Proposed Amendment to the Federal Acquisition Regulations Creates Climate Disclosure Requirements for Federal Contractors

By Brett W. Johnson and Mary Colleen Fowler

On November 10, the Biden Administration proposed the Federal Supplier Climate Risks and Resilience Rule (the “Proposed Rule”).¹ The Proposed Rule would amend the Federal Acquisition Regulations and requires federal contractors to “publicly disclose their greenhouse gas emissions and climate-related financial risks and set science based emissions reduction targets.”² These requirements simultaneously seek to protect the government’s supply chains from climate-related risk and advance government policies to reduce greenhouse gas (GHG) emissions. Notably, compliance with the proposed requirements would impact federal contractors’ ability to qualify for future government-related procurement contracts. Due to the wide ranging impacts and costs on contract performance, Federal contractors should review the Proposed Rule and consider submitting comments by January 13, 2023.³

The Proposed Rule, which mirrors the existing SEC’s climate disclosure requirements proposed in March 2022,⁴ would require federal contractors to publicly disclose categories of GHG emissions and set goals for emissions reductions. Under the Proposed Rule, the requirements target two types of federal contractors: (1) those “receiving more than $50 million in annual contracts,” (“Major Contractors”) and (2) those receiving “more than $7.5 million but less than $50 million in annual contractors,” (“Significant Contractors”). The Proposed Rule sets forth the following reporting requirements:⁵

• Scope 1 Emissions: An annual inventory of a federal contractor’s direct GHG emissions.
• Scope 2 Emissions: An annual inventory of a federal contractor’s indirect GHG emissions.
• Scope 3 Emissions: These emissions extend beyond a federal contractor’s operations and include emissions that occur at sources other than those owned or controlled by the contractor as a consequence of the contractor’s emissions.
• Climate Disclosure Report: The Proposed Rule would require Major Contractors to publish an annual climate disclosure report that includes a qualitative disclosure of climate-related risks.
• GHG Emission Reduction Targets: The Proposed Rule would require Major Contractors to publish science-based targets to reduce GHG emissions in line with the goals of the Paris Agreement, as validated by a third party — the Science Based Targets initiative (SBTi).⁶

Major Contractors, those with government contracts valuing $50 million or more, would be required to disclose Scope 1, Scope 2, and relevant categories of Scope 3 emissions, report climate-related financial risks, and set science-based emissions reduction targets. Significant Contractors, those with contracts valuing between $7.5 million and $50 million, would only have to disclose Scope 1 and Scope 2 emissions. Federal contractors with contracts valuing less than $7.5 million in annual contracts would be exempt from the Rule. Additionally, small businesses with contracts valuing more than $7.5 million in annual contracts would only be required to report Scope 1 and Scope 2 emissions. 

The Proposed Rule imposes a substantial new compliance burden for federal contractors.  Without significant program enhancement and application of additional resources (that may not be fully reimbursed via price increases), contractors may find aspects of the Proposed Rule difficult or impossible to comply with. Federal contractors should consider working with their legal teams to fully evaluate the Proposed Rule and its potential impacts on federal contractors reporting requirements going forward. Specifically, when preparing comments for the Proposed Rule, federal contractors should consider identifying what types of disclosure obligations the contractor would be subject to under the Proposed Rule, evaluating any gaps between current practices and new obligations created by the Proposed Rule, and providing notice of anticipated cost increases related to such activities. Federal contractors can draft comments and provide feedback for the Proposed Rule through January 13, 2023.