Finance chiefs: all is not lost to be ESOS and SECR compliant

TIME may have run out for businesses to meet the deadlines for ESOS – but all is definitely not lost.

All that’s needed is quick action, particularly in the case of ESOS Phase Two compliance to avoid any potential fines.

So, here’s some vital advice for those who missed the ESOS date at the end of 2019 as there are measures you can take to mitigate penalties. Simply make your submission as soon as you can, and this will be taken into account by the Environment Agency in the event of any enforcement action that may, or may not, follow.

As for SECR – the Streamlined Energy and Carbon Reporting framework that requires qualifying businesses to include an annual submission on energy use and carbon emissions along with the director’s report filed with Companies House – there’s less of a panic. However, it’s still vital to act quickly to make sure all the necessary work has been completed to be compliant.

We had a particular query last week from a company Chief Finance Officer, referred to us by a client, who was alarmed over not only missing the deadline for ESOS but also worrying about what’s needed to comply with ESOS and with SECR.

Our advice was not to panic but to realise that for any concerned CFO – and for countless other Finance Directors and Company Secretaries – SECR will not go away.

The new SECR energy and carbon reporting regulations came into force in April 2019, and 2020 will be the first time more than 11,900 businesses will publicly need to report their carbon emissions and implement energy-saving measures. The timing and contents of submission reports depend on the individual company’s year-end, size and type.

SECR regulations are now in force so best to embrace the issue this way:

Plan your strategy, understand your risks and implement energy efficiency measures when it suits. This is the only guaranteed way to ensure your business isn’t paying more than it should and, in today’s volatile energy market where it is inevitable that energy bills will only increase, it’s financially prudent to ensure energy isn’t being wasted.

  • Finance Directors, Chief Finance Officers and Company Secretaries need to ask themselves what would be best: publishing a report that is full of proactive efficiency projects or one that shows no real effort to improve sustainability at all?
  • All-year-round planning is key – don’t wait until your year-end approaches. Although SECR reporting comes only once a year, our advice is that affected firms should be planning all year for how to effectively meet their SECR requirements when deadline day comes and to ensure they benefit fully from its key elements.
  • Implementing measures as part of a company’s wellbeing strategy can be a key differentiator and go a long way to ensure employees remain happy at work. After all, a happy workforce is a productive one. Controlling energy in real-time, monitoring emissions and environmental conditions is an important factor which can bring a real competitive edge to any business. As well as showcasing sustainability credentials, this can help with employee attraction, engagement and retention initiatives and will enhance the company’s branding.
  • Any business planning to use consultants to help with energy efficiency measures needs to make sure they have the skillset and experience to deliver long-term benefits that can be robustly measured. There’s no point working with a consultancy which does not have the capacity or expertise in planning and implementing energy/carbon efficiency programmes.

It is important to:

– Make sure they have a clear track record and can show you case studies. If they can’t do this, then don’t use them!

– Consider their professional status.

– Ensure they are fully conversant and experienced in collating, analysing energy- use data and have the necessary technical skills to interpret and make recommendations to engineering and FM/operational teams.

STEPS TO SECR COMPLIANCE

The main impact

The move from the Carbon Reduction Commitment energy efficiency scheme (CRC) to SECR will have virtually no effect on large quoted companies from a reporting viewpoint but could have significant benefits if approached as part of a strategy to reduce emissions.

CRC scheme

As the CRC direct “tax” is being replaced by an increase in Climate Change Levy (CCL), which applies to every UK business regardless of size, CRC participants may eventually see up to 25 per cent savings overall as a result of SECR.

SECR’s main impact then will be on the additional 9,000 or so organisations that from April 2019 will have to report on their gas, electricity and transport energy use for the first time. It will also apply to all businesses which will be paying an increase in CCL as well as rises in related non-commodity charges (NCCs) such as supply network and transport charges and renewable subsidy schemes.

You qualify if you are:

  • A UK quoted company
  • A large UK registered company fulfilling two of the following:

– More than 250 employees

– Annual turnover of more than £36m

– An annual balance sheet greater than £18m

When do you have to file your report?

This applies to your financial years starting on or after 1 April 2019

Earliest filings

Summer 2020, covering April 2019 to March 2020

Failure to comply

There are potential financial and legal implications if companies fail to comply, particularly for quoted company secretaries.

FOUR STEPS TO COMPLIANCE

1. Gap analysis:

  • Review existing and historical data
  • Review current reporting methodology
  • Review current energy strategy and any initiatives in place, including ESOS notifications, appropriate ISO systems and supporting documentation
  • Summarise steps to bridge the gap in order to comply with SECR, including data management, assessment of risks and expected outcomes

2. Data collection and analysis:

  • Implement any recommendations from gap analysis, making sure that data is consistent, accurate, robust and readily available to all key stakeholders
  • Ensure value-driven processes are in place to allow meaningful analysis and promote real-time decision-making
  • This is the critical bit – if done correctly, this will save money, time and carbon and provide untold benefits. See top tips above.
  • If you don’t do it correctly, you will be left behind, and investors will be able to benchmark businesses and make decisions as appropriate.

3. Calculations:

  • Energy usage and GHG emissions in line with SECR and other protocols where appropriate

4. Making submissions

  • Annual Directors’ report – quoted and unquoted companies
  • Stand-alone carbon and energy report – large LLPs
  • Strategic report – businesses where energy use and carbon emissions are of strategic importance
  • Combined Directors’ and Trustees Annual Report – charities

What should go into your report

 

Reporting requirement Quoted companies Large unquoted companies Large LLPs
(Directors’ Report, and Strategic Report) (Directors’ Report) (Energy and Carbon Report)
Annual global emissions (Scope 1* and Scope 2**) (kWh and tonnes of CO2 equivalent) Yes, as previously. Include previous year’s figures (except in first reporting year). No No
Annual UK energy use (and associated GHG emissions) (Scope 1* and Scope 2**) (kWh and tonnes of CO2 equivalent) Yes (new requirement). Must state what proportion of energy consumption and emissions related to consumption/emissions in the UK (including UK offshore area). Include previous year’s figures (except in first reporting year). Yes. To include as a minimum: purchased electricity, gas and transport (including UK offshore area). Include previous year’s figures (except in first reporting year). Yes. To include as a minimum: purchased electricity, gas and transport (including UK offshore area). Include previous year’s figures (except in first reporting year).
Underlying global energy use that is used to calculate GHG emissions (kWh) Yes (new requirement).   Include previous year’s figures (except in first reporting year). No No
Intensity ratio Yes, at least one Yes, at least one Yes, at least one
Information about energy efficiency action taken by the organisation Yes (new requirement)   Yes Yes
Methodology used in calculations (Relevant entities are encouraged to use widely recognised, independent standards such as the GHG Protocol Corporate Standard, ISO 14064-1 and CDP) Yes Yes Yes