Sustainability has become a major buzzword in the corporate world, with increasing numbers of companies pushing the green agenda both in the boardroom and in their branding. But what benefits does this bring for companies, and with governments increasingly bearing down on Net Zero ambitions, are companies legally required to publish data on their carbon footprint?
Is Sustainability Information Required to be Disclosed Under Current UK Law?
As is often the case with corporate legislation, things are complicated - but the good news is that smaller businesses don't have to worry. The legislation and guidance as it stands are directed at the big fish in the business world rather than smaller companies, with the relevant legislation - The Companies (Directors’ Report) and Limited Liability Partnerships (Amendment) Regulations 2013 requiring businesses to disclose their carbon emissions, and, as amended in 2018 - general energy use as well.
Under this legislation, large companies, that is, companies with over £36 million in revenue and 250 or more employees, are, from 2019, required to adhere to Streamlined Energy and Carbon Reporting (SECR) framework which marked a significant shift in the regulations in this area.
There are also other pieces of regulation and legislation that are relevant, again exclusively for large or publicly listed businesses. These include the CRD (Climate-related Financial Disclosures) and ESOS (Energy Savings Opportunity Scheme). The latter, while not optional for larger companies, is primarily aimed at helping businesses identify key areas where they can save on energy costs and hence carbon emissions. The IFRS, taking over from the TCRD (Task-force on Climate-related Disclosures) is another key regulation, but only applies to certain large companies, particularly ones that are publicly listed.
What Sustainability Information Is Required to Be Disclosed?
The first piece of legislation mentioned - the The Companies (Directors’ Report) and Limited Liability Partnerships (Amendment) Regulations 2013 (as amended in 2018) set forth the SECR - Streamlined Energy and Carbon Reporting framework - the name given to the energy use and carbon emissions aspect of the 2018 amendment.
It's required under SECR to disclose not only directly generated carbon emissions such as combustion from company vehicles and emissions from direct activities but also indirect creation of emissions through the use of purchased grid electricity or gas. While the methodology of exactly how a business calculates its carbon emissions is up to the individual business, the methodology used must be transparent so it can be scrutinised fairly by investors and stakeholders.
Another key element that is required is the intensity ratio, that is a metric that relates to the companies activities and so can be compared to other companies in the same field that may be bigger or smaller and to give an indication for government statisticians on how carbon intensive a certain company, or even industry is compared to the rest of the economy. For example emissions per £XXX of revenue could be an intensity ratio, though per unit of production or other means of generating an intensity ratio are also accepted.
This requirement came into law in 2019 and requires reporting on the total energy usage of the company as well as the greenhouse gas emissions in tonnes of CO2. A narrative on how the company is looking to improve its energy efficiency is should also be included.
Another piece of regulation is TCFD or the Task Force on Climate-related Disclosures, this was retired in 2023 with its remit taken up by IFRS or the International Financial Reporting Standards Foundation. Global in its scope, these regulations seek to standardise sustainability-related financial information and climate related disclosures. It's regulations only apply to publicly listed companies and financial institutions, but are broader in scope than the regulations of SECR, and seek to understand in more detail the impact a company's activities are having on the environment - beyond solely looking at energy use and carbon emissions. This involves asking companies to document "climate related risks" related to their activities.
If I Don't Meet the Legal Requirements, Why Should I Disclose Sustainability Information?
Even if your business is smaller than the cut off, there are still compelling reasons to publish detailed sustainability and environmental impact reports. Firstly, it demonstrates to potential investors and clients your green credentials, which makes you a far more reputable partner to be dealing with. PR stunts and "greenwashing" are common place in business, but by providing detailed and transparent sustainability information, you are putting yourself forward as a trustworthy company.
Publishing sustainability information also helps businesses develop a clear path to net zero. If when you gather the information, your sustainability credentials aren't as positive as you'd like compared to other companies in your sector, being transparent about this as long as you have a clear roadmap to improve the situation and get to net zero, will generally be seen as favourable by clients and investors. It is also true that publishing sustainability and emissions information can actually unlock more opportunities for your business as it's required for certain suppliers, including many government contracts.
Another reason is future proofing your business against future regulations. As the 2050 net zero deadline nears and the climate emergency becomes more apparent, it is likely the government will introduce stricter legislation for more and more businesses. While the policy under the previous government was primarily about guidelines and transparency - this may translate to more legal requirements on reporting emissions down the line and may draw in smaller entities currently exempt from such reporting.
If you're interested in seeing how Spirit Energy can help your business reduce its carbon emissions and help you on the road to net zero, get in contact today by calling 0118 951 4490, emailing info@spiritenergy.co.uk or use the request a quote form in the header.
