Navigating UK Carbon Reporting Laws & SME Sustainability Strategies

By Ashley FerroJanuary 17, 2024

In a world where climate change is no longer a distant threat but a pressing reality, UK businesses face a critical challenge.  

The 2019 SECR policy and the upcoming 2024 SDS standards are not just regulatory hurdles; they represent a call to action for companies of all sizes.

While larger organisations grapple with more stringent reporting requirements, SMEs stand at a crossroads, contemplating their role in this eco-conscious era.  

This article covers:

Current Legislation on UK Carbon Emissions Reporting 

Streamlined Energy and Carbon Reporting (SECR) Policy 

The Streamlined Energy and Carbon Reporting (SECR) policy, effective from 2019, significantly reshaped how large UK companies approach carbon and energy reporting.  

The UK's SECR policy asks companies to report on how much energy they use and their carbon emissions in their yearly reports. This policy adds to what companies were already required to report. Its goal is to get more companies to share information about their energy and carbon, and to encourage them to use energy more efficiently. 

This policy is specifically aimed at:   

  • Quoted companies 

  • Large unquoted companies (including charities and not-for-profit organisations) 

  • Large LLPs 

A company is considered "large" under the SECR policy if it meets two or more of the following criteria as per the Companies Act 2006: 

  • A turnover of £36 million 

  • A balance sheet of £18 million 

  • 250 employees 

Disclosure Requirements under SECR 

Under SECR, quoted companies are required to report: 

  • Their annual Scope 1 and 2 greenhouse gas (GHG) emissions (with Scope 3 being optional but recommended) 

  • Total global energy use 

  • At least one emissions intensity ratio 

  • A narrative report on energy efficiency actions taken 

  • Methodology details used in reporting 

Similarly, large unquoted companies and large LLPs are expected to disclose: 

  • Their UK energy use, including electricity, gas, and transport fuel 

  • Greenhouse gas emissions resulting from their energy use 

  • At least one emissions intensity ratio 

  • A narrative report on energy efficiency actions 

  • Methodology details used in reporting 

The SECR policy also includes a "comply or explain" provision. This rule requires companies, if unable to provide required information, to explicitly state the reasons for this in their reports. This ensures accountability in their environmental reporting. 

What are Scope 1, 2, and 3 Emissions? 

Scope 1, 2, and 3 EmissionsThe SECR policy divides emissions into three distinct scopes, each representing a different aspect of a company's environmental impact: 

  • Scope 1 (Direct emissions): These are emissions directly produced from sources that a company owns or controls. For example, emissions from a company's own vehicles or industrial furnaces. 

  • Scope 2 (Indirect emissions from purchased energy): This category includes indirect emissions resulting from energy that a company purchases and uses. A common example is the emissions generated from electricity that a company buys to power its office buildings. 

  • Scope 3 (Other indirect emissions): These are all the other indirect emissions a company is responsible for, which are not a result of its owned or controlled assets. For instance, emissions from business travel in rental cars or cars owned by employees where the company pays for the gas. 

SECR does not require reporting third-party vehicle emissions.

UK Sustainability Disclosure Standards (SDS) 

The UK government is set to introduce a new set of rules in 2024, known as the UK Sustainability Disclosure Standards (SDS) 

These standards are designed to make it easier and more transparent for companies to report on their environmental impact and sustainability efforts. The aim is to provide investors and consumers with clearer and more reliable information. 

The UK SDS is inspired by global guidelines issued by the International Sustainability Standards Board in 2023. These new UK standards are part of a broader effort by the government to improve the quality of information available about a company's sustainability efforts.  

They include rules for:  

  • Labelling investments as sustainable 

  • Requirements for companies to clearly report their sustainability efforts 

  • Guidelines on how businesses can use terms related to sustainability in their product names and advertising. 

According to Brightest: 

“Official, complete UK SDS standards are expected to be published by July 2024, and aligned to the International Sustainability Standards Board (ISSB) standards.” 

This step towards standardisation is crucial as it aims to minimise misleading claims about sustainability, fostering greater clarity and trust in the environmental actions of businesses.  

However, this will also significantly impact larger companies, who will be required to provide more in-depth, transparent sustainability reports, in compliance with both SECR and the new SDS standards. This underscores the growing importance of a thorough understanding and reporting of environmental impact by businesses. 

