Compliance Guidance for CSRD, ESOS, SECR, CDP, TCFD and IFRS
Nov 20, 2023
This article summarises the various compliance requirements for climate change, energy, carbon and sustainability, namely:
CSRD, ESOS, SECR, CDP, TCFD and IFRS.
There are a number of different reporting frameworks in the UK that companies are required to complete either mandatory or voluntary based on their size and/or turnover. Knowing what to disclose for these different frameworks can be challenging. Read on for more information....
CSRD
Corporate Sustainability Reporting Directive
What is it?
The CSRD, effective as of 5 January 2023, is an annual reporting of qualifying companies’ environmental and social impacts of their business activities and the impact that environmental and social governance efforts and initiatives have on the business. CSRD differs from its predecessor NFRD in that it requires a standalone report, whereas NFRD could be included in the business’ annual report. The CSRD requires a third-party to audit the sustainability information and data included in the report.
Who qualifies?
By 2028, all the following organisations will need to comply with CSRD.
For all types of organisation in the below table, to qualify you must meet at least two of three of the criteria outlined below, for two consecutive balance sheet dates.
| Total Assets (€) | Net Turnover (€) | Average nr. of employees through the year | |
|---|---|---|---|
| Small and Medium Undertakings | ≥ 450,000* | ≥ 900,000* | ≥ 10 |
| Large Undertakings | ≥ 25,000,000* | ≥ 50,000,000* | ≥ 250 |
*The European Commission adopted an amendment to the thresholds in the Accounting Directive in October 2023.
When do I need to comply?
The CSRD is being phased in over a period of years, a timeline of required compliance can be seen below.
- Starting financial year 2024 (reporting in 2025): All companies already reporting NFRD.
- Starting financial year 2025 (reporting in 2026): Large, listed companies not already reporting.
- Starting financial year 2026 (reporting in 2027): Small and medium undertakings
- Starting financial year 2028 (reporting in 2029): Third-country undertakings.
What are the penalties for non-compliance?
EU member states have an entity in place to impose “effective, proportionate and dissuasive” penalties. These are based on several factors including severity and duration of breach and financial standing of the company.
What should I do now?
Contact PASCHALi for expert advice and assistance with your CSRD reporting.
ESOS
Energy Savings Opportunity Scheme
What is it?
ESOS is the mandatory implementation of the Energy Efficiency Directive. It has been in force since 2014 and occurs in 4 year phases. We are currently in ESOS Phase 3. The aim of ESOS is to highlight where energy efficiency improvements can be made through an audit of a company's energy usage, transport data and energy saving measures. Completing ESOS to a high standard can have numerous benefits, not least the significant reductions in energy consumption and costs at a time of extreme energy market volatility.
What are the penalties for non-compliance?
- Failure to comply with ESOS will result in an initial penalty of up to £5,000, followed by a daily fine of £500 for each working day of non-compliance.
- Failure to undertake an energy audit will result in an initial penalty of up to £50,000, followed by a daily fine of £500 for each working day of non-compliance.
Who qualifies?
To qualify for ESOS, a company must fulfil at least one or both of the following criteria on 31 December 2022:
- Employs more than 250 people in the UK.
- Has a turnover in excess of £44 million and a balance sheet exceeding £38 million.
Companies which have a certified ISO 50001 energy management system covering 95% of all energy use do not need to undergo ESOS audits.
When is the deadline?
The deadline for ESOS Phase 3 was 5 December 2023 but has been pushed back to 5 June 2024.
What should I do now?
Contact PASCHALi for expert advice and assistance with your ESOS reporting.
ESOS Phase 3 legislation has been updated by the UK Government. For a detailed list of the updated requirements, please see our 'Are you ESOS Phase 3 Compliant?' blog post.
SECR
Streamlined Energy and Carbon Reporting
What is it?
SECR is the annual reporting of qualifying companies' carbon emissions and energy usage. The main aim of SECR is to build on existing reporting and make it consistent with the financial year, making it easier to monitor and achieve reductions in carbon emissions each year. It also extends the scope of mandatory reporting to include more companies.
What are the penalties for non-compliance?
