The Energy Savings Opportunity Scheme (ESOS) is a mandatory energy assessment scheme for large U.K. businesses. It operates in four-yearly phases. We are currently in the Phase 4.
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Your business will have to comply with Phase 4 if it meets the qualification requirements on December 31, 2026.
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Even if your business has not previously qualified, it may do so for Phase 4.
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The U.K. Environment Agency (EA) follows compliance closely. It has taken a robust approach to Phase 3 enforcement, including fines and public naming.
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There is not long to prepare. If your business qualifies for Phase 4, you must notify the EA of Phase 4 compliance by December 5, 2027.
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Qualified for Phase 3? Your second annual progress update is due by December 5, 2026. You should also be aware of changes introduced for Phase 4.
Does ESOS apply to your business?
ESOS applies to U.K. entities such as limited companies, LLPs, partnerships, and trusts.
Scope analysis can be complex, especially for groups, funds, or joint venture structures, so forward planning is essential.
Your business will qualify for Phase 4 if it meets at least one of the following criteria on December 31, 2026:
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250 or more employees
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both an annual turnover exceeding GBP44M and an annual balance sheet total exceeding GBP38M.
If your corporate group contains a large U.K. undertaking, then the scheme will apply across the group’s entire U.K. operations. So, a U.K. holding company with no turnover and fewer than 250 employees may still be caught if another group member qualifies.
Private equity firms and portfolio companies are treated in the same way as other groups.
If your organization is close to the qualification criteria, or has recently grown or shrunk due to, e.g. any structural changes or M&A activity, you will need to consider carefully whether it qualifies and potentially look back over several years of accounts.
If your organization qualifies, but has zero energy supplies, you must still submit a compliance notification confirming that position.
Overseas undertakings are not required to participate in ESOS. However, the scheme could still apply to a group that includes an overseas entity where that group also includes a qualifying U.K. undertaking.
Public bodies and organizations subject to insolvency proceedings are excluded.
What does ESOS compliance involve?
Broadly, the following:
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Energy consumption assessment and audit across the group to identify savings opportunities (usually with an accredited lead assessor).
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ESOS report, recording assessment and audit details, and including an “ESOS action plan review” (see below).
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Compliance notification submitted to the EA. Deadline for Phase 4 is December 5, 2027.
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ESOS action plan, submitted to the EA, setting out how identified energy efficiency measures will be implemented. Deadline for Phase 4 is December 5, 2028.
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ESOS annual progress updates on progress against the action plan. First deadline under Phase 4 is December 5, 2029.
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ESOS evidence pack, recording information about the ESOS assessment and audit.
What has changed since Phase 3?
The main changes introduced for Phase 4 include the following:
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Display Energy Certificates and Green Deal Assessments have been removed as alternative compliance routes for Phase 4.
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Where ISO 50001 certification covers the whole of an organization’s total or significant energy consumption, it now provides a more complete deemed-compliance route.
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ESOS now requires more granular reporting of energy savings achieved since the previous compliance period.
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ESOS reports must now include an “ESOS action plan review” which identifies any measures from a Phase 3 action plan that have not been implemented and why.
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Phase 4 also requires organizations to prepare three (rather than two) annual progress updates after the action plan is prepared.
What if your organization qualifies but fails to comply with ESOS?
Non-compliance is treated differently depending on the failure. The EA can issue compliance and enforcement notices, and fine businesses for breach. The EA can also publicly name those entities which do not comply with ESOS requirements.
An organization could be in breach of ESOS if, for example, it fails to:
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submit an ESOS compliance notification, action plan, or progress update on time
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undertake an energy audit
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maintain adequate records
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comply with a compliance, enforcement, or penalty notice.
The EA can also fine and publicly name an entity which provides false or misleading information to it.
In all cases, the reputational consequences of non-compliance should also be considered, in particular for organizations with sustainability commitments to shareholders, lenders, or customers.
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.
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