Impact on Small and Medium Enterprises (SMEs)  

As of now, SMEs in the UK are not legally required to report their carbon emissions. This mandate primarily applies to larger companies, as mentioned previously.  

However, the government has indicated intentions to extend mandatory emissions reporting to the wider UK economy, potentially by 2025. This move is seen as a critical step towards achieving the UK's net zero target by 2050. 

The Role of SMEs in Environmental Sustainability 

Despite the lack of legal requirements, SMEs play a crucial role in the UK's environmental sustainability efforts.  

They contribute significantly to the UK's non-household greenhouse gas emissions, with research revealing that SMEs generate 44% of these emissions 

However, many SMEs are proactive in reducing their climate impact, with a majority recognising the importance of prioritising sustainability for a cleaner future.  

This proactive approach towards sustainability is crucial because SMEs collectively play a substantial role in the UK economy. They contribute significantly to the country's Gross Value Added (GVA) and are a major source of employment.

So, their efforts in sustainability have a notable impact on the broader goal of reducing greenhouse gas emissions and achieving environmental targets. 

For SMEs, navigating the upcoming changes in legislation and standards is crucial. They can start by understanding their current emissions, particularly Scope 1 emissions, which are directly generated by the business.  

Utilising platforms with carbon reporting capabilities, like ExpenseIn, and government-provided guidance on green energy and transport can be beneficial.  

Also, learning from larger businesses that have been complying with emissions reporting requirements can provide valuable insights. Business-led consortiums offer opportunities for SMEs to share knowledge and best practices in sustainability and emissions reporting. 

The Need for Corporate Social Responsibility  

SMEs should voluntarily adopt carbon reporting and sustainability practices for several reasons. While they may not be legally bound to report emissions, their collective impact on the environment is significant.  

Sustainable practices offer substantial long-term benefits for SMEs: 

Long-Term Benefits of Sustainable Practices 

Long-Term Benefits of Sustainable Practices

  • Cost savings and efficiency: Implementing sustainability measures often leads to reduced operational costs over time. Energy-efficient solutions, waste reduction, and resource optimisation can decrease expenses and increase profitability. 

  • Attracting customers and employees: Consumers and employees are increasingly drawn to businesses that prioritise environmental and social responsibility. SMEs embracing sustainability can gain a competitive edge by attracting these groups. 

  • Innovation and market opportunities: Sustainability can drive innovation, leading to the development of new, eco-friendly products and services. This opens up new market opportunities and can differentiate SMEs in a crowded marketplace. 

  • Regulatory compliance and risk management: With evolving environmental regulations, adopting sustainability practices proactively can position SMEs to comply more easily with future regulations, reducing potential risks and costs associated with non-compliance. 

  • Enhanced reputation and brand value: Commitment to sustainability enhances brand value and reputation, building trust with customers, suppliers, and the community. 

ExpenseIn's Carbon Reporting Feature  

ExpenseIn's carbon reporting feature, included in the Enterprise plan, provides a detailed and user-friendly approach for UK businesses to manage travel-related carbon emissions.  

Our carbon reporting feature offers:  

  • Travel emission tracking: It meticulously records expense-related carbon emissions from various travel modes like vehicles, flights, and accommodation, ensuring comprehensive coverage. 

  • Data accuracy and compliance: The tool ensures accuracy and compliance with sustainability standards by utilising official UK government data. 

  • User-friendly interface: The feature simplifies complex emission data into clear, visual formats, making analysis and decision-making easier. 

  • Real-time reporting: Offers up-to-date emission information, essential for timely and effective carbon footprint management. 

This feature is particularly beneficial for companies with regular travel needs. It aligns with UK sustainability standards, aiding in effective environmental impact management. 

Conclusion: The Vital Role of Businesses in Climate Action and Sustainability 

In addressing climate change and promoting sustainability, the role of every business, big or small, is crucial.  

Each organisation, regardless of size, contributes to the collective effort to mitigate environmental impact and foster a sustainable future. This collective action is essential in creating a healthier planet for future generations.  

Businesses, through their practices and policies, have the power to influence and lead the way towards a greener, more sustainable world. 

Ready to simplify your carbon reporting? Book a demo with ExpenseIn and streamline your sustainability journey!