The Carbon Border Adjustment Mechanism (CBAM)
In this article we’ll explore what the CBAM is, why it’s been created, and what importers need to know ahead of its introduction.
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As businesses face increasing scrutiny over their environmental impact, compliance with the UK's Streamlined Energy and Carbon Reporting (SECR) regulation has become essential. SECR aims to enhance climate transparency and drive energy efficiency improvements, positioning UK companies to address both legal requirements and stakeholder expectations.
The urgency is clear: climate change not only threatens the environment but poses a significant economic risk. Swiss Re, a leading reinsurance firm, projects that without decisive action, global GDP could shrink by up to 18% by 2050. For UK businesses, this makes transparency in energy use and carbon emissions not just a regulatory obligation but a competitive advantage.
Since its introduction in 2019, SECR has transformed how companies report on energy consumption and emissions. By expanding the scope of carbon accounting and modernizing disclosure rules, it equips investors with the high-quality data they need to align financial and environmental considerations in their decisions.
👉 In this article we'll explore what the SECR is, why it was introduced, and what it means for companies operating in the UK.
The UK's Streamlined Energy and Carbon Reporting (SECR) policy was introduced on 1 April 2019 as a major step forward in enhancing corporate accountability for energy use and carbon emissions. Designed to simplify reporting requirements while expanding their scope, SECR replaced the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme and brought many more businesses under its purview.
Unlike the CRC, which applied to fewer organizations, SECR mandates that approximately 11,900 large UK-based companies now disclose their annual energy use, carbon emissions, and any energy-efficiency measures they’ve implemented. This broader scope ensures greater transparency and incentivizes action across a wider range of industries.
SECR also aligns closely with the UK’s ambitious climate goals, including achieving net zero emissions by 2050. By requiring companies to report on their energy efficiency efforts, SECR supports the national transition to a low-carbon economy and provides investors with critical data to guide sustainable decision-making.
It’s important to note that SECR operates alongside, rather than replacing, other emissions reporting requirements, including:
By modernizing and unifying reporting requirements, SECR makes it easier for businesses to integrate emissions tracking into their sustainability strategies, helping the UK move closer to its climate commitments.
The SECR aims to create harmony between fiscal responsibility and environmental stewardship. Through carbon accounting, it enables businesses to trim costs, boost transparency via carbon disclosures, and enhance energy efficiency. In turn, this helps companies curtail their greenhouse gas emissions and combat the repercussions of climate change by endorsing energy-efficient practices.
Furthermore, the SECR fosters greater awareness regarding the implications of climate change and the intricacies of energy expenditure within organizations. It not only sheds light on the monetary aspect of energy but also enlightens stakeholders about a company's role in climate change.
For investors, the data on carbon emissions and energy usage that the SECR mandates is invaluable. As companies focus on augmenting energy efficiency and diminishing carbon emissions, investors are equipped with sharper insights. This helps investors to make more informed investment choices in a world gravitating towards sustainability.
The SECR impacts an estimated 11,900 companies incorporated in the UK. These businesses fall under three main categories. All companies that meet the following criteria are obligated to report their emissions and energy consumption unless they fall under one of the exemptions:
Quoted companies of any size: These are companies listed on a public exchange. Such companies are already subject to existing greenhouse gas reporting regulations, so the 2019 update doesn’t significantly affect them.
Large unquoted companies: The term "large", as defined by the Companies Act 2006, applies to a company that fulfills at least two of the following criteria:
Large limited liability partnerships (LLPs): LLPs are considered to be large where they fulfill the same criteria outlined above as per the Companies Act 2006.
Charities and not-for-profit organizations: Where an organization meets the Companies Act 2006 definition of large it will also fall under the scope of SECR, even where it operates under a charitable structure.
Public bodies: Public bodies do not fall under the scope of SECR, however, they may have other carbon reporting obligations. It’s worth noting that not all organizations providing a public service are officially defined as such, and therefore some bodies owned by the NHS or a UK University may still fall under the scope of SECR.
