Proposed Rule Mandates CDP Reporting and SBTi Target-Setting for U.S. Federal Suppliers

On November 10, 2022, the White House Council on Environmental Quality (CEQ) announced during the 27th Conference of the Parties to the U.N. Framework Convention on Climate Change (COP27) in Sharm El Sheikh, Egypt a proposal called the Federal Supplier Climate Risks and Resilience Rule. The proposed rule mandates that major federal suppliers will now be required to disclose their greenhouse gas (GHG) emissions and climate-related financial risk through the CDP, an international nonprofit that provides a framework for companies and cities to disclose their environmental impacts, as well as set science-based emissions reduction targets approved by the Science Based Target initiative (SBTi), an initiative of more than 1,000 companies that seek to define best practices in emissions reductions and net-zero targets in line with climate science.¹ This rule is in support of President Biden’s Executive Orders on Climate-Related Financial Risk and Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability, helping acknowledge the importance of reducing GHG emissions to combat climate change through transparent reporting and sector collaboration.

As the U.S federal government is the largest purchasing organization in the world, they are at significant financial risk from climate change. The proposed Federal Supplier Climate Risks and Resilience Rule aims to strengthen vulnerable federal supply chains and to reduce climate related risks associated with them. Because the U.S. is a very large consumer of goods and services, both U.S. and global companies will be impacted by the new ruling which will create a catalyst for industry decarbonization across multiple sectors globally. The new rule is “one of the most significant supply chain rules in U.S. history,” as it is taking critical steps to address the climate crisis by reducing the federal government’s supply chain emissions and helping work toward the Biden Administration’s goal of a 50% reduction in GHG pollution by 2030.²

The proposed rule contains three core compliance requirements:

• completion of a GHG emissions inventory,
• the completion of annual climate disclosures, and
• setting science-based targets for GHG emissions reduction.

The proposed rule has grouped contractors required to disclose as either major contractors (receiving more than $50 million in annual federal contracts) or significant contractors (receiving between $7.5 to $50 million in annual federal contracts). Major contractors will be required to publicly disclose their Scope 1, Scope 2, relevant categories of their Scope 3 GHG emissions, and their climate related financial risk utilizing the CDP. Significant contractors will not be required to report climate related financial risk but will only be required to report on their Scope 1 and Scope 2 GHG emissions through the CDP. Contractors receiving less than $7.5 million in annual federal contracts will not be required to report under the Federal Supplier Climate Risk and Resilience Rule.³

In addition to the CDP reporting requirement, major contractors will be required to publicly set science-based emissions reduction targets that must be approved by the SBTi. The SBTi publishes every committed company’s science-based emissions reduction target on their publicly available database allowing for industry-collaboration through increased transparency, and overall educational and technological advances in ways to reduce GHG in various sectors. On the contrary, significant contractors and contractors receiving less than $7.5 million in annual federal contracts will not be required to declare an SBTi approved science-based emissions reduction targets under the Federal Supplier Climate Risk and Resilience Rule.⁴

Industries that are a larger part of the total federal spend, such as the aerospace, defense, cement, and steel industries, could be most impacted. However, 63% of the total number of companies requested to disclose under the new ruling are already satisfying that requirement by completing the CDP’s annual climate reporting disclosure questionnaire.⁵ The new ruling will increase the number of federal contractors setting and declaring SBTi-approved science-based targets to reduce GHG emissions. The proposed rule is a clear message to organizations doing business with the federal government that they must confront climate related risks. GHG emissions identification and reporting is a critical step toward further understanding and mitigating the increasing climate related threats to the global supply chain.

There is a 60-day public comment period for this proposed rule that is scheduled to close on January 13, 2023. During this time the public can submit questions, comments, or clarifications to the CEQ for review and consideration.

If you are interested in learning more about the proposed Federal Supplier Climate Risks and Resilience Rule, CDP reporting, SBTi emissions reduction target setting, and/or how to get started with quantifying Scope 1, 2 or 3 GHG emissions, please reach out to ALL4’s James Giannantonio, Managing Consultant of ESG & Sustainability, at jgiannantonio@all4inc.com.

Sources:

1. https://www.ropesgray.com/en/newsroom/alerts/2022/november/climate-related-disclosures-and-targets-proposed-for-us-federal-government-contractors-an-overview
2. https://www.cdp.net/en/articles/media/in-bold-new-move-biden-administration-makes-cdps-model-the-law.
3. https://www.sustainability.gov/federalsustainabilityplan/fed-supplier-rule.html
4. https://www.sustainability.gov/federalsustainabilityplan/fed-supplier-rule.html
5. https://www.cdp.net/en/articles/media/in-bold-new-move-biden-administration-makes-cdps-model-the-law