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FRC publishes review findings on SECR

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09 Sep 2021

The Financial Reporting Council (FRC) has published the findings of its review of how a sample of companies and Limited Liability Partnerships (LLPs) had complied with the Streamlined Energy and Carbon Reporting Requirements (SECR) which came into effect from 1 April 2019. The review assesses compliance with SECR, identifies emerging good practice and sets out the FRC’s expectations for reporting in future periods.

A sample of 27 entities across a cross-section of industries was selected for review.

The report identified that:

  • Those entities sampled largely complied with the minimum statutory disclosure requirements with all disclosing emissions and the majority disclosing energy use. A number of entity-specific disclosure errors or omissions were identified such as not providing separate sub-totals for scope 1 and 2 emissions or not reporting the proportion of emissions or energy use in the UK and offshore.
  • More needs to be done to make the disclosures understandable and relevant for users. The FRC found that:
    • Reports did not always provide sufficient information about the methodologies used to calculate the emissions and energy use information. In particular, it was not always clear which entities were included in groups’ SECR disclosures.
    • 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, for example, emissions per £m revenue.
    • 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.
  • There were some examples of emerging good practice such as:
    • the disclosure of Scope 3 emissions, information about the use of renewable energy and reporting of both location-based and market-based emissions.
    • Disclosure of emissions reduction targets with better disclosures explaining ‘net zero’/other emission-reduction commitments and strategies with inclusion of details on pathways and interim targets.
    • Reporting in a format consistent with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) or stating an intention to adopt in the future.

With regards to future reporting the FRC expects preparers to:

  • Present 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.
  • Provide an adequate explanation of the methodologies used to calculate emissions and energy use. This would include:
    • Which entities have been included in group disclosures.
    • Any other significant policy choices about which emissions are included.
    • Any significant changes in methodology, or any other matters which may affect the comparability of the information disclosed.
  • Provide an explanation or reconciliation where ratios provided cannot be recalculated from, or are apparently inconsistent with, other disclosures in the annual report and accounts.
  • Describe the extent of any due diligence or assurance over emissions and energy use metrics.
  • Provide an adequate description of energy efficiency initiatives in the current and comparative period, focussing on those ‘principal measures’ with the most significant impact.
  • Consider whether any other disclosures, such as Scope 3 emissions, would be helpful to investors or other users.
  • 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. This may require the disclosure of additional emissions-related information, beyond the minimum required by SECR.

A press release and the full report are available on the FRC website.

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