An SECR Report, or Streamlined Energy and Carbon Reporting, is a mandatory disclosure for large UK companies detailing their energy use and carbon emissions, including Scope 3 emissions where material. Failing to report all material emissions, especially those related to “bought-in” goods and services (Scope 3 category 1), can lead to litigation for greenwashing, underscoring the importance of accurate reporting and a comprehensive Supply Chain Audit.
Understanding SECR Reporting
What is an SECR Report?
The Streamlined Energy and Carbon Reporting (SECR) framework is a regulatory requirement in the United Kingdom that mandates large companies to report on their energy use, carbon emissions, and energy efficiency actions annually. Introduced in 2019, SECR aims to increase transparency around corporate energy use and carbon emissions, encouraging companies to take steps to reduce their environmental impact and contribute to the UK’s net zero targets.
An SECR Report requires companies to disclose their total energy consumption, the greenhouse gas (GHG) emissions associated with that energy use, and any energy efficiency measures taken during the reporting period. The report typically covers Scope 1 (direct emissions from owned or controlled sources) and Scope 2 (indirect emissions from purchased electricity) emissions. However, where material, Scope 3 emissions—particularly those related to “bought-in” goods and services (Scope 3 category 1)—should also be included to provide a true picture of a company’s carbon footprint.
The Importance of Reporting All Material Emissions
Scope 3 Category 1 Emissions: “Bought-In” Goods and Services
Scope 3 emissions are indirect emissions that occur throughout a company’s value chain, both upstream and downstream. Category 1 of Scope 3 refers specifically to emissions from “bought-in” goods and services—essentially, the carbon footprint of the products and services a company purchases to conduct its business. These emissions are often substantial, particularly for businesses with complex supply chains or those heavily reliant on manufacturing inputs.
For UK companies, it is imperative to include these emissions in their SECR Report if they are material. Failing to report Scope 3 category 1 emissions can lead to an inaccurate portrayal of the company’s overall carbon footprint, potentially resulting in accusations of greenwashing—where a company misrepresents its environmental impact to appear more sustainable than it actually is. This can expose the company to litigation, reputational damage, and financial penalties.
The Risks of Greenwashing and Litigation
Greenwashing is not just a reputational risk; it also carries significant legal liabilities. Companies that understate their emissions by excluding material sources, such as Scope 3 category 1 emissions, can be accused of misleading stakeholders, including investors, customers, and regulators. In the UK, where there is increasing scrutiny over corporate environmental claims, such omissions can lead to legal challenges and potential litigation.
For example, if a company publicly claims to be reducing its carbon footprint but fails to report the significant emissions associated with its supply chain, it could be sued for making false or misleading statements. This risk is particularly high as more stakeholders—especially investors and regulatory bodies—demand accurate and transparent reporting of all material emissions.
The Role of Supply Chain Audits in SECR Reporting
A comprehensive Supply Chain Audit is critical to accurately reporting Scope 3 category 1 emissions. These audits provide a detailed examination of the environmental impact of a company’s supply chain, including the carbon footprint of the goods and services it purchases. By conducting a Supply Chain Audit, companies can gain a true accounting of their “bought-in” emissions, ensuring that all material sources are identified and reported in the SECR Report.
For instance, a UK manufacturer that relies on raw materials sourced from various global suppliers would need to audit these suppliers to determine the carbon emissions associated with producing and transporting these materials. Without such an audit, the manufacturer risks underreporting its Scope 3 emissions, leading to an incomplete and potentially misleading SECR Report.
The Imperative of Accurate SECR Reporting
Legal Compliance and Avoiding Litigation
Accurate SECR reporting is not just a matter of regulatory compliance; it is essential for avoiding litigation and legal repercussions. As the UK government and regulatory bodies continue to tighten requirements around environmental reporting, companies that fail to disclose all material emissions—especially those associated with “bought-in” goods and services—are at risk of being penalised or taken to court.
For example, a company that omits significant Scope 3 emissions in its SECR Report could be investigated by regulatory authorities, leading to fines, sanctions, and potentially costly legal battles. Additionally, shareholders or environmental advocacy groups might bring lawsuits against the company for failing to disclose material environmental risks, which could further damage the company’s financial standing and reputation.
