ESOS across Europe: ensure compliance for multinational companies
The Energy Saving Opportunity Scheme (ESOS) is the UK's response to Article 8 of the EU Energy Efficiency Directive (EED), which mandates that all large organisations must, every four years, undertake a number of steps, including calculating total energy use and performing energy audits across their estate.
Whilst the EED is a Europe wide Directive, each member state has transposed the requirements into national law, and this process has resulted in variation in interpretation. Therefore, requirements on organisations differ from country to country. This has made it complicated for pan-European organisations to understand what they need to do and how best to proceed.
Simply using ESOS as a guide to understand the requirements in other countries will not work – there are 28 different interpretations of the Directive and each member state’s requirements differ to some degree.
In our experience, many multinationals failed to effectively review and plan compliance across their Group during the first compliance phase, leaving them at risk of non-compliance and open to penalties. If you have any operational presence in another European country, then you should review the national legislation carefully to understand your obligations for ESOS Phase 2.
Differences in interpretation
Some of the key variables between member states include:
Article 8 obligates large undertakings (non-SMEs by EU definition) to comply with the regulations. The EU’s definition of SMEs is determined by number of employees, annual turnover and balance sheet. Whilst the qualification thresholds are broadly based on financial performance or headcount of the business, the specific threshold and relevant organisational boundaries for compliance are different from one country to the next.
For example, whilst in the UK you qualify for ESOS if you have a turnover in excess of €50m AND a balance sheet over €43m, in France you only need to cross one of these thresholds (i.e. turnover in excess of €50m OR a balance sheet over €43m).
A crucial point is that in some cases, entities that do not themselves meet the qualification thresholds may, in fact, need to comply because of the structure of the overall group. In Sweden, for example, if a parent company qualifies elsewhere in Europe, sites within Sweden then must comply with the Swedish regulations – regardless of the size of the Swedish entity itself. Companies could easily fall foul of the Regulations if they miss this point.
The percentage of energy that needs to be audited also varies: 90% in the UK and Germany compared to 80% in France.
Where similar activities are being audited, a sampling approach is generally allowed. However, the accepted methodology differs between countries. In most, it is up to the discretion of the energy auditor/lead assessor, but in France the number of samples must be at least the square root of the total number of buildings, and at least 25% of the samples must be randomly chosen.
Requirements for the energy auditor often specify certain levels of experience and sometimes a qualification from a national body. Spain, for example, requires a certificate from the Entidad Nacional de Acreditacion (ENAC), whilst registration with the nominated body BAFA in Germany is not mandatory. Outside of the UK, many other Member States don’t mention the need for a Lead Assessor in their legislation.
Alternative routes to compliance
In all EU countries, large organisations with an ISO 50001 management system are exempt from carrying out additional energy audits – with the caveat, in some countries like Italy, that the management system itself includes energy audits.
For most countries the deadline for Phase 2 is 5th December 2019. However, a few, such as Denmark, have set a four-year rolling deadline – meaning Phase 2 needs to be completed by the fourth anniversary of the Phase 1 audits.
How to assess your responsibilities
To fully understand your responsibilities, you should assess Article 8 requirements in each European country where you have a presence – even if the entity is small or a subsidiary. Each member state has produced an action plan of how it has implemented (or, at the time these were produced, how they intend to implement) the EED. Many have also produced further guidance documents, though these are not always available in English.
We are now well into the second compliance phase, and qualifying organisations should be gearing up to complete their compliance activities before the deadline in December 2019. If your group has activities across Europe then now is a good time to complete a thorough group wide compliance review – evaluating where you need to comply, assisting qualifying regions with their response, and ultimately, ensuring your organisation meets its legal obligations in each market.
One aspect that is consistent across all member states is the ability to penalise organisations for non-compliance. Fines are the most likely route, though civil and even criminal prosecutions are possible. Non-compliance across multiple locations could therefore, be a serious financial and reputational risk. But there’s still time, and a coordinated review will help you better plan your compliance activities, minimise risk and achieve economies of scale where possible. Done well, it should also ensure you achieve maximum savings across your European portfolio.
Seek expert advice from consultants that have a database of the requirements across Europe and have experience in helping multinational clients to complete a full compliance review, and identifying the most cost-effective route to meet their responsibilities. Don’t leave ESOS to the last minute!
Louise Quarrell is a Director at Carbon Smart