SECR: 7 possible changes to look out for in the future

2020 saw thousands of companies reporting for the first time under the SECR (Streamlined Energy and Carbon Reporting) regulations. For many, this will have represented a steep learning curve.

For companies that now have processes in place to gather and compile their data, the second SECR report will undoubtedly be easier – but we suspect things may change a little before then.

We don’t yet know what carbon reporting requirements will look like in the future, but we have come up with seven possible ways that the SECR landscape could change. Being aware of these possibilities will help your business to stay prepared for whatever the new year has in store.

1. Widening scope

When SECR replaced the old Carbon Reduction Commitment (CRC) scheme, the number of businesses in scope jumped from around 4,000 to over 11,000. We don’t predict that the scope will widen again so drastically in the near future, but it is very likely that the number of UK businesses with some kind of carbon reporting obligations will increase further. Perhaps SECR will expand to include more types of business, or there may be a new carbon reporting scheme for smaller companies.

2. Tightening of requirements

The Climate Change Committee’s latest Carbon Budget (published in December 2020) recommends that if the UK is to reach its goal of net zero by 2050, we have to cut emissions by 78% (against the 1990 baseline) before 2035. To get the country on track for this, it is likely that carbon reporting regulations for businesses will tighten. This may mean more detailed and extensive data is needed for your next SECR report.

3. A level playing field

SECR covers listed companies, large unlisted companies and large LLPs, and these categories of business have slightly different SECR requirements (our SECR pocket guide is a handy explainer). For example, while quoted companies have to report their annual greenhouse gas emissions from all activities for which the company is responsible, large unquoted companies and LLPs just have to report UK energy use. It is likely that future incarnations of SECR will make the rules the same for all types of company in scope. We expect that the less strict rules will be tightened up to match their more stringent counterparts, rather than the other way round.

4. More Scope 3 reporting

Scope 3 emissions, those created by a company’s value chain, make up the bulk of most emissions associated with the average large business. Yet at the start of 2021 only one type of Scope 3 emissions is compulsory to report: fuel burned during business travel in specific circumstances. Even this is not yet compulsory for listed companies. Just as the UK’s net zero target has to take into account overseas emissions that are a result of UK activity, it is likely that businesses will have to start reporting on more of the emissions created on their behalf. This means that reporting of more types of Scope 3 emissions may become compulsory in the next few years.

5. Mandatory verification

Businesses are currently free to put together their SECR reports without any specialist help, and if your report is compiled in-house there is no requirement to get it independently verified. This means huge potential for errors, particularly if the person tasked with the company’s SECR reporting has never done anything of the sort before. It is possible that in future, there will be some kind of requirement for companies that do their SECR reports in-house to get them externally verified by an expert.

6. Mandatory use of the GHG Protocol

SECR currently doesn’t have a prescribed methodology for calculating your greenhouse gas emissions, although it recommends that you use a widely recognised standard. The Greenhouse Gas Protocol (GHG Protocol) is the world’s most widely used and accepted greenhouse gas accounting tool and it is possible that in future it will become compulsory to use this methodology in your SECR reporting.

7. More emphasis on meeting targets

SECR has been designed to give companies more visibility over their carbon footprint, but it doesn’t actually require them to reduce their emissions or set reduction targets. This is, of course, how companies can derive real value from the SECR process, and the government SECR guidance endorses the science-based target’s route for organisations looking to take this voluntary step. With the UK’s 2050 net zero target looming large, we may see target setting become a legal requirement in the future.

Whatever changes we may see to carbon reporting in the next few years, it’s important to take stock of the opportunities it presents. SECR has given many businesses information that they didn’t have before about their energy use and carbon emissions – this is valuable and can kick-start a process of achieving significant carbon and energy reductions.

Some may be inspired by this to take their SECR reporting beyond the legal minimum, while others may decide to set science-based targets for their emissions reductions, and others may go further to set a net zero target.

Whatever 2021 has in store for your business, seeking expert advice about regulatory compliance will ensure you stay on top of any changes.