SECR includes several possible exemptions, these include:
Company Type | Criteria | Reporting Obligations | Exemptions |
---|---|---|---|
Quoted Companies | Listed on a UK stock exchange | Must report energy use and efficiency measures globally. | None |
Unquoted Companies | Meets two of the following: turnover > £36M, balance sheet > £18M, > 250 employees | UK-based energy use and efficiency measures only. | Exempt if energy use is < 40 MWh per year |
Limited Liability Partnerships (LLPs) | Same as unquoted companies: meets two of the following: turnover > £36M, balance sheet > £18M, > 250 employees | UK-based energy use and efficiency measures only. | Exempt if energy use is < 40 MWh per year |
In some cases, a group-level report is required. A group-level report should contain the energy use and carbon emissions data for the parent group and all subsidiaries.
As outlined above under the section on exemptions, if a subsidiary would not otherwise be required to report under SECR independently from the group, it may omit its energy and carbon details in the group report.
❗ Reporting companies should note that this specific guideline is treated differently than in the ESOS and the CRC Energy Efficiency Scheme.
Note that when subsidiary companies subject to SECR have already reported their energy and carbon information in a parent’s group-level report, filing a separate energy and carbon report isn't necessary.
SECR reporting requirements vary depending on the type and size of the business or organisation. Below we’ve outlined how quoted companies, large unquoted companies, and LLPs should present their energy and carbon reporting.
Quoted companies are already required to report their Scope 1 and 2 worldwide GHG emissions. The emissions should be reported in tonnes of carbon dioxide equivalent (CO2e) covering the seven gases listed in the Kyoto Protocol.
Companies are strongly recommended to report Scope 3 emissions if they are essential to business operations, however, for now reporting on Scope 3 emissions is not mandatory, and is voluntary only.
💡GHG emissions that must be reported include: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6), and nitrogen trifluoride (NF3).
Quoted companies should also report their selected emissions intensity ratios for the current and previous years. This should be stated in their Directors' report.
❓ Emissions intensity ratios define GHG emissions in relation to the scale of business operations. Intensity metrics help regulators compare companies’ energy efficiency with counterparts of a similar size. Examples of intensity metrics include tonnes of CO2e per sales revenue or per square meters of total floor space.
Beyond emissions, listed companies should report their annual energy use. Companies should specify both their UK energy use and their offshore energy use in other countries.
If the first year of SECR reporting has passed, quoted companies also need to report a comparison between the current and previous reporting years.
SECR requires quoted companies to describe whether or not they implemented measures aimed at reducing carbon emissions throughout the course of the year. They should disclose a narrative description of their energy-efficient activities in their annual report, and how successful those measures have been in improving energy efficiency or reducing energy consumption.
Companies should outline the methodology used. While there is no specific recommended methodology, SECR recommends selecting one that is widely used, comprehensive, and transparent.
Quoted companies should report these details in their Director’s Reports for financial years beginning from April 1, 2019.
Here’s a quick SECR reporting checklist for quoted companies:
SECR requires large unlisted companies and large LLPs to report on the following information:
UK energy use (including the UK offshore area) in three categories: electricity, gas, and fuel for transport.
Associated GHG emissions from these activities should also be reported, with at least one emissions intensity ratio included.
❗ Note: When reporting transport energy use, businesses should report their direct fuel purchases for company vehicles, but there is no need to report fuel used from a third-party operator. Fuel used in flights, trains, public transport, taxi trips, freight, or shipping for services contracted to a third party is also excluded.
Like quoted companies, large unquoted companies and large LLPs also need to provide a narrative description of their energy efficiency activities and details on the methodology they used.
Also similar to quoted companies, large unquoted companies should provide the required information in their Directors’ Reports, or Strategy Reports alongside an explanation.
Large LLPs should report the information in their Energy and Carbon Report (a new obligation that was brought in with SECR).
Here’s a quick SECR reporting checklist for large unquoted companies and large LLPs:
The SECR guidelines set a foundational benchmark for successful GHG reporting to mitigate the impacts of climate change, but there's room to go beyond the basics. Here's what's additionally recommended:
Full Disclosure: Companies should share details about all significant sources of energy consumption or greenhouse gas emissions, even those not specified in the guidelines. This includes Scope 3 emissions, which are the indirect emissions that occur in a company's value chain.
