12 November, 2020
Q: We are a large unquoted company in the process of planning for our 2020 Annual Report (year end 31 December 2020). What do we need to consider in relation to the new energy and carbon regulations?
A: The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 (the “2018 Regulations”) came into force on 1 April 2019 and apply to companies in scope for financial years starting on or after 1 April 2019. The aim of the 2018 Regulations is to increase awareness of energy costs within large organisations as well as provide greater transparency for investors and other stakeholders on business energy efficiency and emissions
Unquoted companies or LLPs are defined as ‘large’ if they meet at least two of the following three criteria in a reporting year:
•a turnover of £36 million or more;
•a balance sheet of £18 million or more; or
•250 employees or more.
Requirements have existed for quoted companies to report on Greenhouse Gas emissions since 2013. These have been updated by the new regulations but are not considered here.
The new disclosures will need to be included in the Directors Report. If the information is considered to be of strategic importance to the company, it can be included in the Strategic Report, with a note explaining this in the Directors Report.
The following information will need to be disclosed:
Total UK energy use.
Greenhouse gas emissions due to UK energy use.
An ‘intensity ratio’ – being a relevant ratio of emissions against a factor associated with the company’s activities. Intensity ratios compare emissions data with an appropriate business metric or financial indicator, such as sales revenue or square metres of floor space.
Comparative figures on energy use and emissions for previous years (these can be excluded for the first year of disclosure).
Energy efficiency action taken in the reporting period, for example a company had installed smart meters across all sites and increased video conferencing technology for meetings to reduce the need for travel between sites.
A statement of the methodologies used in the calculation of these disclosures.
Organisations which use 40,000 kilowatt-hours (kWh) or less a year are exempt under de minimis rules but will need to include a statement confirming they are a low energy user. Public-sector organisations are exempt from the 2018 Regulations.
With investors increasingly expecting information to be disclosed on climate-related issues it is worth noting that the FRC announced in November 2020 that their future work may include undertaking a review of reporting under these new regulations during 2021.
If you need any help with your year-end reporting planning or with any of your compliance or governance policies generally, please contact us. All our contact details are on our website www.brucewallace.co.uk.
118 Pall Mall
Company registered in England and Wales number 8254957