The Financial Reporting Council (FRC) has reviewed compliance with the Streamlined Energy and Carbon Reporting (SECR) requirements which were effective for reporting periods commencing on or after 1 April 2019 and are applicable to large unquoted companies, large LLPs, and quoted companies.

The thematic review concludes that the entities sampled largely complied with the minimum statutory disclosure requirements and reported or plan to report in a format consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD). However, the thematic review also highlights some key observations and sets out the FRC’s expectations for future reporting.

Key observations

• The FRC was pleased to see emerging good practice with reports disclosing additional information encouraged by the Government Guidelines on SECR, including explanations of emission-reduction commitments, strategies and pathways and broader disclosures on climate-related matters.
• Improvements are needed to make disclosures understandable and relevant for users. More thought is required regarding how to integrate these disclosures with narrative reporting on climate change and make them easier for users to navigate.
• Reports did not always provide sufficient information about the methodologies applied, or on the intensity ratio disclosed and how this reconciled to other disclosures in the accounts.
• The extent of third-party assurance obtained over the SECR information was not adequately explained in most cases.
• Disclosure about energy efficient measures did not always clearly describe the ‘principle measures’ taken by the entity in the current year.

Expectations for future reporting

• Present all the required information in a form which is clear, understandable, and easy for users to navigate, using cross-references where information is provided across several parts of the annual report.
• Provide an adequate explanation of the methodologies used to calculate emissions and energy use. Clearly explain which entities have been included in group disclosures, significant policy choices about which emissions are included and any significant changes in the methodology.
• Provide an explanation or reconciliation where ratios provided cannot be recalculated from, or are apparently inconsistent with, other disclosure in the annual report and accounts. Consider which emission ratio is the most appropriate for the entity’s operations and disclose the reason for this choice, if necessary.
• Describe the extent of any due diligence or assurance over emissions and energy use metrics. These disclosures should explain the level of assurance given and the scope of the coverage, and avoid implying a higher level of assurance than has been given.
• Provide an adequate description of energy efficiency initiatives in the current and comparative period, focussing on those ‘principal measures’ with the most significant impact on the entity or collectively on the energy use of the group.
• Provide 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.

How RSM can help

If you require any further information or assistance on environmental reporting please contact Mark Taylor.