ESOS Phase 4 Has Grown Up. It's Time Our Thinking Did Too

Author

KEY TAKEAWAYS

4 MIN READ

"

The cheapest ESOS strategy may well become the most expensive decision a business makes."

— Scott Armstrong

For more than a decade I've worked with organisations across the UK to prepare for ESOS. During that time, I've seen businesses of every size approach the scheme in almost exactly the same way:

'What's the minimum we have to do to comply?'

It's an understandable question. Compliance costs money, resources are stretched and, until now, many organisations have managed to treat ESOS as something that happens every four years before disappearing into the background again. But I believe that approach has now become one of the biggest commercial mistakes a business can make.

ESOS Phase 4 represents a genuine change in the maturity of the scheme. It isn't simply another compliance cycle. It is a significant opportunity for organisations to identify waste, strengthen resilience, reduce operating costs and accelerate decarbonisation. Those businesses that continue to treat it as a tick-box exercise will almost certainly leave substantial savings on the table.

And in today's energy market, that is becoming an increasingly expensive decision. Since March 2026, forward wholesale energy prices have risen by almost 20% following geopolitical instability and the conflict involving the United States and Iran. Once again, businesses have been reminded how vulnerable they remain to events completely outside their control. Energy costs can change overnight. Markets remain volatile. Budget certainty is becoming increasingly difficult.

The one thing organisations can control is how much energy they consume. That is exactly where ESOS should now be sitting within every boardroom conversation.

Stop Buying Compliance. Start Investing in Intelligence.

One of the biggest frustrations I've had throughout every phase of ESOS is watching organisations spend weeks trying to reduce the cost of the audit itself while ignoring the far greater opportunity sitting behind it. I've heard conversations about reducing two audits to one, or five audits to two, simply to shave a few thousand pounds from the compliance budget.

The irony is that those same organisations may be missing hundreds of thousands of pounds of avoidable energy waste because they chose not to look. That has never made commercial sense to me.

The cost of undertaking an additional audit is almost always insignificant compared with the value of the opportunities that can be uncovered. Yet too often the audit is viewed purely as an unavoidable cost rather than an investment in understanding how the organisation actually uses energy.

No Chief Financial Officer would ask for fewer financial audits simply because they cost money. Yet organisations regularly ask for fewer energy audits despite energy often being one of their largest controllable operating costs.

That mindset needs to change.

Have We Accidentally Devalued ESOS?

There is another uncomfortable truth that I think the industry needs to acknowledge.

Over the last decade, many organisations have driven the procurement of ESOS almost entirely around one factor: price.

I've lost count of the number of conversations where the primary objective has been to reduce the audit fee rather than maximise the value of the outcome. Competitive tendering has steadily pushed prices down, often to a level where the time available to properly understand a client's business, analyse detailed energy data and undertake meaningful site inspections has been severely constrained.

The result shouldn't surprise us. If organisations buy the cheapest audit available, they are often buying the minimum amount of professional time required to complete it. That inevitably affects quality.

Unfortunately, this has led many businesses to conclude that ESOS itself has little value. I've heard comments describing audit reports as "off-the-shelf", "generic" or "something we've seen before". In some cases, that criticism is entirely understandable. Recommendations that aren't tailored to a specific organisation rarely inspire confidence, let alone investment.

But I sometimes wonder whether we've inadvertently created a self-fulfilling prophecy. Businesses have driven audit costs down in pursuit of cheaper compliance. Lower fees have reduced the time available for detailed analysis. Generic reports have followed. Those reports have then reinforced the perception that ESOS has little commercial value, encouraging organisations to seek even cheaper audits next time.

The cycle repeats.

The irony is that the legislation was never the problem.

A well-executed ESOS audit should be one of the most valuable operational reviews an organisation undertakes. It should identify hidden energy waste, expose operational inefficiencies, support investment decisions and uncover savings that continue delivering financial returns long after the compliance deadline has passed. If organisations want strategic insight, they have to commission strategic work.

That means giving experienced auditors the time, access to data and operational engagement needed to produce recommendations that are specific to the organisation rather than applicable to almost anyone. As energy costs continue to rise, I believe we're reaching the point where businesses simply cannot afford poor-quality audits anymore.

Phase 4 Has More Teeth

I've described ESOS Phase 4 several times as the point where the scheme "grows up."

Previous phases undoubtedly delivered value, but they also allowed some organisations to do the bare minimum and still satisfy the regulations. Many large estate owners sampled very small numbers of buildings and assumed the findings represented hundreds of sites.

The reality is very different. No two sites operate in exactly the same way; different buildings, different equipment, different operating hours, different maintenance standards, different management teams, different behaviours. Every one of those variables affects energy performance.

Phase 4 places greater emphasis on representative sampling, better evidence and demonstrating that organisations genuinely understand where and how energy is being consumed. That should be welcomed, not feared.

The objective of the Scheme was never simply to produce another report. The objective has always been to reduce energy consumption.

Better Data Creates Better Decisions

Another area where I see organisations limiting their own success is data. Far too many businesses still rely solely on monthly utility invoices when preparing for ESOS. Monthly billing tells you how much energy you've consumed but it rarely tells you why.

