.

There is a view that SECR reporting can be regarded as using up valuable charitable time and resource, and there are questions about the increasing desire to make everything public in the TAR, or if is the right document for some of these statements. However, other charities and observers feel that it simply codifies what they have been reporting for years as they already felt passionate about their environmental impact and have welcomed the focus brought by the legislation.

Who is doing it well?

Crowe produced a study in July 2022, which assessed the reporting by 24 large charities. It highlighted Marie Curie as a good example of simple disclosure, and Royal Parks as one that had presented more detail well.

Conclusion

While only very large charities must comply with SECR reporting, it is increasingly part of the wider focus on environmental, social and governance (ESG) factors.

As a rapidly evolving area, some may voluntarily adopt new frameworks to ensure they are in a good place when wider or new requirements come in, even if they don’t meet the size criteria, particularly if they have environmental objectives or wish to pre-empt stakeholder questions or concerns.

For charities for who it is already mandatory, the challenge is to capture accurate information, and consider how disclosure can help drive improvements rather than merely being a tick-box exercise.