In this article, you'll learn everything you need about ESOS compliance, key changes for ESOS Phase 4, important deadlines, and how to prepare for future net zero regulations in Phase 5.
TL;DR
ESOS Phase 4 compliance is mandatory, with key deadlines on 31 December 2026 and 5 December 2027. Mandatory net zero reporting is delayed until Phase 5 (2027-2031), but voluntary reporting options are available. Key requirements remain unchanged, with new rules on progress tracking and compliance routes. Businesses should act now to stay ahead, but new regulations on progress tracking and compliance routes have been introduced.
Understanding ESOS and Its Importance
The Energy Savings Opportunity Scheme (ESOS) is a mandatory energy assessment scheme in the UK designed to help large businesses improve energy efficiency and reduce costs.
Businesses that qualify for ESOS must conduct regular energy audits to identify opportunities for improvement and ensure compliance with the latest regulations.
ESOS was introduced to support the UK's commitment to net zero carbon emissions and sustainability goals. By monitoring and optimising energy consumption, organisations can cut operational costs, reduce their carbon footprint, and contribute to the UK's broader environmental targets.
With the rollout of ESOS Phase 4 (2023-2027), businesses must now prepare for new compliance requirements and deadlines. One of the most significant recent updates is the postponement of mandatory net zero considerations until Phase 5 (2027-2031).
This decision gives businesses more time to align with evolving sustainability requirements while continuing to focus on energy efficiency improvements.
Whether you're finalising ESOS Phase 3 or planning for ESOS Phase 4 compliance, this article will provide essential insights and actionable steps to help you stay ahead.
What is ESOS?
The Energy Savings Opportunity Scheme (ESOS) is a UK-wide initiative requiring large businesses to conduct detailed energy audits every four years. These audits assess how organisations consume energy across buildings, industrial processes, and transport, identifying cost-effective measures to improve efficiency and reduce overall energy consumption.
By participating in ESOS, businesses can lower operating costs while contributing to the UK's long-term sustainability goals.
Compliance with ESOS is crucial, not only to meet regulatory requirements but also to unlock significant energy and cost savings. Through structured energy assessments, businesses can pinpoint inefficiencies, implement improvements, and enhance overall operational performance.
Who Needs to Comply with ESOS?
ESOS applies to large UK businesses that meet any of the following criteria:
- Employ 250 or more people.
- Have an annual turnover exceeding £44 million and a yearly balance sheet exceeding £38 million.
- Are part of a corporate group where at least one UK entity meets the above criteria.
Public sector organisations are exempt from ESOS but are encouraged to adopt similar energy efficiency measures to promote sustainability.
Noncompliance can result in financial penalties and damage for businesses that qualify. Therefore, ensuring all ESOS assessments, audits, and reporting requirements are met within the specified compliance deadlines is vital.
Understanding whether your business qualifies and what actions are required is the first step toward achieving full compliance and maximising the benefits of energy efficiency improvements.
Why is ESOS Important?
ESOS is more than just a compliance requirement—it is a strategic tool for enhancing energy efficiency, reducing costs, and supporting sustainability goals. By identifying areas where energy use can be reduced, businesses can achieve long-term financial savings, improve operational performance, and contribute to the UK's commitment to net zero emissions by 2050
With increasing pressure on businesses to adopt sustainable practices, ESOS is key in ensuring that organisations take proactive steps to reduce their carbon footprint.
Implementing energy efficiency improvements helps companies comply with regulations, strengthens corporate social responsibility (CSR) efforts, enhances brand reputation, and demonstrates a commitment to environmental leadership.
As the UK government intensifies its focus on achieving net zero emissions, ESOS compliance has become even more crucial. Businesses that embrace ESOS as a cost-saving and sustainability strategy will gain a competitive advantage while making meaningful contributions to global climate targets.
Key Updates for ESOS Phase 4 (2023-2027)
One of the most significant updates in the recent government announcement is the delay of mandatory net zero requirements. Originally, the government planned to introduce these requirements in Phase 4 (2023-2027).
However, due to delays in Phase 3 legislation and the need for more preparation time, the government has postponed these requirements until Phase 5 (2027-2031).
What Does This Mean for Businesses?
This delay provides businesses additional time to prepare for the upcoming net zero requirements while ensuring they meet their Phase 3 and 4 obligations without added pressure.
Companies can use this time to understand the forthcoming changes, familiarise themselves with how net zero considerations will impact their operations, and integrate long-term sustainability strategies.
By proactively reducing carbon emissions and aligning with the UK's net zero targets, businesses can future-proof their compliance and benefit from lower energy costs.
Instead of facing immediate regulatory changes, businesses can now focus on meeting ESOS Phase 4 compliance deadlines while strategically incorporating net-zero principles at their own pace. This means ensuring they meet the qualification date of 31 December 2026 and submit their compliance reports by 5 December 2027.
