Federal contractors must disclose climate impact under new Biden rule

The Biden administration proposed a new rule today that would require federal contractors to disclose their greenhouse gas emissions and make efforts to limit their pollution. The rule also calls for companies to disclose financial risks they face as a result of climate change in an effort to “strengthen the resilience of vulnerable Federal supply chains.”

The rule would require federal contractors receiving more than $7.5 million in annual contracts to publicly share how much greenhouse gas pollution they generate from their operations and electricity use. Contractors receiving less than $7.5 million annually would be exempt. Since the new standards apply only to federal contracts, they can be instituted without approval from Congress.

The move comes as the SEC drags its feet on finalizing new mandates for companies’ climate disclosures. The federal government says it’s “the world’s single largest buyer of goods and services,” so it can use its weight to compel companies to act faster on climate change.

There’s an additional layer of requirements for “major” contractors that earn more than $50 million a year. They would also have to disclose “relevant categories” of their indirect pollution, called Scope 3 emissions in technical speak, which might include pollution from their own supply chains and from the use of their products. Taking stock of that indirect pollution is crucial because it typically makes up the largest portion of a company’s carbon footprint.

That’s also made Scope 3 disclosure a major sticking point in the SEC’s efforts to craft regulations requiring companies to disclose their emissions. The SEC proposed those rules back in March and just missed an October deadline to finalize them following a technical glitch, industry pushback, and a pileup of public comments on the draft regulation.

Under the new guidelines proposed today by the Biden administration, major contractors would also have to set “science-based” targets for reducing the pollution causing climate change. And they’d have to disclose climate-related financial risks. Top federal contractors in 2021 include Lockheed Martin, Boeing, Pfizer, and Moderna, according to Bloomberg. Over half of major federal contractors already disclose “climate related information,” according to a White House fact sheet. The federal government spent over $630 billion in goods and services in its last fiscal year.

In December 2021, Joe Biden issued an executive order directing the federal government to reach a goal of net-zero emissions from its operations and procurement by 2050. That included a target of purchasing only zero-emissions vehicles by 2035 and slashing building emissions in half by 2032. Since setting that goal, the federal government’s energy use for buildings and vehicles has fallen by 32 percent, according to the White House fact sheet.

Proposing the new rule for federal contractors today kicks off a 60-day comment period. The public has until January 13th, 2023, to submit comments before the rule can be finalized.