ESOS Phase 3 and Phase 4: What UK Businesses Need to Know in 2026

ESOS Phase 3 has closed: its compliance notification deadline (5 December 2023, extended to 6 August 2024) and action-plan deadline (5 December 2024, extended to 5 March 2025) have both passed. The cycle that UK large undertakings should now be planning for is Phase 4 — the Phase 4 qualification date is 31 December 2026 and the compliance notification deadline is 5 December 2027. The rules changed meaningfully across recent phases, and Phase 4 changes them again. Large UK undertakings must conduct energy audits, identify savings opportunities, produce a formal action plan, and submit to the Environment Agency — or face civil penalties up to £50,000 plus daily publication.

This guide explains what Phase 3 required, where Phase 4 now stands, what the audit and action-plan work actually involves for a UK SME-scale organisation, and how the data feeds across to SECR, Carbon Reduction Plans, and supplier ESG questionnaires. Always check current gov.uk ESOS guidance for the latest position — full Phase 4 government guidance is expected in early 2027.

What ESOS is

The Energy Savings Opportunity Scheme (ESOS) is a UK regulatory regime that requires large undertakings to audit their energy use every four years. It implements Article 8 of the EU Energy Efficiency Directive via UK statutory instrument and has continued post-Brexit as a domestic regime.

The scheme operates in phases, each lasting four years:

Phase	Compliance notification deadline	Reference / qualification year
Phase 1	5 December 2015	2014
Phase 2	5 December 2019	2018
Phase 3 (closed)	5 December 2023, extended to 6 August 2024	Qualification date 31 December 2022
Phase 4 (current)	5 December 2027	Qualification date 31 December 2026

Phase 3's notification deadline was extended to 6 August 2024 and its action-plan deadline to 5 March 2025 — both have now passed. The Environment Agency reported in mid-2025 that the large majority of in-scope organisations had achieved Phase 3 compliance. Organisations still in Phase 3 follow-up must submit annual progress reports against their action plan; under the Phase 3 cycle those reports fell due on 5 December 2025 and 5 December 2026. If your organisation has not yet acted on Phase 3, it is overdue — contact the Environment Agency about retrospective compliance immediately. Forward-looking attention should now be on Phase 4.

The compliance requirements have genuinely changed across phases — Phase 2 returners should not assume they can repeat their Phase 2 approach, and Phase 4 brings further changes (see below).

Who has to comply with ESOS Phase 4

A UK "large undertaking" is in scope. The test (which differs from the SECR threshold test) is:

An organisation qualifies if, on 31 December 2026 (the Phase 4 qualification date), it:

Employed 250 or more people, OR
Had annual turnover of more than £44 million AND a balance sheet of more than £38 million

Note two important things:

The thresholds above use the UK's adoption of EU SME definition criteria — slightly different numbers from SECR. An organisation can be in scope of SECR but not ESOS, or vice versa.
The qualification date is fixed: whether you are in scope for Phase 4 depends on your size on 31 December 2026, not your current size. An organisation that grew over the thresholds in 2027 but was below on 31 December 2026 is out of Phase 4 and would move into Phase 5 scope instead. (For Phase 3, the equivalent qualification date was 31 December 2022.)

Group test

Where the UK operation is part of a corporate group, the aggregate size of the UK-based corporate group on the qualification date is what counts — not the single legal entity. Groups can nominate a "responsible undertaking" to handle compliance on behalf of the whole group.

Exemptions

Public sector organisations are out of scope (they have separate reporting under MEES and the public-sector carbon reduction commitment frameworks)
Organisations already fully covered by ISO 50001 can use their ISO 50001 certification as their ESOS compliance route
Low energy users (below the "100% display energy certificate" threshold for buildings, or similar low-energy criteria) may be covered by simplified routes, but the mainstream expectation is a full audit

What changed in Phase 3 — and what is changing again in Phase 4

The headline changes Phase 3 introduced versus Phase 2 (and which carry into Phase 4):

1. Mandatory action plan

Phase 2 required identifying energy savings opportunities. Phase 3 added a legally required action plan setting out which savings the organisation commits to implement, with timelines — and this requirement continues in Phase 4.

The action plan must be submitted alongside the compliance notification. It is then publicly available via the Environment Agency's ESOS portal — your commitments become visible.

2. Annual progress updates

Organisations must submit annual progress reports tracking their implementation of the action plan. This was new in Phase 3 (where no mid-phase reporting existed under Phase 2) and continues for Phase 4.

3. Net Zero alignment narrative

Organisations include a statement of how the identified opportunities align with their wider Net Zero commitments, where any exist. This is a narrative requirement rather than a pure numerical one, but it ties ESOS into the broader UK sustainability reporting ecosystem. Note that the government's previously announced intention to make net-zero-aligned ESOS audits mandatory has been postponed — it is now expected to land in Phase 5, not Phase 4.

