-
The Energy Savings Opportunity Scheme (ESOS) is a mandatory energy assessment scheme for large UK businesses, which operates in four-yearly phases.
-
You will need to submit a second progress update by December 5, 2026 if you qualified for Phase 3.
-
You will need to participate in Phase 4 of ESOS if your organisation meets the qualifying criteria by December 31, 2026.
Does ESOS apply to your business?
ESOS applies to large UK undertakings. This can include UK limited companies, LLPs, partnerships, joint ventures and trusts. It also applies to their corporate groups.
A UK undertaking is "large" if it meets at least one of the following criteria on the qualification date for the relevant phase:
-
250 or more employees; or
-
both an annual turnover exceeding £44 million and an annual balance sheet total exceeding £38 million.
If a corporate group contains a large UK undertaking, then the scheme will apply across the group's entire UK operations. So, a UK holding company with no turnover and fewer than 250 employees may still be caught if another group member qualifies.
Overseas undertakings are not required to participate. However, a group which includes an overseas entity could still qualify for the scheme if it also includes a qualifying UK undertaking.
The entity responsible for demonstrating compliance on behalf of the group is usually the "highest parent" which is the UK undertaking in the group that has no qualifying UK parent itself.
An organisation that qualifies but has zero energy supplies must still submit a compliance notification confirming that position.
Public bodies and organisations subject to insolvency proceedings are excluded.
What do you have to do?
ESOS compliance broadly involves four main obligations:
-
Energy audits: audits must be carried out across the group; an ESOS report completed; and an ESOS evidence pack compiled. Audits must usually be conducted or reviewed by an accredited lead assessor.
-
ESOS compliance notification: a submission to the EA must be made by the Phase deadline confirming that the relevant audit requirements have been met.
-
ESOS action plan: following the compliance notification, organisations must submit an action plan to the EA setting out how they intend to implement the energy efficiency measures identified. Action plans are published by the EA.
-
ESOS annual progress updates: annual updates on progress against the action plan must be submitted to the EA. These will also be published.
Key dates
Phase 3
Phase 3 ran from December 6, 2019 to December 5, 2023. Compliance notifications were due by December 5, 2023, and the first Phase 3 ESOS progress update was due by December 5, 2025.
The second Phase 3 progress update is due by December 5, 2026.
Phase 4
Phase 4 runs from December 6, 2023 to December 5, 2027.
The qualification date for Phase 4 is December 31, 2026.
EA guidance on Phase 4 is expected in early 2027.
What should you be doing now?
Confirm your Phase 4 position: will your organisation be likely to meet the qualification criteria by December 31, 2026?
Consider current headcount, turnover and balance sheet figures but also any structural changes or mergers/acquisitions planned before that date which could alter the position. Even if your organisation does not currently qualify, it may qualify by December 31, 2026, and forward planning is essential.
Remember, if your organisation does meet the criteria, all other UK undertakings in the wider corporate group will also fall within the scope of the audit.
Review your Phase 3 progress update obligations (if applicable): if your first progress update (due December 5, 2025) has not been submitted, take immediate advice. If it has, prepare your second update for submission by December 5, 2026.
What if you miss a deadline?
The consequences of non-compliance differ depending on the obligation missed:
Failure to submit an ESOS compliance notification on time may lead to enforcement action, financial penalties, and publication of non-compliance by the EA.
Failure to submit an ESOS action plan or progress update will not attract financial penalties, but could result in public naming by the EA.
In both cases, the reputational consequences of appearing on the EA's non-compliance register should also be considered, in particular for organisations with sustainability commitments to shareholders, lenders, or customers.
How we can help
It is not always straightforward to determine whether an entity, and consequently a wider corporate group, falls within scope of ESOS. We advise clients on regulatory compliance across the sustainability space, including ESOS.
If you are unsure whether ESOS applies to your organisation, if you have received a communication from the EA, or if you need support navigating the Phase 4 process, please get in touch with your usual Winston Taylor contact.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[View Source]