There is a growing list of carbon reporting and reduction requirements for UK businesses, with more legislation expected as the UK as a whole lags behind on its progress towards reaching net zero by 2050.
Failing to meet these reporting requirements risks reputational damage or even significant fines. Here we lay out what the current compulsory carbon compliance requirements are, as well as outlining some of the additional, voluntary reporting that increasing numbers of businesses are signing up to.
Compulsory Requirements
ESOS
The Energy Saving Opportunity Scheme, known as ESOS, was introduced in 2014, making regular assessments of energy use for businesses of a certain size mandatory. For businesses that meet the minimum size criteria, which is 250 staff, £44 million in turnover or £38 million on their annual balance sheet, ESOS reporting must be completed every four years. This involves an audit of a full year of energy use data by an approved assessor which will calculate total consumption, identify areas of significant energy consumption and provide recommendations on how to reduce energy use.
SECR
Streamlined Energy and Carbon Reporting was introduced in 2019, making it mandatory for large businesses to publicly report on their carbon emissions, in the same way that they publish financial performance. Companies that employ more than 250 staff, turnover £36 million or with a balance sheet of £18 million or more are all required to report, providing they used at least 40MWh of energy during the reporting period. SECR requires scope 1 and 2 emissions in tonnes of carbon dioxide equivalent to be calculated and reported on, as well as the methodology used to arrive at the quoted figures. At least one suitable emissions intensity ratio should also be used, one that is applicable to the operations of the business. For example, a retailer might use tonnes of CO2e per sales revenue or shop floor area, while a manufacturer might opt for CO2e per tonne of production. The report also requires a narrative on energy efficiency measures that have been employed, or will be employed in the future, to be included.
Energy Performance Certificates
Energy performance certificates (EPCs) rate the energy efficiency of a building from A through to G. As of April 2018, non-domestic properties can only have a tenancy granted if they have a rating of D or higher. In April of next year, this will be expanded to include properties that are already let. These minimum standards will continue to tighten in the coming years, with one proposal stating an aim to make all non-domestic properties require an EPC rating of B or higher to be legally let out.
UK Emissions Trading Scheme
The UK Emissions Trading Scheme was introduced in January 2021 to replace the EU’s version. The ETS applies only to energy-intensive industries, setting a cap on the total amount of greenhouse gases that can be emitted. Businesses covered by the ETS must monitor and report their emissions each year and ensure that they remain below a set free allowance or are covered by emission allowances purchased at auction. Over time, the cap will lower, forcing sectors covered by the ETS to collectively decarbonise.
Voluntary Schemes
Climate Change Agreements
Climate Change Agreements are voluntary agreements arranged between the Environment Agency and trade bodies representing various energy-intensive sectors of UK industry. Businesses within these sectors are able to secure a discount on the Climate Change Levy, a non-commodity cost added to all energy bills, in return for measuring, reporting on and actively reducing their carbon emissions.
Science-based Targets
Science-based targets provide companies with a pathway to achieving net zero in line with the goals set out by the Paris Climate Agreement. Science-based targets are set by the Science-Based Targets Initiative for companies that sign up to the scheme through a lengthy application process, defining how much and how quickly a company should reduce its carbon emissions. More than 800 businesses have SBTs in place.
CDP
A global environmental disclosure system, businesses or cities that sign up to CDP (formerly the Carbon Disclosure Project) are required to report on their environmental impact, including carbon emissions and sustainability. They are then awarded a CDP score for environmental performance, which is an increasingly important decision-making tool for investors.
Carbon Reduction Plan
A carbon reduction plan approved by Crown Commercial Services is now a requirement for any business bidding for public sector projects worth £5 million or more. This figure is set to be reduced in the future, with the NHS considering a move that would all suppliers to have an approved Carbon Reduction Plan (CRP). A CRP should be a publicly available document published to a company’s website, which lays out their Scope 1, Scope 2 and five elements of their Scope 3 emissions (commuting, business travel, waste, upstream and downstream transport and logistics) as well as efforts made to reduce carbon emissions and a clear plan to achieve net zero by or before 2050.
