Tuesday Insight – December 13th, 2022: Proposed Amendments to the Federal Acquisition Regulation —Greenhouse Gas Emissions and Climate-Related Financial Risks

Jan 5, 2023

The Federal Acquisition Regulatory Council (“FAR Council”) published a proposed rule in the Federal Register on November 14, 2022, that would create several significant compliance obligations for federal contractors. Under the proposed rule, nearly all federal contractors would be required to disclose their greenhouse gas (“GHG”) emissions, and certain contractors also would be required to disclose climate-related financial risks and set science-based targets to reduce their GHG emissions.

And as described in more detail below, these new requirements would be implemented as criteria for contractor responsibility under Federal Acquisition Regulation (FAR) Part 9, meaning that an offeror for a federal procurement may be ineligible for an award if it has not made the required disclosures. As a result, contractors should closely monitor developments with the proposed rule because if it is finalized as written, contractors will be required to adopt several new processes in order to remain presently responsible and eligible to continue performing federal government work.

Applicability of the Proposed Rule
The proposed rule — Federal Acquisition Regulation: Disclosure of Greenhouse Gas Emissions and Climate-Related Financial Risk — implements President Biden’s Executive Order 14030 of May 20, 2021, which directed the FAR Council, in consultation with others, to consider amending the FAR to require “major Federal suppliers” to publicly disclose such climate-related information.1 The proposed rule applies to two categories of companies: (1) “significant contractors” and (2) “major contractors.” As defined in the rule, significant contractors are offerors that received $7.5 million or more, but not exceeding $50 million, in federal contact obligations in the prior fiscal year as indicated in the System for Award Management (“SAM”). Major contractors are offerors that received more than $50 million in federal contract obligations for the prior fiscal year as indicated in the SAM.

Requirements of the Proposed Rule
The rule requires new climate-related disclosures and targets for contractors depending on a contractor’s status as either a significant or major contractor:

Disclosure of Scope 12 and Scope 23 GHG emissions. Both significant and major contractors would need to complete a GHG inventory of their annual Scope 1 and Scope 2 GHG emissions and disclose their total annual Scope 1 and Scope 2 GHG emissions in the SAM. Contractors would be required to follow the GHG Protocol Corporate Accounting and Reporting Standard to conduct a GHG inventory, but are provided some discretion to use a calculation tool of their choice to calculate emissions, as long as the tool aligns with the Standard. GHGs to be disclosed include carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), nitrogen trifluoride (NF3), and sulfur hexafluoride (SF6).

Annual Climate Disclosure. Major contractors would be required to complete an annual climate disclosure by completing relevant portions of the CDP Climate Change Questionnaire.1 The proposed rule declares that the annual climate disclosures align with the recommendations of the Task Force on Climate-Related Financial Disclosures (“TCFD”) — a voluntary framework for the disclosure of climate risks and opportunities delineated along four major pillars: governance, strategy, risk management, and metrics and targets. The annual climate disclosure would include a GHG inventory of Scope 1 and Scope 2 GHG emissions, as well as relevant Scope 32 GHG emissions. Moreover, the disclosure would also describe the contractor’s climate risk assessment process and any climate-related risks identified. These would include risks associated with the transition to a lower-carbon global economy, as well as physical risks from climate-related hazards. Major contractors would be required to make the disclosures available online

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