Enhancing Corporate Reputation and Trust
On the flip side, accurate and comprehensive SECR reporting can significantly enhance a company’s reputation and stakeholder trust. In today’s business environment, transparency around environmental impact is a key driver of corporate reputation. Companies that go beyond the minimum reporting requirements and provide a full accounting of their emissions are more likely to be viewed as leaders in sustainability.
For instance, a UK retailer that conducts a thorough Supply Chain Audit and includes detailed Scope 3 emissions in its SECR Report can demonstrate its commitment to environmental responsibility. This transparency can help build trust with customers, investors, and other stakeholders, positioning the company as a trusted and responsible brand.
Supporting Sustainability Goals and Net Zero Targets
Accurate SECR reporting is also critical for supporting broader sustainability goals and the UK’s national net zero targets. By fully accounting for all material emissions, companies can identify key areas where they can reduce their carbon footprint and contribute to global efforts to combat climate change.
For example, a company that accurately reports its Scope 3 emissions can develop targeted strategies to work with suppliers on reducing these emissions, such as by sourcing more sustainable materials or improving energy efficiency in the supply chain. These efforts not only support the company’s sustainability goals but also contribute to the UK’s overall progress towards net zero by 2050.
Why a Supply Chain Audit is Essential for Accurate SECR Reporting
Identifying All Material Emissions
A comprehensive Supply Chain Audit is essential for identifying all material emissions within a company’s value chain. Without this audit, companies may overlook significant sources of Scope 3 emissions, leading to an incomplete and inaccurate SECR Report. This audit helps ensure that all relevant emissions are accounted for, providing a true picture of the company’s environmental impact.
For example, a company that sources products from multiple international suppliers would need to audit these suppliers to understand the carbon emissions associated with production, transportation, and other activities. By including this information in its SECR Report, the company can avoid the risks associated with underreporting and ensure full compliance with regulatory requirements.
Enhancing Data Accuracy and Transparency
A Supply Chain Audit also enhances the accuracy and transparency of the data reported in the SECR Report. By thoroughly examining the supply chain, companies can obtain precise data on the emissions associated with their “bought-in” goods and services. This level of detail is crucial for building credibility and demonstrating the company’s commitment to transparency.
For instance, a UK-based company might use data from its Supply Chain Audit to provide detailed disclosures in its SECR Report, including specific information on the carbon footprint of its key suppliers. This transparency not only helps to meet regulatory expectations but also strengthens the company’s reputation as a leader in sustainability.
Supporting Informed Decision-Making
Finally, a Supply Chain Audit supports informed decision-making by providing the insights needed to develop effective carbon reduction strategies. By understanding the full extent of their Scope 3 emissions, companies can identify opportunities to collaborate with suppliers, invest in greener technologies, and reduce their overall carbon footprint.
For example, a company that discovers significant emissions in its supply chain might decide to source materials from more sustainable suppliers or work with existing suppliers to reduce their emissions. These decisions can lead to meaningful reductions in the company’s carbon footprint, supporting both its environmental goals and its compliance with SECR requirements.
Why Choose ESG Pro Limited?
At ESG Pro Limited, we specialise in helping companies conduct comprehensive Supply Chain Audits and prepare accurate and compliant SECR Reports. Our team of expert ESG consultants provides the support you need to identify all material emissions and avoid the risks of greenwashing and litigation.
- Expertise in GHG carbon emissions reporting and Scope 3 emissions
- Tailored solutions to ensure full compliance with SECR requirements
- Comprehensive Supply Chain Audits to identify and report all material emissions
Our team at ESG Pro Limited is committed to helping businesses of all sizes meet their SECR reporting obligations and achieve their sustainability goals. With our support, you can develop a transparent and accurate SECR Report that builds trust, enhances your reputation, and supports long-term sustainability.
- Proven track record in delivering successful ESG strategies
- Strategic guidance to align your business with UK regulatory requirements
- Ongoing support to ensure continuous improvement in your reporting
