Mandatory greenhouse gas reporting - practice note
LexisNexis Legal & Professional, LexisNexis UK, LexisPSL, Environment, 15 July 2021
Produced in partnership with CLT Envirolaw
Private and public sector organisations are increasingly required to report on their greenhouse gas (GHG) emissions. The extent of a company's GHG reporting requirements depends on:
the size and nature of the organisation
whether it is a UK company
the amount of energy the organisation consumes
Even where a company is not required to report on its GHG emissions, chapter 2 of the Environmental reporting guidelines, including streamlined energy and carbon reporting guidance (the Guidelines) recommends that companies report on their emissions voluntarily. For voluntary GHG reporting information, see Practice Note: Voluntary greenhouse gas reporting.
Mandatory GHG reporting by quoted companies
From 1 October 2013, the directors of a quoted company must report the company's annual GHG emissions in the directors' report.
Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013, SI 2013/1970
The Climate Change Act 2008, s 85 required the Secretary of State to make regulations under section 416(4) of the Companies Act 2006 (CA 2006) requiring the directors' report to contain certain GHG emissions information or lay before Parliament a report explaining why no such regulations have been made.
The Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 (2013 Regulations), SI 2013/1970 introduced this requirement by inserting a new Part 7 'Disclosures Concerning Greenhouse Gas Emissions' in Schedule 7 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, SI 2008/410. The duty applies to quoted companies only.
Additional reporting requirements apply to quoted companies under the Streamlined Energy and Carbon Reporting (SECR) requirements set out in the Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, SI 2018/1155 (2018 Regulations), which came into force on 1 April 2019. The 2018 Regulations bring in additional disclosure requirements for quoted companies and also introduce requirements for large unquoted companies and limited liability partnerships (LLPs) to disclose their annual energy use and GHG emissions, and related information.
For financial years that start on, or after, 1 April 2019, SECR requirements inserted by the 2018 Regulations for quoted companies mean that underlying global energy use that is used to calculate GHG emissions, information about energy efficiency action taken in the organisation's financial year and the proportion of energy consumption and emissions relating to emissions and energy consumption in the UK must also be reported on.
For more information on the SECR requirements, see Practice Note: Streamlined Energy and Carbon Reporting.
Quoted companies
A quoted company for the purposes of CA 2006, Pt 15 is a company formed and registered under CA 2006 which has equity share capital:
CA 2006, s 385(2)
listed on the Official List of the London Stock Exchange in accordance with Part VI to the Financial Services and Markets Act 2000
officially listed in an EEA State, or
CA 2006, s 1170
admitted to dealing on either the New York Stock Exchange or NASDAQ
For further information on quoted companies, see the Practice Note: The quoted companies regime.
What needs to be reported?
SECR requirements (stemming from the 2013 Regulations and 2018 Regulations) provide that quoted companies must disclose the following in their directors' report:
Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, SI 2008/410, reg 10(2), Sch 7, Part 7
Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, SI 2018/1155, regs 4, 6
annual global GHG emissions from activities for which that company is responsible (including the combustion of fuel and the operation of any facility), along with the annual emissions from the purchase of electricity, heat, steam or cooling by the company for its own use
at least one intensity ration
previous year's figures for GHG emissions (except in the first year)
methodologies used in calculation of disclosures
underlying global energy use that is used to calculate GHG emissions including previous years (except in the first year)—2018 Regulations requirement
information about energy efficiency action taken in the organisation's financial year—2018 Regulations requirement
Quoted companies also need to state what proportion of their energy consumption and their emissions relate to emissions and energy consumption in the UK (including the offshore area).
There is no prescribed format to report SECR information—but a template is available in the Environmental reporting guidelines, including streamlined energy and carbon reporting guidance which businesses are strongly encouraged to use.
For information on reporting at group and subsidiary levels, see Practice Note: Streamlined Energy and Carbon Reporting—Group reporting.
Period of reporting
The 2013 Regulations have required that quoted companies comply with GHG reporting requirements since 30 September 2013. The 2018 Regulation SECR requirements apply to businesses for financial years that start on, or after, 1 April 2019.
SI 2013/1970, reg 1
Environmental reporting guidelines, including streamlined energy and carbon reporting guidance
For more information, see Practice Note: Streamlined Energy and Carbon Reporting—When must businesses report?
Where verifiable data cannot be obtained, organisations need to use a reasonable estimate through calculation and show how these estimates were made. Estimates might be made by:
direct comparison
pro-rata extrapolation
The directors may report emissions for a different 12-month period to the usual financial year. However, if they do so, they must state this in the directors' report.
Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, SI 2008/410, Sch 7, Pt 7, para 19
Reportable emissions
Many quoted companies already have established reporting practices using GHG accounting methodologies and programmes, such as the GHG Protocol Corporate Standard, ISO 14064–1 and CDP. These companies should satisfy themselves that their existing GHG accounting approaches cover the required emissions from activities for which they are responsible.
Quoted companies may determine the scope and boundaries of their reporting emissions as determined in the GHG Reporting Protocol—Corporate standard and state these clearly such as the use of the operational control approach. Where alternative reporting methodologies are used, these should be referenced clearly.
Quoted companies are required to quantify and report on the following greenhouse gas emissions attributable to human activity from operations in the UK and overseas (if appropriate):
Climate Change Act 2008, s 92
methane (CH4)
hydrofluorocarbons (HFCs)
perfluorocarbons (PFCs)
sulphur hexafluoride (SF6)
Few companies will emit all GHGs. Therefore, companies are not required to give individual figures for each type of GHG emission.
The directors' report must state the annual quantity of emissions in tonnes of carbon dioxide equivalent (CO2e):
from 'activities for which the company is responsible' (eg direct emissions), including:
the combustion of fuel, and
operation of any facility
resulting from the purchase of electricity, heat, steam or cooling by the company for its own use (eg indirect energy emissions)
Emissions from the combustion of fuel include:
stationary combustion—in stationary equipment, such as boilers, furnaces, burners, turbines, heaters, incinerators, engines, flares and generators
mobile combustion—in transportation devices, such as automobiles, trucks, buses, trains, airplanes, boats, ships, barges, and vessels; or those such as mobile plant or cranes, used for construction or excavation activities
Emissions from the operation of a facility include those from temporary or permanent, land-based or marine, and fixed or stationery facilities. Sources of emissions include:
process emissions—from physical or chemical processes, Annex B of the Guidelines contains a table which identifies what emissions certain processes are likely to emit, eg from mineral, chemical, metal production, energy and other industries
fugitive emissions—intentional and unintentional releases, eg leaks
In the case of companies that are lessees of an emission source, they should decide if they have responsibility for emission sources or if they have operational control over the emission sources, eg if electricity, heat, steam or cooling has been purchased for their own use.
If the company decides that it does not have responsibility for emissions, either as a lessee or as a lessor, but cannot get the consumption data necessary to calculate the emissions, then it may either estimate the emissions or state that emissions from the building are excluded and explain why (see the sub-section on 'Comply or explain').
The reporting requirement is intended to cover emissions similar to scope 1 (direct emissions) and scope 2 (energy indirect emissions) in the GHG Protocol Corporate Standard and the direct emissions and energy indirect emission categories of ISO 14064–1. Companies are not required to report on scope 3 (other indirect emissions) such as those associated with:
inputs into their company, eg emissions from supply chains or
outputs from their company, eg emissions from downstream users using the company's products
However, according to the Guidelines, companies should consider reporting these emissions separately to give a broader picture of the organisation to investors and shareholders and where these expose the reporting company to material risks, opportunities or financial impacts.
Having established the activities for which it is responsible, companies may also wish to consider whether particular emissions are material to the total company emissions. Materiality will depend on the circumstances of the individual company. It will be influenced by issues such as the size and nature of an operation. The Guidelines give further guidance on materiality.
Note that quoted companies that are low energy users (a company that has consumed 40MWh or less during the period in respect of which the directors' report is prepared) are not required to make detailed energy and carbon disclosures.
Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, SI 2018/1155, reg 6
Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, SI 2008/410, Sch 7, Part 7, para 15(5)(a)
For more on the 2018 Regulation requirements to disclose underlying global energy use used to calculate GHG emissions and information about energy efficiency action taken during the organisation's financial year, see Practice Note: Streamlined Energy and Carbon Reporting—SECR—reporting (quoted companies).
Activities for which the company is responsible
The Guidelines set out three tests to help companies determine their organisational boundaries, and therefore what activities they are responsible for:
financial control test—where the company has the ability to direct the financial and operating policies of the operation with a view to gaining economic benefits from its activities
operational control test—where the company or one of its subsidiaries has the full authority to introduce and implement its operating policies at the operations, eg it is the operator or can exercise step-in rights
equity share test—the extent of rights a company has to the risks and rewards from the operation based on its equity interest
Annex A of the Guidelines contains further guidance for more complex organisational structures, such as joint ventures, joint operations, other equity investments, franchises, and leased assets.
