The Department of Defense (DoD), the General Services Administration (GSA), and the National Aeronautics and Space Administration (NASA) recently proposed a rule to amend the Federal Acquisition Regulation (FAR) to implement a requirement to ensure certain federal contractors disclose their greenhouse gas (GHG) emissions and climate-related financial risk and set science-based targets to reduce their GHG emissions. These disclosures would be made within the System for Award Management (SAM), and, in certain instances, this information would be made public.
The proposed rule would separate “major federal suppliers” into two categories: significant contractors and major contractors. Significant contractors are defined as offerors receiving $7.5 million to $50 million in federal contract obligations in the prior federal fiscal year as indicated in SAM. Major contractors are defined as offerors receiving more than $50 million in federal contract obligations in the prior federal fiscal year as indicated in SAM.
Under the proposed rule, the following disclosures would be required:
- Direct and indirect GHG emissions. Both significant and major contractors will be required to prepare a GHG inventory of their annual direct (Scope 1) and indirect (Scope 2) GHG emissions.
- “Scope 3” emissions. Major contractors must also disclose Scope 3 GHG emissions, which include emissions generated up and down the company value chain, including by suppliers and customers. (Scope 3 emissions reporting is hotly contested, with many in industry holding the position that there is no agreed methodology for calculating Scope 3 emissions, and reporting this level of detail places too much of a burden upon industry.)
- Climate disclosure report. Major contractors will be required to publish annual climate disclosure reports, including qualitative disclosures of climate-related risks.
- GHG emissions-reduction targets. Major contractors will also be required to publish science-based targets to reduce GHG emissions in line with what the latest science deems necessary to meet the goals of the Paris Agreement, as validated by a third party—the Science Based Targets initiative (SBTi).
“According to award data available in the Federal Procurement Data System (FPDS), there were approximately 4,413 entities that received between $7.5 million and $50 million in Federal contract obligations in FY 2021, of which 2,835 (64 percent) are estimated to be small businesses,” states the proposed rule. “There were approximately 1,353 entities that received more than $50 million in Federal contract obligations in FY 2021, of which 389 (29 percent) are estimated to be small businesses.”
“These would be expansive new requirements for government contractors — and would go even further than the extensive climate-related disclosure rules proposed by the Securities and Exchange Commission (SEC) earlier this year,” advises an Environmental Update published by Sidley Austin LLP. “Federal contractors should review carefully the implications of the proposal.”
Comments on the proposed rule will be accepted until January 13, 2023, on the Federal eRulemaking portal under Docket #FAR Case 2021-015.