On November 10, 2022, the US unveiled a proposed climate risk rule that will require major suppliers to disclose greenhouse gas emissions and set science-based emissions reduction targets. The new rule, dubbed the Federal Supplier Climate Risks and Resilience Rule, is part of the Biden administration’s Federal Sustainability Plan. The plan outlines a series of initiatives for the US government, including its supply chain, to achieve net zero emissions by 2050. If the new climate action rule is adopted as proposed, the US would become the first national government requiring major suppliers to set emissions reduction targets aligned with the Paris Agreement. Let’s break down why this is important and what it means for federal contractors.
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What’s the new “Federal Supplier Climate Risks and Resilience Rule?”
Last week at COP27, US President Biden revealed the proposed Federal Supplier Climate Risks and Resilience Rule. The goal of the new rule is to reduce greenhouse gas (GHG) emissions by the US government and protect federal supply chains from climate-related risks. It’s part of Biden’s Federal Sustainability Plan and roadmap for building an economy resilient to climate change impacts. As the world’s largest buyer of goods and services (over $630 billion last year), the US government wields substantial purchasing power to drive climate action. It also faces significant risks from climate-related supply chain disruptions. The proposed rule will cover approximately 85% of emissions associated with the federal supply chain.
“The Biden-Harris Administration is taking historic action to address greenhouse gas emissions and protect the Federal Government’s supply chains from climate-related financial risks.”
–The White House
Why is the US government introducing this new climate risk rule now?
Climate-change induced extreme weather disrupts critical supply chains and the US economy. According to the White House, it has cost $600 billion in physical and economic damages over the past five years, and one in three Americans were affected this past year. The Biden Administration is taking action to address these climate-related costs through the Federal Sustainability Plan, Executive Order (EO) 14057 (Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability), and EO 14030 (Climate-Related Financial Risk). The Federal Supplier Climate Risks and Resilience Rule is aligned with the following goals of each:
- Net-zero emissions procurement by 2050 (EO 14057, Federal Sustainability Plan)
- Using federal procurement to address climate-related financial risk (EO 14030)
As part of its commitment to reach net zero by 2050 and take a leadership role, the US also launched the Net-Zero Government Initiative at COP27. Countries that join the initiative must commit to achieve net-zero emissions from national government operations by no later than 2050 and publish a roadmap for getting there by COP28. So far, 18 countries have joined the US in the new Initiative (Australia, Austria, Belgium, Canada, Cyprus, Finland, France, Germany, Ireland, Israel, Japan, Korea, Lithuania, Netherlands, New Zealand, Singapore, Switzerland, and the United Kingdom.)
“Through this Initiative, countries’ governments lead by example and send multi-market demand signals for clean technology, products and services that will spur markets.” – US Special Presidential Envoy for Climate John Kerry
How will the US climate action rule affect federal contractors?
Under the proposed climate action rule, major federal contractors (>$50 million in annual contracts) would be required to publicly disclose Scope 1, 2, and (relevant) 3 emissions, climate-related financial risks, and set science-based targets. Significant federal contractors (>$7.5 million in annual contracts) would be required to report Scope 1 and 2 emissions. The proposed rule also leverages widely adopted disclosure standards and systems including the GHG Protocol Corporate Standard for Scope 1, 2, and 3 emissions, the CDP reporting system, TCFD recommendations, and the Science Based Targets initiative (SBTi) criteria.
| Contractor type | Annual contract value | Emissions disclosure: Scope 1, Scope 2, and relevant Scope 3 emissions in alignment with the GHG Protocol Corporate Standard | Climate-related financial risks disclosure: Climate risks assessed in alignment with TCFD recommendations | Science-based reduction target: Emissions reduction target validated by SBTi |
|---|---|---|---|---|
| Major contractors | >$50M | Yes (through CDP) | Yes (through CDP) | Yes (through SBTi) |
| Significant contractors | >$7.5M | Yes (Scope 1 and Scope 2 only) | No | No |
| Other contractors | <$7.5M | No | No | No |
How many federal contractors will be affected by the new climate risk rule?
An estimated 5,766 organizations would be affected by the new rule based on Federal Procurement Data System award data (1,353 qualify as major contractors and 4,413 qualify as significant contractors). Today more than half of major federal contractors already voluntarily disclose some climate related information. However only 31% are disclosing GHG emissions in the System for Award Management (SAM.gov) and not in a standardized form. The new rule would require many more federal contractors to disclose emissions in a standardized way.
When will the new climate action rule be enacted into law?
The proposed climate risk rule will be open to public comment for 60 days until January 13, 2023. Once the public comment period ends, the Federal Acquisition Regulatory Council, would amend the Federal Acquisition Regulation (FAR) to implement these changes, if finalized. FAR is the primary regulation used by all executive federal agencies in their procurement of supplies and services with appropriated funds.
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