The directors' report must state the methodologies used to calculate the GHGs disclosed. However, companies are not required to adopt a particular methodology.
The Guidelines recommend that companies use a widely recognised independent standard, such as:
ISO 14064–1:2018—Greenhouse gases, Part 1 (2018)
Greenhouse Gas Protocol Corporate Standard (revised edition)
Climate Disclosure Standards Board (CDSB), or
the Global Reporting Initiative Sustainability Reporting Guidelines
Companies can use data reported from other domestic or international regulatory regimes, such as the Energy Savings Opportunity Scheme (ESOS), climate change agreements, emissions trading schemes or the CRC energy efficiency scheme (now closed). However, these regimes are unlikely to require the same information as that required by the GHG reporting requirements, and therefore, companies must consider whether additional data is required.
CDP has developed a list of commonly cited methodologies, protocols and standards. There may be existing methodologies developed by certain sectors, such as those for the petroleum industry. Companies within those sectors may wish to consider using sectoral methodologies where appropriate.
If data compiled in fulfilment of other regulatory requirements (such as ESOS) has been used then this should be stated as one of the methodologies used to make the report.
Benchmarking, intensity ratio and trends
With the exception of the first reporting year, the directors' report must disclose data for the relevant year alongside information for the previous year. This will allow comparisons to be made of emissions over time.
The directors' report must state at least one ratio which expresses the quoted company's annual emissions in relation to a quantifiable factor associated with the company's activities. This is called the 'intensity ratio'. While organisations are free to choose their own intensity ratio, these should be most appropriate to the business activity, such as tonnes of CO2 emissions equivalent per total square metres for the property sector, or tonnes of CO2 emissions equivalent per total million tonnes of production for the manufacturing sector, calculated on a consistent basis year on year with the method of calculation disclosed, and meaningful to stakeholders. Organisations are encouraged to work with their sector associations to consider whether it is appropriate to use a consistent metric or metrics within the sector. Further information on intensity rations, see Annex F of the Guidelines.
Comply or explain
Importantly, the reporting requirements apply only to the extent that it is 'practical for the company' to obtain the information. If it is not practical to gather some or all of this data, the directors' report must state what information is not included and why.
Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, SI 2008/410, Sch 7, Pt 7, para 15(4)
It is recommended that companies should also outline the level of materiality and the steps they have taken to acquire the missing information. For more information, see Practice Note: Streamlined Energy and Carbon Reporting—Materiality.
The requirements aim to provide interested parties with access to information that is clear and transparent. Any differences in methodologies or approach should be clearly explained in the directors' report.
Assurance and verification
Assurance and verification of reported sustainability and environmental data is a component of a responsible reporting approach. ISO 14064–3 and ISAE 3410 are widely used standards for the verification of GHG emissions reports.
There is no statutory requirement to have environmental information audited. The auditor of the financial statements is not required to audit environmental information in the strategic or director's reports within the annual report. However, the auditor will be required to:
consider whether the information is materially inconsistent with the financial statements or audit knowledge
consider whether the information has been prepared in accordance with applicable legal requirements, and
report on these matters in the auditor's report
Excluding energy and carbon information
Companies are permitted to exclude energy and carbon information from their reports where:
Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, SI 2008/410, Sch 7, Part 7, Para 15(5)(b)
it would be seriously prejudicial to the interests of the organisation and the relevant report must state this as reason for not disclosing the energy and carbon information—this must only be used in exceptional circumstances, such as sensitivities arising from restructuring or acquisitions by an organisation in the run up to producing the report, or where there are exceptional commercial sensitivity considerations
it is not practical to obtain the energy and carbon information and the relevant report must set out what energy and carbon information has not been included and why—ideally setting out the level of materiality and the steps being taken to obtain the information
Failure to comply with the regulations could lead to an investigation by the Conduct Committee of the Financial Reporting Council (the Committee). The Committee has power to apply to the court under CA 2006, s 456 for a declaration that a company's annual report or accounts do not comply with the requirements and for an order requiring the directors to provide a revised report/accounts. However, in practice, the Committee operates by agreement with companies and has not yet commenced proceedings.
Companies House may not accept any accounts that do not meet the requirements of CA 2006, and where acceptable accounts are delivered after the filing deadline, the company is liable to a civil penalty in accordance with CA 2006, s 453. The civil penalty for the late filing of accounts is in addition to any action taken against directors (or members of an LLP), under CA 2006, s 451.
