Proposed Federal Supplier Climate Risks and Resilience Rule
On November 10, 2022, the Biden Administration proposed a rule to address the federal government’s climate-related financial risks and encourage movement towards a low-carbon economy. With the federal government being the largest consumer of goods and services, estimated to make $630 billion in purchases annually1, this rule has the potential to both encourage greenhouse gas (GHG) emission reductions from the government’s supply chain, and to also promote economic and social resiliency through understanding the government’s climate-related financial risks and opportunities.
This rule supports President Biden’s Federal Sustainability Plan, and 2021 Executive Orders on Climate-Related Financial Risk, and Catalyzing Clean Energy Industries and Jobs through Federal Sustainability. The proposed rule would be an amendment to the Federal Acquisition Regulation (FAR), and could potentially align with the publication of the recently proposed Securities Exchange Commission (SEC) climate disclosure rule, which would require publicly traded companies to report their GHG emissions and climate-related risks.
Who will the Rule Impact?
The proposed Federal Supplier Climate Risks and Resilience rule requires “significant” and “major” federal contractors to disclose GHG emissions and climate-related risks and set science-based targets. The contractors covered under this rule are assumed to make up 85 percent of the government’s supply chain1 emissions, affecting up to 5,700 individual supplier organizations.
Major contractors are defined as suppliers contracted for more than $50 million annually, and significant contractors have annual contracts ranging from $7.5 to $50 million. Both significant and major contractors would be required to report their Scope 1 and Scope 2 emissions. Additionally, major contractors would be subject to Scope 3 disclosures, climate risks, and setting science-based targets. Companies will be required to start reporting one year after publication of the rule.
What are the Implications of the Proposed Rule?
The rule requires that companies utilize industry standard disclosure frameworks2. Contractors are required to adhere to the Greenhouse Gas Protocol (GHGP) for emissions, the Task Force on Climate-Related Financial Disclosures (TCFD) for climate-related financial risks, and the Science-Based Targets Initiative (SBTi) for creating emission reduction targets. Additionally, disclosure shall be administered through CDP, except for the first year, which allows contractors to submit data to the federal government platform—System for Award Management (SAM)—to give them an opportunity to become familiar with the CDP Climate Change Questionnaire.
When will the Proposed Rule be Finalized?
Good question. The public comment period was originally set to close on January 13, 2023, but was extended to February 13, 2023. According to Regulations.gov, 129 comments were received regarding the proposed rule, which will be reviewed and considered before final rulemaking. The entire rulemaking process generally takes at least two to three years, so given this timeline we are looking at a final rule as early as November 2024. We always recommend that businesses err on the side of caution and do what they can to start moving in the right direction, so they are well prepared when a final rule is put in place.
|Federal Contractors||Federal Supplier Climate Risks and Resilience Proposed Rule Requirements|
|Segment||Annual Federal Obligations||Scope 1, Scope 2, and relevant categories of Scope 3 emissions in alignment with the GHG Protocol Corporate Standard||Climate Risks assessed in alignment with the recommendations of the TCFD||Emissions reduction target validated by the SBTi|
|Major Contractors||>$50M||Yes (through CDP)||Yes (through CDP)||Yes (through SBTi)|
|Significant Contractors||>$7.5M-$50M||Yes (Scope 1 and Scope 2 only)||No||No|
I am a Federal Supplier. Where Should I Start?
New regulations can be daunting, but Apex is here to help. We have extensive experience assisting various types of organizations—especially federal suppliers affected by this proposed rule—with greenhouse gas emission inventories, CDP disclosures, setting science-based targets and navigating the TCFD framework.
Apex leverages its 20+ years of experience in the sustainability and assurance space to create programs that ensure firms can manage and measure emissions in accordance with the proposed rule and the GHG Protocol. We also help build Inventory Management Plans and develop internal controls. This package—a GHG Emissions Inventory & Inventory Management Plan—will equip you with the right tools to disclose your data confidently.
In addition to building your GHG Emissions Inventory, Apex offers the following services to improve your company’s environmental, social, and governance (ESG) performance:
Gap Assessment: Understand where your organization stands today; perform internal assessments or hire a third party to help evaluate your existing program against changing standards.
Climate Action Plan: Create a meaningful climate action plan informed by gap assessments, climate scenario analysis, and global frameworks to ensure it addresses all relevant risks and opportunities.
Data Management: Inventory current energy consumption data available to the decision-makers. Benchmark GHG Emissions from the last fiscal year to create a baseline. Over time, this data will inform improvements to the action plan and provide the performance data required for companies where the climate is materially relevant.
For more information about these services and solutions, or to speak to a member of the sustainability and ESG team, please contact us or fill out our Capabilities Inquiry.
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