ESOS: Enforcement day has arrived!
In their own newsletter, the Environment Agency reports that many companies have failed to make any submission. They state that they have formed a dedicated ESOS Enforcement Team that has been looking at the corporate data of 1,500 companies which are currently under investigation in England and Wales. An additional 150 organisations are also under investigation that completed the “intent to comply late notification” and will now be issued enforcement notices.
In total, 1,850 organisations from across the UK are facing enforcement action (calculated via the EA, SEPA, NIEA, NRW and DECC Offshore. In an article published on edie.net dated the 29th April 2016, Luke Nicholls authored an article that estimated up to 3,000 organisations were at risk of enforcement action immediately after the deadline for submission. In the intervening months until now, it is possible that some additional organisations have managed to comply.
The true cost of non-compliance
Details of likely enforcement action can be found in the Environment Agency document: Enforcement and Sanctions Guidance, LIT 5551, version 4, pages 65 - 69. This document states that the maximum penalty for failure to notify is £5,000, plus £500 for each working day (up to 80 days) the responsible undertaking remains in breach (Regulation 43 of the ESOS Regulations 2014). This penalty may be reduced slightly on discretion of the regulator.
The situation becomes increasingly more expensive over time, wherein failure to maintain records results in a £5,000 penalty (Regulation 44), and failure to comply with a notice results in a £5,000 penalty plus £500 for each working day (up to 80 days) that the responsible undertaking remains in breach.
The highest fines are for failure to undertake an energy audit (Regulation 45) which could result in a £50,000 penalty plus £500 for each working day the responsible undertaking remains in breach (up to 80 days), and for false or misleading statements which could result in a £50,000 penalty.
Additional costs include steps to remedy the breach, and any legal costs, both of which could add considerable value to each penalty. The Regulations could allow for multiple penalties to be combined.
The Environment Agency has the power to publish the details of any breach, as it sees fit, which could result in considerable damage to the corporate image of organisations that it deems have breached the Regulations. If you have suppliers or purchasers with ISO 14001, or undergo regular supply chain audits, then you also need to consider whether non-compliance, legal prosecutions, and bad press could adversely affect your business operations – a potential risk to business continuity.
Widespread problems with ESOS implementation
The Environment Agency conducted 51 audits between January and April 2016 to find out how well organisations are faring under the ESOS Scheme. The results are surprising:
35% of organisations were able to pass
65% required some form of remedial action
There were in total, 29 instances of failure in the organisational structure supporting ESOS compliance. Auditors, consultants and practitioners (managers) should look closely at this area of compliance, because data suggests it is a systemic problem across many organisations.
Of course, the Environment Agency has discretionary powers over penalties applied to each breach, and for the time being, implementation problems are unlikely to be prosecuted, if the organisation can adequately demonstrate with evidence, their intent to achieve compliance.
The Department for Energy and Climate Change have responded to these problems by commissioning a telephone survey to understand how organizations are complying. You can expect telephone calls of this nature between July and August 2016, although we do not know whether your conversation will be recorded to be used as evidence.
The Environment Agency has taken a very serious view on ESOS compliance. They have amounted financial and operational resources to commence with widespread enforcement action, and have told everyone that they are going to commence with this soon.
Research is beginning to reveal that the ESOS compliance route has been problematic for many organisations. Some have failed to register and others have struggled with implementation.
NQA is trying to protect its clients, and are advising clients with ISO 14001 to consider implementing ISO 50001 certification as a route to ESOS compliance. The names of non-compliant organisations have not yet been published, so if you have not demonstrated compliance this is now urgent, as penalties are now likely to occur and could range into hundreds-of-thousands of pounds for multiple breaches.
NB: certain finances above are in Pounds Stirling.
Credited references: http://www.edie.net/news/6/ESOS-deadline-enforcement-action-business-energy-savings-opportunities/