Mandatory energy and carbon reporting for large unquoted companies and large LLPs
GHG reporting requirements apply to large unquoted companies and LLPs under the SECR requirements set out in the 2018 Regulations.
Unquoted companies and LLPs, within the 2018 Regulations scope, are required to disclose energy and carbon information in their accounts and reports, including:
Limited Liability Partnerships (Accounts & Audit) (Application of the CA 2006) Regulations 2008, SI 2008/1911, reg 12B
Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, SI 2008/410, reg 10(2), Sch 7, part 7A
Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018, SI 2018/1155, regs 4, 7, 8, 10
UK energy use in kWh of the annual quantity of energy consumed for which they are responsible including, as a minimum:
purchased electricity—including for the purposes of transport
annual quantity of energy consumed from stationary or mobile activities for which the business is responsible involving the combustion of gas
gas is defined, except in the definition of 'offshore activity', as any combustible substance which is gaseous at a temperature of 15 degrees Celsius and a pressure of 101.325 kPa (1013.25 mb) and which consists wholly or mainly of methane, ethane, propane, butane, hydrogen or carbon monoxide, or a combination of those, or a combustible mixture of those and air
transport—involving the consumption of fuel for the purposes of transport, where the organisation is supplied with the fuel for business purposes (not where a transportation service is procured that includes an indirect payment for the fuel consumption). Therefore, only transport where the organisation is responsible for purchasing the fuel is required for mandatory reporting by unquoted companies and LLPs under the SECR framework and includes road going vehicles, vessels, aircraft or trains during any journey which starts, ends, or both starts and ends within the UK. The following activities should be included:
fuel used in company cars on business use
fuel used in fleet vehicles which are operated for business use
fuel used in personal/hire cars on business use (including fuel for which the organisation reimburses its employees following claims for business mileage)
fuel used in private jets, fleet aircraft, trains, ships, or drilling platforms operated by the unquoted company/LLP
onsite transport such as fork-lift trucks
Environmental reporting guidelines, including streamlined energy and carbon reporting guidance provides transport activities that are not required to be included in the calculation of total energy consumption, but that may be reported separately and also sets out the types of energy that are not mandatory to be reported on but which can be voluntarily provided especially where it is a substantial part of an organisation's energy use
for offshore undertakings (where activities consist wholly or mainly of offshore activities)—businesses must disclose emissions and energy use for the UK and offshore area
associated GHG emissions in tonnes of carbon dioxide equivalent resulting from the total energy use from electricity, gas and transport—government guidance on conversion factors for company reporting can help measure energy consumption in units
Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, SI 2008/410, reg 10(2), Sch 7, part 7A, para 20D
at least one intensity ratio—which compares emissions data with an appropriate business metric or financial indicator, such as sales revenue or square metres of floor space. This allows comparison of energy efficiency performance over time and often with other similar types of organisations. Annex F of the Environmental reporting guidelines, including streamlined energy and carbon reporting guidance lists some common intensity ratios in relation to an organisation's activity
Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, SI 2008/410, reg 10(2), Sch 7, part 7A, para 20G
previous year's figures for energy use and GHG (except in the first year)
information on energy efficiency action taken in the organisation's financial year—this is the same information as required for quoted companies, set out above
methodologies used in calculation of disclosures—there is no prescribed methodology under the 2018 Regulations but it is important that robust and accepted methods are used and that these are widely recognised independent standards, such as:
Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, SI 2008/410, reg 10(2), Sch 7, part 7A, para 20F
GHG Reporting Protocol—Corporate standard
International Organisation for Standardization, ISO (ISO 14064–1:2018)
Climate Disclosure Standards Board
CDP has a list of commonly cited methodologies developed by certain sectors (eg petroleum), which might be useful for businesses in those sectors, who might want to use sectoral methodologies
data compiled in fulfilment of other regulatory requirements (eg ESOS)—though businesses need to be sure they have also satisfied their SECR reporting requirements, in addition to the other regulatory requirements
For more information, see Practice Note: Streamlined Energy and Carbon Reporting.
GHG reporting requirements for the public sector
Certain central government bodies must meet minimum reporting requirements on GHG emissions in their annual reports as part of their statements on sustainability performance. See HM Treasury: public sector annual reports: sustainability reporting guidance. The guidance applies to all central government bodies that fall within the scope of the Greening Government commitments (ie departments, non-ministerial departments, agencies and non-departmental public bodies) and which produce Annual Reports and Accounts in accordance with HM Treasury's Government Financial Reporting Manual (FReM).
