Posted by Tilly Shaw

Aligning ESOS with your Net-Zero Journey

Most ESOS stakeholders will be aware by now that the government is reviewing the ESOS scheme to make it more robust and to facilitate the realization of financial savings for participating companies.

Following a consultation in 2021, the government published its proposed changes in July this year. There are a number of minor changes that will come into force ahead of the next compliance deadline (5 December 2023) and then a set of more significant changes are planned for ESOS Phase 4. So what do these changes mean for participating companies?

Key ESOS scheme changes for the coming year:

  • Participants must now audit at least 95% of their total energy consumption, an uplift from 90% previously. This may mean auditing additional sites or including smaller aspects of energy consumption (such as business travel) in the audit plans.
  • Participants will be required to cascade the results of their ESOS assessment to subsidiary companies, rather than retaining the information at group level.
  • ESOS summaries must now include an energy intensity metric (kWh/m2 or kWh/unit of production or kWh/mile) as well as reporting total energy consumption.
  • Participants are likely to receive a more standardised output resulting from newly introduced templated reports and clearer auditing and sampling guidance.

From energy to carbon - the longer-term outlook:

Looking ahead to ESOS Phase 4, UK Government is proposing much more wide-reaching changes. Until now, the ESOS scheme has focused entirely on promoting practicable and cost-effective energy efficiency measures. From Phase 4 however, the scope of the scheme will broaden to include:

  • Energy governance matters
  • Publication of targets and action plans
  • Net-zero carbon trajectories and potentially, climate adaptation plans

Energy governance matters (such as staff training, data management and operational control) have long been a core element of the ISO50001 route to compliance and are already included as best-practice in ESOS assessments, but quantifying the cost-saving arising from good energy governance can be contentious. From Phase 4, this will need to be considered in all audit reports.

It is expected that details of the targets and action plans will have to be made public and that annual reporting on progress will be necessary, with explanations required if targets are not met. This may lead to increased external scrutiny and comparison of participants’ ESG and risk management practices.

The requirement to align ESOS with net-zero transition planning will mean that the current business cost-effectiveness tests need to change to reflect longer-term projections. The new focus will require consideration of interventions such as the potential for onsite or offsite renewable energy, heat decarbonisation and deep decarbonisation retrofits. The net-zero assessment may also involve an assessment of climate-related risk and potentially, adaptation recommendations.

Companies that have already implemented robust energy management systems, created action plans, set targets and carried out climate-related risk assessments (for example as part of their obligations under TCFD) or that have developed net-zero transition pathways already, are likely to be at a distinct advantage in future ESOS reporting phases as they will be able to achieve compliance more quickly and with greatly reduced risk.

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