Director JS Penny Ltd
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Understand the terminology of climate reporting
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Energy and carbon reporting: What you need to know

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Ahead of the COP26 climate conference, the UK’s financial regulators are paying a lot more attention to the government’s green finance strategy. Julia Penny sets the scene with a rundown of the key terms of reference.

15th Sep 2021
Director JS Penny Ltd
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The government’s Green Finance Strategy sets out its objective to achieve net zero emissions by 2050. Implementing this plan will require unprecedented levels of investment in green and low carbon technologies, services and infrastructure.

If investment is to be secured it is essential that disclosures in annual reports allow readers to understand the climate risks that companies face and the action they are taking to mitigate these risks.

Mandatory disclosure requirements for quoted companies were extended to large unquoted companies and LLPs via a 2018 statutory instrument that updated Schedule 7A to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and the LLP Regulations.

On 8 September 2021 the FRC published its findings on how well the new Streamlined Energy and Carbon Reporting (SECR) disclosure requirements are being met.

This report follows on from the FRC 2020 Climate Thematic Review which highlighted that: “The boards of UK companies have a responsibility to consider their impact on the environment and the likely consequences of any business decisions in the long term. They should therefore address, and where relevant report on, the effects of climate change (both direct and indirect)”.

Dig beneath the jargon

But let’s pause for a second – we have already started to talk in the jargon of climate change professionals, but for most of us this is a new area, where we are not fully familiar with the terms used. To understand or prepare the required disclosures and contribute to strategy discussions about sustainability you will need to be familiar with some new terms.

What follows is not a comprehensive list, but the table below sets out some of the most relevant and commonly used terms, especially in terms of disclosures of climate related issues. Accountants who following the links and take the time to digest the underlying terminology will be better equipped to respond to the challenges and regulatory requirements that are likely to emerge from further climate change initiatives that emerge in the months to come.

Abbreviation Full name Description
CDBS Climate Disclosures Standard Board An international consortium of business and environmental NGOs committed to advancing global corporate reporting on natural capital.
CO2e Carbon dioxide equivalents Reporting of emissions covers a variety of greenhouse gases but to simplify the overall impact it is given in terms of the equivalent emission of carbon dioxide. The government provides conversion factors for calculating CO2e.
COP26 The Conference of Parties 26 This is a major UN Climate Change conference being held in Glasgow from 31 October 2021. (It was originally planned for 2020 but postponed due to the pandemic). The aims set out include discussing how to  achieve net zero ideally by 2030, but at least by mid-century as well as protecting communities and natural habitats, mobilising finance and working together to tackle the climate crisis.
GHG Green House Gas Emissions GHG are emissions from gases which cause climate change. SECR requires disclosure of emissions from carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride. The disclosure of nitrogen trifluoride emissions is encouraged.
GHG Protocol Greenhouse Gas Protocol Corporate Accounting and Reporting Standard This standard covers the accounting and reporting of seven greenhouse gases covered by the Kyoto Protocol. It sets out the three scopes commonly used to describe emissions (see definitions below).
GRI Global Reporting Initiative GRI offers a comprehensive set of sustainability reporting standards.
ISO 14064 ISO 14064 Greenhouse Gases The International Organization for Standards produces a standard for consistent measurement of greenhouse gas emissions.
kWh Kilowatt-hours This is a measure of how much energy has been used (ie if you ran a 1000kw appliance for 1 hour, this uses 1kWh).
Location-based method This is a methodology for calculating GHG emissions and is explained in the GHG protocol. This reflects the average emissions on grids on which energy consumption occurs. SECR disclosures do not specify the method, but encourage location-based reporting, with dual reporting of market-based emissions.
Market-based method This is a methodology for calculating GHG emissions and is explained in the GHG protocol. This reflects emissions from electricity that companies have purposefully chosen (or their lack of choice) which takes account of the contracts for sale and purchase of energy. These could be nil if the entity has purchased entirely renewable energy, for example.
Net Zero Net zero emissions. The Government has set a target in legislation to reach Net Zero in the UK by 2050, although currently it is not on target. This refers to achieving an overall balance between greenhouse gas emissions produced by human activity and greenhouse gas emissions taken out of the atmosphere.
Paris Aligned Based on the Paris Agreement The Paris Agreement is a legally binding international treaty on climate change which was adopted by the 196 Parties at COP21 in Paris on 12 December 2015 and entered into force on 4 November 2016.
SASB Sustainability Accounting Standards Board These standards are maintained under the Value Reporting Foundation (VRF). The standards are industry specific. The VRF was created as a merger between the International Integrated Reporting Council (IIRC) and the SASB.
Scope 1 Scope 1 means direct emissions  Emissions from activities for which the company is directly responsible including the combustion of fuel and the operation of any facility.
Scope 2 Scope 2 means indirect purchased emissions Indirect emissions from purchased electricity, heat, steam or cooling by the company for its own use.
Scope 3 Scope 3 means other indirect emissions. Indirect emissions, not included in scope 2 that occur in the value chain of the reporting company, including both upstream and downstream. SECR does not require reporting of Scope 3 emissions, but does encourage it.
SECR Streamlined Energy and Carbon Reporting For financial periods beginning on or after 1 April 2019 large unquoted companies/LLPs as well as quoted companies must provide information on carbon and energy use in the director’s report. The report is on a group basis where applicable. (There are certain exemptions including for those organisations which use less than 40,000kWh per annum)
TCFD  The Task Force on Climate-related Financial Disclosures Established by the Financial Stability Board, with representation from across the G20, to develop recommendations for climate-related disclosure to allow better decisions and a better understanding of carbon related assets and risks in the financial sector.
TCO2 Total Carbon Dioxide This is a measure of carbon dioxide which exists in several states and might be used by companies when reporting their CO2 consumption.

Equipped for the challenge

Even if you are not directly responsible for emissions reporting, it will be increasingly important to be able to read the language of climate change. The explanation of terms in the table above will hopefully have provided you with an initial understanding of this new lexicon and if not, at least a crib sheet!

Now that you’ve absorbed all this information, have a look at my companion article on what the FRC found in its review of SECR and the tips the regulators suggested for how accountants can improve reporting on emissions and energy use.

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