Increased Climate Disclosure Burden Coming for Contractors.

• Author: Brown, Chanda

Federal contractors are awaiting issuance of new procurement regulations targeted at ensuring public disclosure of greenhouse gas, or GHG, emissions and climate-related financial risk and also setting science-based GHG reduction targets.

Under the currently proposed rule, non-excepted contractors who do not comply with the rules could be presumed non-responsible and thus ineligible to receive federal awards. The proposed rule is intended to understand and reduce supply chain vulnerabilities through greater transparency and goal setting.

Under the proposed rule issued this past November, contractors must represent whether they are a "major contractor"--more than $50 million in federal contract obligations in the prior fiscal year--or a "significant contractor"--between $7.5 and $50 million in federal contract obligations in the prior fiscal year.

If the contractor meets either of those definitions, it must complete a GHG analysis and report its findings in the System for Award Management, or SAM. Importantly, the proposed rule does not include an exception for commercial items--including commercial-off-the-shelf items--or services contractors.

The baseline reporting requirement consists of completing the GHG Protocol Corporate Accounting and Reporting Standard, which involves assessing GHG emissions from sources that are owned or controlled by the reporting company, or Scope 1 emissions, and GHG emissions associated with the generation of electricity, heating and cooling or steam, when these are purchased or acquired for the reporting company's own consumption, but occur at sources owned or controlled by another entity, or Scope 2 emissions.

Major contractors must also complete an annual disclosure questionnaire through the CDP Climate Change Questionnaire. This annual disclosure requires accounting for emissions that result from the operations of the reporting entity and that occur at sources other than those owned or controlled by the entity, or Scope 3 emissions. Additionally, major contractors would need to develop a science-based target to reduce GHG consistent with the goals of the Paris Agreement. The disclosure and the target must be made publicly available online.

Failure to conduct the inventory, make the annual climate disclosures or meet the science-based targets, if required, would result in a presumption of non-responsibility under the Federal Acquisition Regulation.

Such contractors would presumptively be ineligible to receive...