For periods beginning on or after 1 April 2019, many large companies and Limited Liability Partnerships (LLPs) will need to provide new or enhanced directors’ report disclosures on greenhouse gas emissions and energy consumption.
Subject to some exemptions, these complex new rules enhance the requirements that already apply to quoted companies and extend similar requirements to large unquoted companies and LLPs.
Unquoted companies and LLPs
All unquoted companies that meet the Companies Act 2006 definition of a large company (ie by reference to turnover, balance sheet total and number of employees) will be required to include new greenhouse gas emissions and energy consumption disclosures in their directors’ reports.
Subsidiaries that would otherwise fall within the scope of these rules are exempt from providing the disclosures if they are included in the consolidated accounts of a parent that provides disclosures under either the unquoted company and LLPs requirements or those that apply to a quoted company (see below).
Broadly, companies within the scope of these new rules that consume more than 40,000 kWh of energy annually (the equivalent to ten average households’ consumption) must:
- Disclose the annual quantity of emissions, in tonnes of carbon dioxide equivalents, for which it is directly or indirectly responsible, together with the annual quantity of energy consumed in kilowatt hours (kWh). In all cases, this information need only be in relation to emissions made and energy consumed within the UK.
- Describe the calculation methods used in determining the amounts of emissions and energy consumption disclosed.
- Provide narrative disclosures on any energy efficiency improvement measures undertaken in the year.
- Present at least one ratio that expresses the company’s annual emissions in relation to a quantifiable factor associated with the company’s activities.
Comparatives must be provided after the first year of application of these new rules. Companies consuming less than 40,000 kWh of energy need only state that fact.
Where the company is a parent company that prepares consolidated accounts, the information must be presented on a consolidated basis; except that it need only include information from subsidiaries that are both large companies and which consume more than 40,000 kWh of energy annually.
Finally, recognising the commercial sensitivity of specific disclosures to companies operating in energy intensive sectors, the Government included an exemption from disclosing information that the directors think would be seriously prejudicial to the interests of the company. It is unclear in exactly what circumstances this exemption might apply but it is noted in the Government Response published alongside the new rules that it should only be used in ‘exceptional’ circumstances.
These new rules apply equally to large LLPs, which must publish the information in a separate ‘energy and carbon report’.
Quoted companies have been subject to mandatory directors’ report greenhouse gas emissions disclosure requirements since 2013. The new rules add to and amend those requirements in the following ways:
- Quantitative and narrative disclosures on energy consumption and energy efficiency measures have been added to the pre-existing greenhouse gas emissions disclosures.
- For quoted companies that are also subsidiary companies, the new rules introduce an exemption from providing both the new and pre-existing disclosures, subject to the same conditions that apply to unquoted companies and LLPs.
- For quoted companies that are parents, rules similar to those that apply to unquoted companies and LLPs regarding the subsidiaries that are included in the consolidated emissions and energy consumption information apply.
- A 40,000 kWh threshold and seriously prejudicial exemption has been added for both the new and pre-existing disclosures.
The Statutory Instrument introducing these changes, together with an impact assessment and the Government’s consultation response are available on Gov.uk.
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