With compliance deadlines already set, early action will help businesses streamline the reporting process and avoid last-minute compliance challenges.
Companies should also consider using this time to evaluate their energy efficiency measures and implement cost-effective changes that could reduce their operational expenses.
Investing in energy audits, efficiency technologies, and carbon reduction initiatives now can help businesses gain a competitive advantage when Phase 5 mandates come into effect.
Why the Delay?
The government has delayed the mandatory net zero requirements to ensure a smooth transition and assess the impact of Phase 3 changes. By allowing additional time, businesses and the Department for Energy Security and Net Zero (DESNZ) can refine the framework and address potential challenges before enforcement.
This delay also enables businesses to adapt gradually, avoiding unnecessary financial strain while progressing toward sustainability goals.
The government remains committed to net zero targets, and organisations are encouraged to begin integrating carbon reduction strategies ahead of Phase 5 implementation.
What's Staying the Same in Phase 4?
While the mandatory net zero requirements have been delayed, several aspects of ESOS Phase 4 remain unchanged. Businesses must continue to comply with the existing rules to avoid penalties and ensure they are on track to meet their energy efficiency goals.
1. Qualification Thresholds
The qualification thresholds for ESOS Phase 4 will not be aligned with the Streamlined Energy and Carbon Reporting (SECR) requirements. This means the current criteria—organisations with over 250 employees or an annual turnover exceeding £44 million—will remain in place. The qualification date for Phase 4 is 31 December 2026.
2. ESOS Action Plans
Businesses must still create and implement ESOS action plans to improve energy efficiency. These plans must outline measures to reduce energy consumption and lower carbon emissions. Companies must also report on their progress against these plans and explain if they haven't met their commitments.
3. Compliance Deadlines
The notification of compliance deadline for Phase 4 remains 5 December 2027. To avoid penalties, businesses must submit their ESOS assessments and action plans by this date.
Smaller Changes Coming in Phase 4
While the significant net zero requirements are delayed, some minor changes are still expected in Phase 4, subject to parliamentary approval.
These changes aim to streamline the ESOS process and ensure businesses take meaningful action to improve energy efficiency.
1. Removal of DECs and GDAs as Compliance Routes
Display Energy Certificates (DECs) and Green Deal Assessments (GDAs) will no longer be accepted as compliance routes for ESOS. This change simplifies the compliance process and ensures all businesses follow the same reporting standards.
2. Progress Reporting on Action Plans
Companies must include progress against their action plan commitments in their ESOS assessments. This requirement encourages businesses to take their energy efficiency goals seriously and provides transparency about their efforts.
3. Explanations for Unmet Commitments
If a company hasn't met its action plan commitments, it must explain why. This accountability measure ensures businesses are actively working toward their energy efficiency targets.
Voluntary Net Zero Reporting in Phase 4
Although mandatory net zero requirements have been postponed, businesses can still take voluntary steps to demonstrate their commitment to sustainability.
The government has introduced new PAS standards to help companies measure emissions, assess risks, and develop strategic net zero plans. These standards provide a structured framework for organisations looking to align with future Phase 5 requirements while proactively working towards lower carbon emissions.
By adopting these voluntary measures, businesses can stay ahead of regulatory changes, reduce long-term energy costs, and build a more sustainable operational model.
Companies that integrate net zero strategies early may also gain a competitive advantage by showcasing their commitment to corporate environmental responsibility.
How Can Businesses Use These Standards?
Companies that want to show leadership in sustainability can use these standards to measure their greenhouse gas (GHG) emissions related to energy use covered by ESOS, assess governance and risks associated with achieving net zero, and develop a clear implementation plan to achieve net zero by 2050.
Taking proactive steps now allows businesses to integrate sustainability into their long-term strategy, gain a competitive advantage, and future-proof their compliance approach.
Voluntary Net Zero Reporting Option in Phase 4
Although net-zero reporting is not mandatory, businesses can include net-zero considerations in their Phase 4 audits. To support this, DESNZ has worked with the British Standards Institution (BSI) to develop two new standards:
PAS 51215-1:2025 – Energy and Decarbonisation Assessment
- Provides a framework for conducting combined energy and decarbonisation assessments.
- It helps businesses create a step-by-step implementation plan to reach net zero by 2050.
PAS 51215-2:2025 – Competencies of Lead Assessors
- Updates the competencies required for lead assessors and assessment teams.
- Includes new expertise in GHG emissions and net zero reporting.
These standards will be published on 7 February 2025 and can be used voluntarily by businesses looking to future-proof their ESOS compliance.
Updates to the MESOS Digital System
The government is upgrading the Manage Your Energy Savings Opportunity Scheme (MESOS) digital system to support ESOS Phase 4 changes. These updates include a new feature allowing businesses to disclose their use of PAS 51215-1:2025 for voluntary net zero reporting.