The Conduct Committee of the Financial Reporting Council can impose fines for non-compliance. There can also be fines imposed for late submissions, ranging from £150 up to £7,500, dependant on the lateness of submission and the type of company. In addition to this, Companies House can also reject annual accounts based on inadequate information provided.
Who qualifies?
SECR applies to all quoted companies (those which shares are traded on the stock exchange) and applies to companies that meet two out of the three following criteria:
1. Employs 250 employees or more in the UK.
2. Has an annual turnover in excess of £36 million.
3. Has an annual balance sheet in excess of £18 million.
Exemptions:
- Organisations who use 40MWh or less, total electricity, gas and transport fuel, over the reporting period.
- Public sector organisations; charities, universities, hospitals
All above organisations are encouraged to report even though it is not mandatory.
When is the deadline?
The deadline to submit SECR is dependant on your company's financial year end.
What should I do now?
Contact PASCHALi for expert advice and assistance with your SECR reporting.
CDP
Formerly the Carbon Disclosure Project
What is it?
CDP is a voluntary reporting framework that companies can use to disclose information and data on emissions and environmental impacts to their stakeholders. Results are graded from A to D-, with different focus areas, e.g. climate change, water and forests, scored separately. These scores are collated and the company given an overall grade. A high CDP score can bring many benefits as it shows a company's willingness to consider environmental impacts in their operation.
What are the penalties for non-compliance?
As CDP is voluntary, no penalties can be induced. However, a low score or no response reflects negatively on a company.
Who qualifies?
All companies can disclose through CDP, however it is usually by invitation from CDP.
When is the deadline?
The end of July every year. The exact date is announced at the start of each year.
What should I do now?
Contact PASCHALi for expert advice and assistance with your CDP reporting.
TCFD
Task Force on Climate-Related Financial Disclosures
What is it?
TCFD is a framework aimed at helping companies report on risks and opportunities they face in relation to climate change. It also aims to increase and improve reporting on financial information and how it is affected by climate-related risks. Companies are recommended to disclose in four key areas; governance, strategy, risk management, and metrics and targets.
What are the penalties for non-compliance?
Fines for non-compliance range from a minimum of £2,500 up to a maximum of £50,000.
Who qualifies?
All UK companies that produce an annual non-financial statement are required to comply with TCFD. Also required to comply are UK registered companies with:
- More than 500 employees
- A turnover of more than £500 million
When is the deadline?
The deadline for disclosure is dependant on your company's financial year end.
TCFD to be disbanded
After publication of TCFDs October 2023 report the TCFD will be disbanded and the responsibility of monitoring progress on climate-related financial disclosures will be passed onto the IFRS Foundation. The will be effective for annual reporting periods beginning on or after 1st January 2024
IFRS S1 & S2
International Financial Reporting Standards 1 & 2
What is it?
The International Sustainability Standards Boards (ISSB) issued its inaugural standards, IFRS S1 & IFRS S2 on the 26 June 2023, both aimed at fully incorporating the recommendations of the TCFD. The aim of these new standards is to provide a global baseline of sustainability-related disclosures so that companies can have more comparability in the monitoring of disclosures and progresses towards the broad use of high-quality disclosures.
- IFRS S1
- Required to provide the governance processes, controls and procedures used to monitor, manage and oversee sustainability-related risks, the processes used to identify, assess, prioritise and monitor sustainability-related risks and opportunities.
- Provide the performance in relation to sustainability-related risks and opportunities, including progress towards any targets set or are required to be met by law or regulation.
- IFRS S2
- Required to provide the same information as IFRS S1 but for climate-related risks and opportunities.
What are the penalties for non-compliance?
There are no explicitly stated penalties in the standards but the enforcement of the standards will be carried out by the regulatory bodies of each jurisdiction.
It should be noted that failure to comply could have significant implications beyond any legal penalties, such as damage to the companies reputation.
Who qualifies?
Yet to be mandatory in the UK but the UK Government has said it will adopt the new standards by July 2024 latest.
When is the deadline?
IFRS S1 & S2 will be required to be reported in companies annual reporting periods starting on or after 1 January 2024.
What should I do now?
Contact PASCHALi for expert advice and assistance with your IFRS reporting.
If you would like to discuss the blog post above or find out how we can support your business, please contact us.
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