Climate change and global warming have become steadily more important to companies of all sizes, driven by, among other things, customer and employee opinion and, for listed companies, investor demand. The UK government is also committed to a lower carbon path.
New reporting obligations
Regulations requiring quoted companies to report on their greenhouse gas emissions in the directors’ report have existed since 2013, and covered around 1,200 companies. Under new regulations, however, The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 (the 2018 regulations), the requirements have been extended to also cover certain entities in the unquoted sector. The number of companies reporting on this area is therefore about to increase to more than 11,000, through the inclusion of ‘large’ private companies and limited liability partnerships (LLPs). These new requirements are effective from 31 March 2020 year ends.
Who’s in scope?
The 2018 regulations distinguish between quoted companies, unquoted companies and LLPs with unquoted companies ,and LLPs having simpler reporting requirements.
Unquoted companies and LLPs
Large unquoted companies and large LLPs are in scope of the 2018 regulations, with the thresholds used to determine whether an unquoted company or LLP is large being the same as those in the Companies Act. The 2018 regulations do not, however, include the same ineligibility criteria as the Companies Act (whereby certain entities are ineligible and treated as large even though they meet the medium-sized thresholds). A medium-sized bank, for instance, would not need to report under the 2018 regulations. It is also worth noting that AIM companies, for this purpose, are unquoted.
Exemptions
There are several exemptions from these disclosures available as follows:
- Low use: if a business has a low level of energy use, defined as 40MWh of energy or less, it need not produce this report. It should be noted that this is a low level of usage – an electricity or petrol/diesel bill of £5,000 or more or a gas bill of £1,500 or more is likely to take a company above the threshold.
- Prejudice: the business need not disclose if it would, in the opinion of the directors, be seriously prejudicial to the company’s interests.
- Practicality: there is also an option to exclude information if it is impractical to obtain. For example, this may apply if a company is sharing premises and there is no breakdown of the electricity bill available.
Use of the above exemptions requires the company to state, in its directors’ report, that it has taken the exemption. In the case that information has been impractical to obtain, the company should also disclose what this applies to and why.
In addition, subsidiaries need not report if they are included in a group report covered under this legislation. The exemptions above apply piecemeal, so any company or amount of emissions in the group which is excluded in a subsidiary due to low energy use, and so on, can also be excluded from the group report.
What to disclose?
Possibly the most important reporting difference between quoted and unquoted companies is that quoted companies must report on global energy use and emissions whereas unquoted companies and LLPs only need to report on their UK emissions. Global reporting is nevertheless encouraged for unquoted companies and LLPs by the Department for Business, Energy and Industrial Strategy (BEIS).