Science-backed Targets: Companies should aim to align their reporting with science-based goals, such as aiming to keep global warming below 1.5 degrees Celsius by 2100.
Future-focused Analysis: The Task Force on Climate-related Financial Disclosures (TCFD) suggests companies look ahead and analyze how climate change might affect them. This involves:
Risk Assessment: The TCFD encourages companies to evaluate climate risks, both direct (like storms or rising sea levels) and indirect (like changes in policies, markets, technologies, potential lawsuits, or harm to their reputation).
In certain situations, companies might find it challenging to include their energy and carbon emissions data in their annual streamlined reports. Reasons could range from facing exceptional difficulties in gathering the data to concerns that sharing such information might harm the company's interests.
Companies choosing to withhold such data should clearly state their reasons for doing so. However, they're also expected to make efforts to fully comply in subsequent reports.
Failing to comply with SECR reporting requirements can have significant repercussions for businesses, affecting both their financial standing and reputation. Here are the key risks of non-compliance:
Non-compliance with SECR can lead to fines and enforcement actions by the UK Government. While the exact penalty depends on the nature and severity of the breach, companies that fail to submit accurate and timely reports risk facing financial sanctions. This adds an unnecessary expense that could otherwise be avoided with proper compliance.
In today’s business landscape, transparency is critical for maintaining trust among stakeholders. Non-compliance with SECR may signal a lack of commitment to sustainability, damaging a company’s reputation with investors, customers, and employees. This can lead to lost business opportunities and decreased brand loyalty.
SECR compliance often uncovers inefficiencies in energy use that, when addressed, can result in significant cost savings. Failing to report and act on this data means companies miss opportunities to reduce their operational expenses and carbon footprint, putting them at a competitive disadvantage.
Non-compliance can attract unwanted attention from regulatory authorities, leading to audits or more stringent oversight. Additionally, sustainability-conscious investors may question a company’s reliability and commitment to addressing climate risks.
To avoid these risks, companies should ensure their compliance processes are robust and aligned with SECR requirements. The UK Government’s official SECR guidelines provide detailed instructions on reporting obligations and methodologies, which businesses should follow closely. Companies unsure about their compliance status can seek expert advice to streamline their reporting processes and minimize risks.
For further information and support on SECR compliance, consider exploring the following resources:
SECR Official Guidelines
Government Resources on Energy Efficiency
Greenly’s Services Related to Emissions Reporting
While SECR is a UK-specific regulation, it may apply to American companies with significant operations or subsidiaries in the UK that meet the criteria for reporting. For example, a US-based parent company with a UK subsidiary listed on a UK stock exchange or one that qualifies as a "large company" under SECR thresholds would be required to comply.
These businesses must report UK-based energy use and carbon emissions to meet SECR obligations. Understanding international regulations like SECR is crucial for American companies operating globally, as these frameworks often influence investor expectations and align with broader sustainability reporting trends.
SECR only mandates Scope 1 and Scope 2 reporting, however, it is strongly recommended that companies also adopt Scope 3 reporting. Let’s take a closer look at the different Scopes and what they encompass below:
The GHG Protocol defines the three emissions reporting Scopes as follows:
❓Scope 3 emissions data is more challenging for companies to collect, as they aren't created by the company themselves. It includes the supply chain emissions created when manufacturing and shipping products, as well as the emissions caused by the end-users when consuming the products, goods, or services.
👉 To find out more about the different Scopes, why not read our article on the topic. Or if you'd like to learn more about carbon accounting take a look at our blog.
Working with specialized carbon accounting experts like Greenly can improve the quality of your reporting across all 3 Scopes, so why not get in touch with us today?
At Greenly, we specialize in making carbon management accessible and actionable for businesses of all sizes. Our suite of carbon management services is designed to help your company effectively measure, track, and reduce emissions, enabling you to achieve sustainability goals while staying ahead of regulatory requirements like SECR.
Here’s what we offer:
With Greenly, sustainability is not just a goal – it’s an achievable and measurable journey. Our mission is to empower businesses to reduce emissions, improve operational efficiency, and strengthen their commitment to a sustainable future.
👉 Request a demo today to discover how Greenly can help you take the next step in your carbon management journey.