The guidance does not apply to local authorities or the devolved governments of Northern Ireland, Scotland and Wales (which make their own arrangements for reporting).
In July 2013, the former Department of Energy and Climate Change (DECC) and the Local Government Association (LGA) signed an updated MOU providing a framework for how they will work individually and together in relation to greenhouse gas emissions.
In England, the government has asked local authorities to measure and report on their GHG emissions from their own estate and operations. For more information, see DECC/CLG: sharing information on GHG emissions from local authorities own estate and operations.
On 14 July 2016, DECC was merged with the Department for Business, Innovation and Skills, to form the new Department for Business, Energy and Industrial Strategy (BEIS).
GHG regulatory reporting requirements
Emissions trading schemes
The EU ETS applies to energy-intensive industries and airlines. Phase III of the scheme commenced on 1 January 2013 and ran until 31 December 2020. Phase III of the EU ETS applied to the UK as Member State.
EU ETS Directive 2003/87/EC
On 14th March 2018, Directive (EU) 2018/410 amending Directive 2003/87/EC and enhancing cost-effective emission reductions and low-carbon investments came into force relating to the period after 2020 (Phase IV of the EU ETS). Following Brexit the UK no longer participates in the EU ETS and Phase IV of the EU ETS does not apply.
Directive (EU) 2018/410
For more information on the EU ETS, see Practice Notes: EU Emissions trading system—outline and EU ETS Directive 2003/87/EC—snapshot
The UK has set up its own UK emissions trading scheme (UK ETS) and requirements on UK ETS participants took effect on 1 January 2021, the beginning of the UK ETS's first trading period.
The Greenhouse Gas Emissions Trading Scheme Order 2020 SI 2020/1265 requires UK operators of installations that fall within the UK ETS to hold a GHG emissions permit and report their GHG emissions to the Environment Agency (EA). A permit is required for carrying out a regulated activity.
Greenhouse Gas Emissions Trading Scheme Order 2020 SI 2020/1265, reg 4, 26, Sch 2, para 3
For further information on emissions trading post-Brexit and the UK ETS, see Practice Note:Brexit—emissions trading and carbon pricing. .
Climate Change Agreements
Climate Change Agreements (CCAs) are voluntary agreements that allow an eligible energy-intensive facility to receive up to 90% reduction in the climate change levy (CCL) (and 100% reduction for energy used in certain energy-intensive (metallurgical and mineralogical) industrial processes), if it agrees to energy efficiency targets agreed with government.
Finance Act 2000, Sch 6, paras 44–52F
Operators holding CCAs need to monitor and report their energy consumption against specified targets across four biennial target periods from 2013 to 2022. After the end of each target period, operators meeting their targets will be certified to continue to receive the CCL discount. Operators who do not meet their target can buy-out their remaining tonnes to still be eligible for the CCL discount.
For further information, see Practice Notes: Climate change levy and Climate change agreements.
Where companies hold environmental permits, the operator or permit holder may be required to report as one of the conditions of the permit. For example:
Environmental Permitting (England and Wales) Regulations 2016, SI 2016/1154
to notify the EA in the event of a breach of an emission limit
to report on discharges to the environment
The Environmental Permitting (England and Wales) (Amendment) Regulations 2011 introduced permit requirements for the capture of carbon dioxide streams from an installation for the purposes of geological storage.
US Securities and Exchange Commission
The US Securities and Exchange Commission (SEC) Regulation S-K, requires registrants to provide financial disclosure of environmental risks. For example Item 103 (17 CFR 229.103), requires SEC registrants to disclose, on at least a quarterly basis, pending environmental legal proceedings or proceedings known to be contemplated, which meet any of three qualifying conditions: (1) materiality, (2) 10% of current assets, or (3) monetary sanctions over US$100,000.
SEC Regulations
SEC Guidance on impacts of climate change
SEC has issued interpretive guidance on how public companies should disclose material information about the impacts of climate change on their business. The SEC Guidance applies to companies that currently file an annual report with the SEC or make a public offering of security. Voluntary reports on environmental and social guidance may impact a registrant's disclosure risks under the SEC's liability framework that includes web based disclosures.
SEC Interpretive Guidance on Disclosure Related to Business or Legal Developments Regarding Climate Change
Commission Guidance
The release highlights four climate-change areas that companies should consider when assembling their disclosures. A more recent guide for companies and investors on disclosure and management of climate impacts has been published by Ceres providing guidance on climate risk disclosure.
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