Making Sense of Climate Disclosure Regulations in the UK

A useful summary of the main climate regulations that you should be aware of if your business operates in the UK.

Governments and investors have been signalling the importance of climate issues for years, but recently, the list of new climate disclosure regulations seems to be gaining pace. And with the constant additions and changes, many business leaders may be struggling to get to grips with what’s required of them.

That’s why we’ve produced this handy summary of the main regulations that you should be aware of if your business operates in the UK.

TCFD Standards

Many UK regulations are grounded in the 11 disclosures proposed by the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD’s goal is to develop consistent disclosures for use by companies in providing information to stakeholders. The TCFD disclosures will be mentioned throughout this summary. To find out more about what they entail, take a look here.

Emission Scopes

Before we go into specific disclosure regulations, it’s important to have a broad understanding of the three emissions scopes.

  • Scope 1 covers direct emissions from owned or controlled sources.

  • Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company.

  • Scope 3 includes all other indirect emissions that occur in a company’s supply chain.

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United Kingdom — Top Climate Disclosure Regulations

Consolidating a range of regulations — SECR and SDRs

The United Kingdom is working towards consolidating its business sustainability requirements under the Sustainable Disclosure Requirements (SDRs). One of the main regulations being consolidated is the Streamlined Energy and Carbon Reporting (SECR) policy, which is the main programme by which UK companies have reported their emissions to date. Let’s begin by taking a closer look at this.

Streamlined Energy and Carbon Reporting (SECR)

The UK government implemented the Streamlined Energy and Carbon Reporting (SECR) policy on 1 April 2019. This was previously known as the Energy Efficiency Scheme or Carbon Reduction Commitment. It will fold into the Sustainable Disclosure Requirement regime in 2023–2024.

Who does this apply to?

Listed companies that either have more than 250 employees or more than £36 million revenue.

What needs to be reported?

If you’re a large UK-based incorporated and unquoted company, you must submit your energy consumption and emissions arising from all scope 1 and 2 greenhouse gas emissions.

If you’re a large UK-based, incorporated and quoted company, you are also obliged to submit all your onsite emissions, which include refrigerants, fuel, oil and others.

Note that publicly listed companies are obliged to report on their global emissions, while private organisations only need to report on their UK operations.

You also have to give a brief commentary on the actions that you’ve taken to increase energy efficiency.

How should you submit?

You must use the SECR framework and incorporate it into the directors’ report or in an equivalent energy and carbon report for LLPs which is filed with Companies House. This applies to all financial years on or after 1 April 2019.

Sustainable Disclosure Regulations (SDRs)

The UK’s Sustainability Disclosure Requirements (SDRs) are designed to broaden UK sustainability reporting to go beyond the recommendations of the TCFD. SDRs aim to focus on other environmental impacts and risks, above and beyond those arising directly from climate change.

When are they likely to be implemented?

2023 to 2024, but companies are expected to start planning early.

Who does this apply to?

Companies with more than 500 employees.

What needs to be reported?

The official reporting requirements have not yet been released, but we know that they will be based around the 11 recommendations of the TCFD.

There will also be a focus on ‘double materiality,’ the idea that a company’s corporate information will be important both for its own financial value and for its broader impact on the society within which it operates.

How should you submit?

Businesses required to fill out a non-financial and sustainability information statement (NFSI; formerly NFI) will be asked to add their SDR disclosures there. Companies with no NFSI requirement can insert their disclosures in their SECR report (as outlined above) or their annual strategic report.

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The Energy Savings Opportunity Scheme (ESOS)

The Energy Savings Opportunity Scheme (ESOS) is a piece of legacy government legislation fulfilling the EU Energy Efficiency Directive eight article. Companies that fall under its remit are expected to fill out an energy audit every four years. Note that the legislation is currently being revised following Britain’s departure from the EU.

Who does this apply to?

Listed companies that either have more than 250 employees or both €44 million+ of revenue and a balance sheet total of €38 million+.

What needs to be reported?

The key elements that need to be covered by each company’s report are:

  • The results of your energy audits for 90% of your total energy consumption. You can decide which 10% you wish to exclude, which is referred to as your ‘de minimis energy consumption.’

  • Who the lead energy assessor is at your company.

  • The cost-efficiency measures that you can introduce and how you plan to implement these.

How should you submit?

To date, there has been no submission requirement. Companies were expected to carry out the audit every four years, and to get sign off on their assessment from board-level directors. However the submission rules are changing, as the post-Brexit revamp of ESOS is concluded:

  • More organisations are expected to be covered by ESOS, ​​with some 30,000 additional medium-size businesses covered.

  • Companies will have to file their submissions by 5 Dec, 2023.

  • Submissions will cover 12 consecutive months.

Other TCFD-based regulations

The SDR regulations are still waiting for legislative approval and stakeholder feedback. While this happens, many companies still need to submit climate disclosures based on the TCFD under other directives, which include the BEIS and the FCA.

Department for Business, Energy and Industrial Strategy (BEIS)

The Department for Business, Energy & Industrial Strategy (BEIS) has published its own guidance on how companies should meet the TCFD recommendations.

Who does this apply to?

Publicly quoted companies, large private companies and limited liability partnerships (LLPs).

What needs to be reported?

The companies and LLPs covered will have to disclose answers to eight key questions in line with recommendations from the TCFD. The requirements are designed to support businesses to gain a better understanding of the financial impacts of their exposure to climate change and be better prepared to price climate-related risks.

How should you submit?

Companies will be required to report climate-related financial information in the non-financial and sustainability information statement (NFSI).

LLPs will be required to report climate-related financial information in either the non-financial information statement which forms part of their Strategic Report or, if no Strategic Report is prepared, the Energy and Carbon Report which forms part of their Annual Report.

The Financial Conduct Authority (FCA)

Similarly to the BEIS, the FCA has issued its own guidelines on how companies should respond to the TCFD recommendations.

Who does this apply to?

Issuers of standard listed shares, or equity shares represented by certificates and FCA-listed asset managers and asset owners.

What needs to be reported?

Companies to whom this applies should provide their responses to the 11 TCFD recommendations or alternatively include a statement of why they haven’t done so.

How should you submit?

Issuers of standard listed shares should submit their responses in their annual financial reports from 1 January, 2022.

FCA-regulated asset managers are obliged to publish two annual TCFD reports on their websites: one entity-level report covering the firm’s operations, and one covering their products and portfolios.

Every journey begins with effective carbon footprint measurement

Whatever regulations you need to comply with, find a trusted climate partner, who will give you peace of mind that you’re accurately measuring your carbon footprint and understanding your top emitters. Armed with this knowledge, you’ll be able to take effective climate action, meet regulatory demands and share the impact of your activity with stakeholders.