What are charities required to report and where is environmental reporting likely to go from here? Simon Hughes from Crowe UK takes a look at current reporting requirements and what the future holds.
Environmental reporting is here to stay. Quoted companies in the UK were first required to report on their greenhouse gas emissions in 2013. Since then, the number of entities covered by environmental reporting requirements has grown, as have the requirements themselves.
At present there are differing requirements for different sizes of entity, and a number of different standards in development. The two key questions we are being asked are:
- What is my charity required to report?
- Where is this likely to go next?
Requirements
The first is a question of current regulation, which is straightforward to answer, if not necessarily to implement.
Any company (charitable or otherwise) breaching two out of three of these thresholds is required to follow the Streamlined Energy and Carbon Reporting (SECR) requirements in their annual report:
- Turnover: £36 million or more
- Balance sheet total: £18 million or more
- Number of employees: 250 or more
We have provided a summary of the requirements and a review of some of the early SECR reports by charities.
Large companies are also covered by The Companies (Miscellaneous Reporting) Regulations 2018 – Section 172 statement requirements, including setting out “the impact of the company's operations on the community and the environment.”
This is a distinct requirement from the above, requiring a separate statement in the annual report, but appropriate cross-referencing can be used to avoid repetition.
Finally, medium and large companies are required to produce a strategic report, covering the principal risks and uncertainties facing the company “including information relating to environmental matters”.
In the short to medium term, this is only likely to be a principal area of risk and uncertainty for a small proportion of charities, although this may increase over time.
For current reporting, that is all that is required by legislation. However, due to the needs and interests of stakeholders, an increasing number of charities provide voluntary reporting, either based on a framework such as SECR or as a bespoke report.
Such voluntary reports can either be included in the annual report or cross referenced to a separate report on the website.
The future of environmental reporting
The UK has adopted the recommendations of the Taskforce for Climate Related Financial Disclosures (TCFD), which became mandatory for quoted companies and the largest private companies for periods starting on or after 6 April 2022.
The private companies in scope are those with more than 500 employees and £500m turnover, which will include a small handful of the largest charitable companies. These require a more comprehensive and holistic disclosure of environmental matters across four key themes of governance, strategy, risk management and metrics and targets.
The Global Reporting Initiative has been producing standards for sustainability reporting since 2000, including a global framework and detailed standards for specific sectors.
The IFRS Foundation recently launched the International Sustainability Standards Board, stating that “The intention is for the ISSB to deliver a comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions.”
With this parallel development of standards, there is a risk of overlap or contradiction. The hope is that these standard setters will work together to achieve alignment.
For charities, none of these are currently mandatory, except for those largest charitable companies captured by TCFD.
However, what we have seen with SECR is that requirements come in initially for quoted companies, and then tend to roll down to large unquoted entities, and we expect this trend to continue.
There may also be more direct references to environmental reporting in the next iteration of the Charities Statement of Recommended Practice (SORP). So it is very much worth keeping an eye to the future and to what is happening for quoted companies.
Whatever the next requirements are, charities with a good grasp of their current emissions, their environmental strategy and their plan to achieve that strategy will start from a stronger position to address them.