FRC publishes its Thematic Review on Streamlined Energy and Carbon Reporting (SECR)
By James E Barbour CA, Director, Policy Leadership
14 September 2021
This article highlights the FRC’s Thematic Review on Streamlined Energy and Carbon Reporting (SECR).
The Financial Reporting Council (FRC) has published a thematic review: Streamlined energy and carbon reporting (September 2021). This is a follow-on review to its Climate Thematic Review (November 2020) which looked at climate-related considerations by boards, companies, auditors, professional bodies and investors.
The Streamlined Energy and Carbon Reporting (SECR) rules set out certain required statutory disclosures about emissions and energy use. From 1 April 2019 the rules expanded the existing emissions disclosure requirements for quoted companies and required emissions reporting for the first time for large unquoted companies and limited liability partnerships. The latest FRC review considers how a sample of preparers have complied with the new SECR requirements, highlights where the FRC saw examples of emerging good practice, and sets out its expectations for reporting in future periods.
Summary of FRC’s key observations
- All entities in FRC’s sample (twenty-seven mainly larger entities across a cross-section of industries) disclosed their emissions and the majority disclosed their energy use. However, a number of entity-specific disclosure errors or omissions were identified.
- A number of challenges were identified in this first year of reporting. These included that reports did not always provide sufficient information about the methodologies used to calculate the emissions and energy use information and more thought is needed about how to integrate these disclosures with narrative reporting on climate change, where relevant, and make them easier for users to navigate.
- It was sometimes unclear whether the ratios selected were the most appropriate for the entities’ operations. It was also often not possible to recalculate emissions ratios by reference to other disclosures in the report.
*As previously identified in the FRC’s Climate Thematic, the extent of third-party assurance obtained over the SECR information was not adequately explained in most cases. - Disclosures about energy efficiency measures did not always clearly describe the ‘principal measures’ taken by the entity in the current year.
- Positively:
- Several reports disclosed additional information encouraged by the Government Guidelines on SECR, including disclosure of Scope 3 emissions, information about the use of renewable energy and reporting of both location based and market-based emissions.
- Many of the reports disclosed emissions reduction targets or an intention to set targets. Better practice examples explained ‘net zero’ or other emission-reduction commitments and strategies, and included more specific details on pathways and interim targets.
- The FRC was encouraged to see progress in entities’ broader disclosures on climate-related matters, in the context of a developing regulatory environment. All quoted entities, and several others, either reported disclosures in a format consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures (‘TCFD’), or stated an intention to adopt the framework in future.
The FRC also set out its expectations for preparers for future reporting periods. These include:
- Presenting all the required information in a form which is clear, understandable, and easy for users to navigate, using cross-references where relevant information is provided across several parts of the annual report.
- Providing an adequate explanation of the methodologies used to calculate emissions and energy use.
- Providing an explanation or reconciliation where ratios provided cannot be recalculated from, or are apparently inconsistent with, other disclosures in the annual report and accounts.
- Describing the extent of any due diligence or assurance over emissions and energy use metrics.
- Providing an adequate description of energy efficiency initiatives in the current and comparative period, focussing on those ‘principal measures’ with the most significant impact. Consideration should be given to the matters highlighted in the Government Guidelines, which provide further insight into how the requirements may be met, and whether disclosure of additional information, such as scope 3 emissions, would be helpful to investors or other users.
- Providing clear explanations which help users to understand and compare major commitments, such as ‘net zero emissions’ targets or ‘Paris-aligned’ strategies, including which activities and emissions are included in the scope of these commitments.