Feedback is due next week on a proposed rule for federal contractors, including defense companies, to require disclosure about greenhouse gas (GHG) emissions, plans to reduce those emissions, and climate-related financial risks.
The Defense Department, General Services Administration and NASA last November published the proposed rule that would apply to two categories of “major federal suppliers,” which are contractors that received more than $50 million in federal contract obligations in the prior fiscal year and contractors that received between $7.5 million and $50 million. The proposal categorizes the former as major contractors and the latter as significant contractors.
Comments were originally due by Jan. 13 but the three agencies in late December revised the due date to Feb. 13.
The proposed rule, Federal Acquisition Regulation: Disclosure of Greenhouse Gas Emissions and Climate-Related Financial Risk (FAR Case 2021-015), follows a separate rule last March proposed by the Securities and Exchange Commission that would require registrants with the agency to disclose GHG emissions and their climate-related financial risk. If public companies and others that register with the SEC have adopted science-based targets to lower their GHG emissions, the agency proposes that these targets be publicly disclosed.
The proposed FAR rule goes further by requiring contractors to set science-based targets to reduce their GHG emissions.
Major contractors would have to disclose scope 1, 2 and 3 emissions. Scope 1 are from sources that an organization owns or controls, scope 2 are emissions caused indirectly by a company, and scope 3 are emissions that are related to products bought or used from suppliers. Significant contractors under the proposal would disclose scope 1 and 2 emissions.
Major defense contractors for the past few years have been highlighting their sustainability efforts with actual measurements.
General Dynamics [GD] recently released its 2022 Corporate Sustainability Report, saying it has reduced its carbon dioxide emissions by 24 percent since 2002 and scope 1 and 2 GHG emissions by 10 percent since 2019. The company is making “steady progress toward” its 2034 target of cutting GHG emissions by 40 percent, Phebe Novakovic, GD’s chairwoman and CEO, says in the report.
Lockheed Martin [LMT], in its 2021 Sustainability Report released last April, said it has reduced net GHG emissions by 18 percent since 2017.
The SEC said its proposed rule is driven by public company investors demanding greater disclosure around climate risks and opportunities. The rule change to the FAR is in response to President Biden’s May 20, 2021 Executive Order on Climate-Related Financial Risk (EO 14030), and specifically Section 5 which deals with federal procurement and directs the Federal Acquisition Regulatory Council to “require major Federal suppliers to publicly disclose greenhouse gas emissions and climate-related financial risk and to set science-based reduction targets.”
The Phoenix-based law firm Snell & Wilmer in late November 2022 published a legal alert on its website outlining the key features of the proposed FAR rule but warned that it “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.”
The law firm recommends that contractors that give feedback on the proposal provide expected cost increases they might incur under the proposed mandates.