4. Energy intensity benchmarks

ESOS encourages (though does not absolutely mandate) reporting of energy-intensity metrics that can be benchmarked year-on-year and sector-on-sector.

5. Phase 4 specifics

For Phase 4, the government has confirmed that Display Energy Certificates (DECs) and Green Deal Assessments (GDAs) are being removed as standalone compliance routes. Full Phase 4 government guidance is expected in early 2027. ISO 50001 remains a recognised compliance route.

6. Reference period flexibility

You choose a 12-month reference period for your audit. For Phase 4, the default choice is the organisation's own financial year, and the reference period must align with the Phase 4 qualification date of 31 December 2026 — check current gov.uk guidance for the exact permitted window. For organisations whose chosen year was atypical (relocation, merger, major operational change), an alternative reference period can be used with justification.

What the ESOS audit covers

ESOS audits ("ESOS assessments") must cover at least 90% of the organisation's total energy consumption. The areas an audit looks at:

Buildings

Heating (gas, oil, district heat) — efficiency of plant, building fabric, controls
Cooling — chillers, AC, efficiency, controls
Lighting — LED upgrade status, daylight sensors, occupancy controls
Hot water — distribution, insulation, heating source
Ventilation — efficiency, heat recovery, fresh-air demand control

Industrial processes (where applicable)

Compressed air — leaks, pressure optimisation, waste-heat recovery
Motors and drives — efficiency ratings, variable-speed drives
Process heating — furnaces, ovens, waste-heat recovery potential
Refrigeration — commercial and industrial

Transport

Fleet vehicles — fuel efficiency, route optimisation, shift to electric
Commuting and business travel — only in scope if the organisation pays for it directly (company vehicles are; employee claims are generally not)

The auditor's outputs

For each significant energy use, the auditor must:

Quantify current consumption in kWh and £
Identify energy savings opportunities with cost, saving, payback period
Rank opportunities by payback or NPV
Feed the ranked list into the action plan

An ESOS audit is not a light-touch review. For a 250-person UK SME, budget 4-8 weeks of engagement time with a qualified ESOS Lead Assessor, plus internal hours gathering energy bills, site data, and operational schedules.

Action plan requirements

The ESOS action plan is separate from the audit. It must:

List which of the audit's identified opportunities the organisation commits to implement
Specify the timeline for each commitment (milestones, completion target)
Quantify the expected savings (kWh, tCO₂e, £)
Be approved by a director — like an SECR Directors' Report, the board carries the accountability

Organisations are not required to commit to every identified opportunity — you may reject opportunities with legitimate business reasons (unaffordable payback, misaligned with operational plans, technically unfeasible). Rejections should be explained.

An empty action plan — "we identified savings but will not pursue any" — is not outright banned but invites Environment Agency scrutiny and is highly exposed as public evidence in PPN 06/21 Carbon Reduction Plan scrutiny by procurement teams.

ESOS Phase 4 compliance process, end to end

Step	Timing	Owner
Confirm Phase 4 qualification (size on 31 Dec 2026)	From early 2027, once size on the qualification date is known	Internal
Choose reference 12-month period	By audit start	Internal
Appoint an approved ESOS Lead Assessor (via one of the recognised professional bodies)	6-9 months before the 5 Dec 2027 deadline	Internal
Gather 12 months of energy data across all sites and fleet	Audit start	Internal + assessor
Conduct the audit (site visits, data review, SEU identification)	4-8 weeks	Lead Assessor + internal
Produce the energy audit report	End of audit	Lead Assessor
Internal board review of identified opportunities	2 weeks	Internal board
Draft the ESOS action plan with timelines and commitments	2-4 weeks	Internal, signed by director
Submit compliance notification to the Environment Agency	By 5 December 2027	Internal
Action plan submission and annual progress reports	Per Phase 4 timetable in the gov.uk guidance expected early 2027	Internal

Note: you can begin Phase 4 preparation now — gathering energy data and appointing a Lead Assessor — even before the 31 December 2026 qualification date is confirmed, because the audit reference period and assessor availability both reward an early start.

ESOS penalties

ESOS non-compliance penalties are set out in the ESOS regulations and enforced by the Environment Agency. The headline numbers:

Failure to notify: civil penalty up to £5,000 plus up to £500 per day of continued non-compliance
Failure to maintain records: civil penalty up to £5,000 plus up to £500 per day
Failure to undertake an audit: civil penalty up to £50,000 plus up to £500 per day
False or misleading information: civil penalty up to £50,000 plus publication of the failure

Penalties are public. The Environment Agency publishes a Civil Sanctions register. A non-compliance notice is visible to customers and investors.