Modern organisations have access to half-hourly electricity data, Building Management Systems, sub-metering, plant controls and increasingly sophisticated monitoring technology. Yet many of these datasets are never analysed before an audit begins. That is a missed opportunity.

One example has stayed with me for years. While reviewing sub-metered data for a hotel group, I noticed a significant spike in electricity demand every morning at around 4am. The data immediately raised questions for me. When I investigated further, I discovered that night cleaning staff were switching on virtually every piece of catering equipment hours before breakfast service actually began. Ovens, grills, hotplates and other equipment were simply left running. Nobody had challenged the routine because it had become "the way we've always done it."

The cost? Almost £20,000 every year at just one location. Nobody would ever have spotted that from a monthly electricity bill. That single finding paid for the audit many times over. How many similar opportunities exist across hundreds of buildings? The honest answer is that most organisations simply don't know.

Energy Efficiency Is Now Risk Management

Historically we've talked about energy efficiency as a sustainability initiative. Increasingly, I believe that's the wrong language. Energy efficiency has become a business resilience issue. Every kilowatt hour you don't consume is one you don't have to buy at tomorrow's price.

Every unnecessary load removed reduces exposure to volatile wholesale markets. Every efficiency project improves competitiveness. The cheapest unit of energy has always been the one you never use. That statement has never been more relevant.

As organisations pursue electrification, install electric vehicle charging infrastructure, replace gas heating with heat pumps and decarbonise operations, electricity demand will continue to rise significantly over the coming decade. Managing demand is therefore becoming just as important as procuring renewable electricity.

ESOS provides the roadmap for doing exactly that.

The Biggest Failure Happens After the Audit

One of the most disappointing parts of every ESOS cycle is watching excellent recommendations disappear into filing cabinets: the report gets signed off, compliance is achieved, everyone breathes a sigh of relief ... and then nothing.

I've seen outstanding audit reports identifying substantial financial savings that have never been implemented because nobody allocated capital, nobody owned delivery and nobody revisited the action plan. Compliance became the destination rather than the starting point and that is where most organisations lose the real value.

The businesses achieving the greatest returns are those that begin planning implementation before the audits are even completed. Capital programmes are aligned, budgets are ring-fenced, responsibilities are assigned, progress is monitored and savings are measured. That's where ESOS begins delivering genuine strategic value rather than simply regulatory compliance.

Boards Need to Ask Better Questions

Another noticeable change in Phase 4 is the increasing importance of board engagement. Directors have legal responsibilities. They also have fiduciary responsibilities to shareholders, investors and stakeholders.

That means asking questions:

• Are we auditing the right sites?
• Do we genuinely understand where our energy is being used?
• Is our sampling representative?
• Are we collecting sufficiently detailed data?
• Who owns implementation?
• Where is the investment coming from?
• How will we measure success?

Those conversations should be taking place long before the compliance deadline arrives, because ultimately, ESOS is a business improvement programme.

Decarbonisation Starts With Using Less Energy

There is understandably huge excitement around renewable energy, solar PV, battery storage, heat pumps and electrification. These technologies absolutely have a critical role to play. But they should never be the starting point.

The first question every organisation should ask is remarkably simple.

"How can we stop wasting the energy we're already buying?"

Every unnecessary kilowatt hour removed makes every future investment cheaper as they impact on; smaller heat pumps, smaller grid connections, lower capital expenditure, lower operating costs and lower emissions.

Energy efficiency remains the foundation upon which every credible decarbonisation strategy should be built. ESOS Phase 4, used correctly, provides one of the best structured opportunities available to identify exactly where those opportunities exist.

My Challenge to Business Leaders

If your organisation is approaching ESOS Phase 4 with the objective of spending as little as possible on compliance, I would encourage you to rethink the question.

Instead of asking:

"What's the cheapest way to comply?"

Ask:

"What's the value of genuinely understanding how our organisation consumes energy?"

Those are very different conversations. One focuses on cost. The other focuses on opportunity. The organisations that embrace Phase 4 strategically won't simply achieve compliance, they will; reduce costs, improve resilience, strengthen governance, support their net zero ambitions and create competitive advantage at a time when energy has never been more strategically important.

ESOS Phase 4 Gives Organisations a Choice

They can continue buying compliance as cheaply as possible and receive exactly what they paid for.

Or they can treat it as one of the most valuable strategic reviews of their energy use, uncover opportunities that reduce operating costs for years to come and build the foundations of a credible decarbonisation strategy.

In an era of volatile energy prices, increasing regulatory scrutiny and growing pressure to decarbonise,

I know which approach I'd rather be explaining to a Board. The cheapest ESOS strategy may well become the most expensive decision a business makes.

Get in Touch



Ready to make ESOS Phase 4 work harder for your business?

edenseven, the sustainability-focused sister-consultancy of Cambridge MC, helps organisations move beyond the tick-box exercise, building director accountability frameworks, robust evidence and audit trails, and action plans that actually get delivered and tracked.

Get in touch with our team using the form below to turn your Phase 4 compliance into real operational savings.

About the Author

About Us

Contact Form