Additionally, enhanced guidance will help companies understand how to comply with ESOS regulations while integrating the new PAS standards. These improvements simplify reporting and encourage firms to align with future Phase 5 net zero requirements.
Future of ESOS: What to Expect in Phase 5
ESOS Phase 5 (2027-2031) will bring mandatory net zero reporting, expanded qualification thresholds, and stricter compliance requirements. Businesses that voluntarily integrate net zero considerations in Phase 4 will be more able to adapt to these changes.
Early preparation will ensure compliance and provide long-term cost savings and sustainability benefits, helping businesses stay ahead of evolving regulations and market expectations.
Companies that take proactive steps by incorporating voluntary net zero reporting in Phase 4 will be better positioned for these future requirements.
Early adoption of net zero strategies can help businesses reduce costs, improve sustainability, and ensure seamless compliance as regulations evolve.
How to Prepare for ESOS Phase 4 and Beyond
Although the delay in mandatory net zero requirements provides businesses additional time, early preparation is crucial to ensure a smooth transition into future compliance requirements. Companies that act now will be better positioned to manage costs, improve efficiency, and align with sustainability targets ahead of Phase 5.
Assess Your Current ESOS Compliance Status
Businesses should assess whether their energy audits and action plans are current, identifying opportunities for cost reduction and operational efficiency improvements.
A detailed evaluation of past audit recommendations can highlight areas where energy savings can be achieved through equipment upgrades, process optimisation, or behaviour change initiatives.
Explore Voluntary Net Zero Reporting
Exploring voluntary net zero reporting using the PAS 51215 standards can provide businesses with a structured approach to measuring emissions, identifying risks, and developing a net zero strategy.
While this remains optional for Phase 4, early adoption allows organisations to refine their approach and integrate sustainability into long-term operational planning.
Additionally, voluntary reporting can enhance a company's corporate social responsibility (CSR) profile, demonstrating leadership in climate-conscious business practices.
Stay Informed on ESOS Updates
Follow our LinkedIn page and engage with our blog on the Focus Green website to receive the latest ESOS updates and expert insights. Connect with our professional network and trusted partners to stay ahead of regulatory changes.
For the most up-to-date compliance guidance, constantly request our latest brochure from our website, updated with the newest ESOS developments and best practices.
Invest in Energy Efficiency Measures
Investing in energy efficiency measures based on ESOS audit findings will yield both short-term savings and long-term sustainability gains.
Businesses can explore energy-saving technologies, intelligent monitoring systems, and renewable energy solutions to reduce overall consumption and enhance resilience to future energy cost fluctuations.
Implementing onsite solar panels, battery storage solutions, or energy-efficient HVAC systems can contribute to a company's carbon reduction strategy while delivering measurable financial benefits.
Future-Proof Your Business for ESOS Phase 5
Organisations that take proactive steps now will find it easier to meet Phase 5's anticipated stricter net zero obligations.
By establishing strong energy management frameworks, leveraging advanced data analytics, and embedding sustainability into business strategies, companies can future-proof their operations while positioning themselves as leaders in environmental responsibility.
What Businesses Need to Do Now
Even though net zero requirements have been delayed, ESOS Phase 4 compliance remains mandatory. Early preparation is essential to avoid last-minute compliance issues and establish a strong reputation as a leader in sustainability and energy efficiency.
As usual, businesses should proceed with energy audits, ensuring they meet all ESOS reporting requirements. Keeping track of ESOS action plan progress is vital, as companies must report on their commitments and explain any unmet targets.
Companies should also consider voluntary net zero reporting using PAS 51215-1:2025, which allows organisations to integrate carbon reduction strategies into their long-term operational planning. This proactive approach can help businesses gain a competitive edge, demonstrating commitment to sustainability ahead of the mandatory Phase 5 regulations.
Staying informed about Phase 5 updates is equally essential. Businesses should monitor changes to ESOS compliance requirements, seek expert guidance, and ensure their teams know of upcoming regulatory shifts.
By taking these proactive steps, organisations can achieve compliance success in Phase 4 and streamline their transition into Phase 5's stricter sustainability requirements.
Conclusion
The recent updates to ESOS Phase 4 highlight the government's commitment to balancing compliance with practicality. By delaying mandatory net zero requirements to Phase 5, businesses have more time to prepare for these significant changes.
However, the introduction of voluntary net zero reporting options and the new PAS standards provide an excellent opportunity for companies to demonstrate leadership in sustainability.
As the UK continues its journey toward net zero, ESOS will play a crucial role in helping businesses reduce their carbon emissions and contribute to a greener future.
By staying informed and taking proactive steps, your organisation can meet its compliance obligations and drive meaningful climate action.
Book a Free Consultation Today!
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Don't wait until the deadline—take proactive steps toward energy efficiency and sustainability now.
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