Scope 1, 2, and 3 Emissions

SECR and TCDFs: Overview

The Streamlined Energy and Carbon Reporting policy (SECR) aims to incentivise businesses to adopt energy-efficient practices that will benefit the economy and the environment by lowering costs, increasing productivity, and lowering carbon emissions.

The G20 Financial Stability Board's Taskforce on Climate-related Financial Disclosures (TCFDs) has recommended that companies disclose energy and carbon information. This is because it gives investors and other financial actors crucial information to help them navigate the shift to a low-carbon, sustainable economy.

The Companies and Limited Liability Partnerships Regulations 2018 went into effect on April 1, 2019, marking the beginning of the UK government's SECR policy.  With the implementation of SECR, the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme came to an end. An estimated 11,900 businesses in the UK will have to report their energy and carbon emissions under the new rules, which is a considerably higher number than those that were obligated under the CRC.

Organisations are required by the UK's SECR policy to provide information about their energy use and carbon emissions in their annual reports.  Carbon reporting is broken down into Scope 1, 2, and 3 emissions.

Who must report their emissions?

The SECR builds on existing reporting requirements that companies may already be subject to. Its purpose is to widen the scope of energy and carbon reporting to a larger number of companies and to encourage energy efficiency actions. 

These include:

• Quoted companies (companies listed on a public exchange)

• Large unquoted companies

• Large limited liability partnerships (LLPs)

Under the SECR’s definition, companies and LLPs are considered ‘large’ if they meet two or more of the following criteria:

• A turnover of £36 million or more;

• A balance sheet of £18 million or more;

• 250 employees or more.

External validation is not required, but is strongly recommended. Large unquoted companies and LLPs are exempt from SECR reporting if they can show that their energy use during the reporting period is less than 40 MWh.

Scope 1, 2, and 3 emissions

An easy acronym for remembering the three Scopes is ‘Burn, Buy, Beyond’. If it is emissions that you have directly produced by the burning of a resource e.g. petrol in your car, that would fall into Scope 1. If it is emissions produced by energy you have bought, such as a when paying for your monthly electricity bill, that would count as Scope 2. Anything beyond those two actions would be considered Scope 3.

Scope 1

These emissions relate solely to the emissions produced directly by a business to heat buildings, fuel company cars, power non- electric machinery, etc. Also included in Scope 1 emissions are accidental or fugitive emissions such as chemical leaks from air conditioning units or refrigerators.  It is important any known fugitive emissions are reported as the impacts of these can be far more profound than Greenhouse gasses. Scope 1 emissions are effectively any direct emissions produced through the burning of a fuel.

Scope 2

These emissions are far simpler. Scope 2 refers to the emissions produced in purchased electricity, heating, or cooling. An example of this is the emissions produced through the burning of natural gas in a power station to produce electricity. These emissions are easily calculated by taking the consumption from the company’s monthly electricity bill.

Scope 3

These emissions relate to any indirect emissions, both upstream and downstream, that are not directly controlled by the company. Scope 3 emissions can also be attributed to products that the company sells. In the example of a car manufacturer, their scope 3 emissions would take into account the total emissions involved in the upstream supply chain and transportation of the parts. On top of this, the company would have to include an estimate for the emissions that the car would produce through use during the year it was sold.

What must be reported?

Quoted Companies must report:

• Global scope 1 and 2 GHG emissions. Reporting scope 3 emissions is voluntary, but strongly recommended.

• At least one emissions intensity ratio. Intensity ratios compare emissions data with an appropriate business metric or financial indicator, such as sales revenue or square metres of floor space, and allow for comparability.

• Underlying global energy use for the current reporting year.

• Previous year’s figures for energy use and GHG.

• Energy efficiency actions, with a narrative description of the main measures taken to increase energy efficiency in the relevant financial year.

• Methodology used. It is recommended that companies use a widely recognised independent standard, such as: GHG Reporting Protocol (Corporate Standard), International Organisation for Standardization, ISO (ISO 14064-1:2018), Climate Disclosure Standards Board (CDSB), The Global Reporting Initiative Sustainability Reporting Guidelines.

Large unquoted companies and LLPs must report:

• UK energy use and associated GHG emissions

• Previous year’s figures for energy use and GHG emissions.

• At least one intensity ratio.

• Energy efficiency actions.

• Methodology used.

Develeco: Embodied Carbon Reporting

Embodied emissions almost always fall within Scope 3, reported as Purchased Goods and Services or Capital Goods and Upstream and Down-stream transportation.

At Develeco, our Whole Life Carbon Assessments and other energy simulation processes align with TCFD and other reporting requirements. We understand the shortfalls of the policy, in terms of the reporting requirements and associated potential risks of carbon emission duplication across different Scopes. We’d be delighted to support you.