How ESOS data feeds other UK ESG reporting

The energy data gathered for ESOS is essentially the same data used for:

SECR annual Directors' Report disclosure — same electricity, gas, transport figures
Scope 1 and 2 emissions calculation — the ESOS auditor quantifies exactly the activity data needed to apply the UK government conversion factors
PPN 06/21 Carbon Reduction Plan — identified savings feed into the "carbon reduction projects" section
CDP Climate questionnaire — energy consumption, percentage renewable, and identified opportunities are directly transferable
EcoVadis assessment — energy audit evidence supports the environmental category scoring
Supplier ESG questionnaires — the "what are your current energy efficiency initiatives?" question becomes trivially answerable with the ESOS action plan

The cost of an ESOS audit is not recoverable, but the data it produces is reusable across a full year of other reporting work. Storing that data in a structured format — not in a single audit PDF on a shared drive — is the move that stops the work being redone.

Common ESOS Phase 4 traps

Assuming an earlier-phase approach can simply be repeated — the action plan and annual reporting requirements introduced in Phase 3 carry into Phase 4, and Phase 4 removes DEC and GDA routes.
Using an earlier Lead Assessor without checking current accreditation — the Environment Agency maintains a current register; an assessor accredited for a previous phase may no longer be.
Choosing a reference period that excludes significant operational changes — if you opened a new site, make sure the reference period captures it. Review carefully.
Assuming ISO 50001 coverage is automatic — ISO 50001 must be current and must cover all UK group operations; partial ISO 50001 coverage does not give full ESOS relief.
Running the audit too late — "4-8 weeks of engagement" assumes assessors have bandwidth. As the 5 December 2027 deadline approaches, UK Lead Assessors fill up. Engage early.
Submitting the action plan without board sign-off — the director approval is a substantive requirement, not a formality.
Assuming Phase 3 was the last word — if your organisation missed Phase 3, that compliance gap does not disappear; address it with the Environment Agency rather than waiting for Phase 4.

FAQ

Is ESOS the same as SECR? No. ESOS is a four-yearly audit. SECR is an annual disclosure inside the Directors' Report. Both apply to large UK organisations but the thresholds, formats, and cadences differ.

Do I need a Lead Assessor or can I do it in-house? Almost all ESOS assessments require an Environment Agency-approved Lead Assessor. The exception is ISO 50001-certified organisations using that route. Most UK SMEs engage an external consultant.

How much does an ESOS audit cost? For a mid-size UK SME (250-500 employees, 3-10 sites), typical consultant fees are £8,000-£25,000 depending on site count and energy complexity. Larger groups can be £50,000+.

What happens if I think I'm out of scope but the Environment Agency disagrees? You can submit a "notification of non-qualification" explaining why you believe ESOS does not apply for the current phase. The EA reviews, and if they agree, you are marked non-qualifying. If they disagree, you have the opportunity to comply retrospectively before penalties apply.

Does ESOS cover Scope 3 emissions? Not directly. ESOS covers energy consumption under the organisation's control, which maps broadly to Scope 1 + Scope 2. Scope 3 value-chain emissions are out of scope.

Is the ESOS action plan public? Yes. Once submitted, the action plan and annual progress reports are published on the Environment Agency's ESOS portal and are visible to customers, procurement teams, and investors.

Can I use ESOS evidence in other reports? Yes — this is explicitly encouraged. The data reuse across SECR, CDP, EcoVadis, and PPN 06/21 Carbon Reduction Plans is the single biggest efficiency lever for UK SMEs with multiple sustainability reporting obligations.

The takeaway for UK finance and operations directors

Phase 3 has closed — its compliance and action-plan deadlines passed in 2024-25. If your organisation missed Phase 3, contact the Environment Agency about retrospective compliance now.
Phase 4 is the live cycle. The Phase 4 compliance notification deadline is 5 December 2027 and qualification is based on organisational size on 31 December 2026 — engage an approved Lead Assessor in good time.
The action plan is substantive — it is not just a list of identified savings but a director-signed commitment, and it carries into Phase 4.
Annual progress reports are mandatory — ESOS is not a "submit once and forget" compliance.
The data produced for ESOS feeds SECR, Carbon Reduction Plans, CDP, EcoVadis, and every supplier ESG questionnaire. Store it once, reuse everywhere.

AnswerVault keeps your ESOS action plan items, energy data, reduction projects, and director sign-offs as structured, reusable facts that pull directly into every other sustainability questionnaire you receive. Start a 14-day free trial to see how.

Sources

Energy Savings Opportunity Scheme (ESOS) — gov.uk
Environment Agency (ESOS regulator for England)
UK government greenhouse gas conversion factors
ISO 50001 — Energy management systems
SECR Regulations (SI 2018/1155)
This article provides general guidance for UK businesses on ESOS compliance, covering the closed Phase 3 cycle and the current Phase 4 cycle. It is not legal, regulatory, or engineering advice, and ESOS phase deadlines and rules change between phases. Specific application to your organisation should be reviewed with a qualified ESOS Lead Assessor. The Environment Agency's published guidance is the definitive reference for compliance questions.