​Here’s a follow-up to our December 2016 blog on the Financial Stability Board’s (FSB’s) recommendations to facilitate wide-spread climate-related disclosures by organizations with public debt or equity to promote more informed investing, lending, and insurance underwriting decisions.
 
In late June 2017, the FSB Task Force of the G20 nations released its final recommendations (the “report”) to encourage companies and financial-sector organizations (e.g., banks, asset owners and managers, insurance companies, lenders) in G20 countries to assess and incorporate climate risks and opportunities in their mainstream public financial reporting. At the time the report was released, more than 100 CEO’s expressed support for the recommendations (full list of pre-release signatories). To supplement the final recommendations, the FSB also provided accompanying documents including:

• Implementing the Recommendations of the Task Force on Climate-Related Financial Disclosures (the “annex”).
• The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities (the
  “technical supplement”).

 
In finalizing its recommendations, the Task Force received more than 300 responses through its public consultation process. The FSB noted that, overall the commenters were supportive of the recommendations (summary of the public consultative process and comments). The Task Force used the specific and constructive feedback on the draft to refine the recommendations in its final report.
 
Final Recommendations | Key Changes and Enhancements from the Draft
The Task Force made only slight changes from the draft recommendations. The final report keeps the focus on the four thematic areas targeted in the draft recommendations: governance, strategy, risk management, and metrics and targets.

O ne of the more notable refinements relates to the FSB’s recommended disclosures that organizations should make in their annual, public financial filings. The FSB provided clarifications in response to concerns about having potentially immaterial issues reported in public financial filings. The FSB also repeated its caution that organizations should not prematurely conclude that climate-related risks and opportunities are not material.
 
As highlighted in the FSB’s Summary of Key Changes and Clarifications document (see highlighted table below), the FSB now recommends:

• Disclosures on climate-related Governance and Risk Management should be made even if a company views climate as a non-material issue. 
  • The FSB distinguished these types of disclosures because many investors want insight into the governance and risk management context in which organizations’ financial and operating results are achieved, regardless of perceived materiality.
  • Acknowledging current differences in sophistication, the Task Force provides flexibility for some companies to begin by incorporating these disclosures in other publicly available reports.  
• Disclosures on climate-related Strategy and Metrics and Targets, on the other hand, should be made only if such information is material.
  
  • The FSB further recommends that certain types of companies disclose their climate-related Strategy, Metrics, and Targets (even if they deem climate is immaterial) through other public reporting. [1]

 
Two other key changes between the draft and final recommendations report, included:

• Expanding the guidance on disclosures about remuneration to cover all organizations that have identified climate-related risks as material (the draft had this applicable only to organizations in the energy sector).
  • This falls under recommended disclosure (a) for Metrics and Targets and states: Where climate-related issues are material, organizations should consider describing whether and how related performance metrics are incorporated into remuneration policies.
• Simplification of the disclosure related to the scenarios analysis (recommended Strategy disclosure (c)) and clarification to focus on resiliency of an organization’s strategy to climate risks and opportunities.

The FSB also added emphasis and/or further explanation about several items addressed in the draft report:

• Clear linkage of climate-related risks and opportunities and associated financial impacts are widely applicable to all organizations, regardless of sector or location.
• Increasing demand and need for more public disclosure of climate-related financial implications by companies with public equity or debt and for more consistency (and further encouraging both publicly capitalized companies and asset owners/managers to quickly implement the recommendations).
• Refined the recommended disclosures and streamlined the supplemental materials for disclosures from two key groups: the financial sector and the four non-financial sectors (e.g., energy, transportation, materials and buildings, and agriculture, food, and forest products) with the highest proportion of greenhouse gas (GHG) emissions, energy usage, and water usage.
• Benefits of the disclosures being made in annual financial filings (and subject to internal governance processes substantially similar to those used for financial reporting).

• Acknowledgement of existing national reporting requirements (e.g., the U.S. SEC requires disclosure of material issues affecting the company’s financial condition) and clarification that any of recommendations that are incompatible with national requirements should be disclosed in other official company reports.
• Consideration existing voluntary and mandatory climate-related reporting frameworks (e.g., CDP, GRI, IIRC) and encouraged those frameworks to further align with the recommendations.
• Understanding that reporting of climate-related information will continue to evolve.

 
The FSB highlighted four key benefits to the publicly-traded companies that implement these recommendations:

 The Task Force also re-emphasized the potential financial impacts of climate-related risks.  The final report and the supplemental materials (e.g., Implementation Annex, Technical Supplement) provide additional explanation and examples of the potential climate-related financial impacts potentially facing many companies in the short, medium, or long term. For example, see Figure 1 (below) and Tables 1 and 2 from the final report. 

​What to Expect Next
Now that the FSB recommendations are final, we can expect continued action on these issues from a number of perspectives, including:

• Increasing adoption of mandatory and voluntary disclosure requirements from trading exchanges and asset owners/managers (plus regulators of publicly traded companies).

• More shareholder proxy action on climate and associated risks.
• Growing action and coalition efforts from the largest companies and investors to incentivize and strengthen commitments to science-based reduction targets and renewable energy (e.g., the RE100)
• Evolution and streamlining of analyst research tools and reporting schemes (e.g., CDP, CDSB, IIRC, SASB, DJSI, MSCI), including more media and public access to climate-related disclosures.

 
Our Suggested Action Items to Publicly Capitalized Companies
The FSB’s recommendations provide a great reflection point for publicly capitalized companies to consider their climate-related risks and opportunities.
 
For the many companies that have already begun this journey, it provides confirmation of the business case for doing so and additional guidance to improve the quality, efficiency, and consistency of the analysis and disclosures.
 
It provides impetus for increased collaboration amongst a company’s board of directors and leaders from across the organization including: the Chief Financial Officer and other financial leaders, the Chief Investment Officer and other investor relations leaders, risk management leaders, and climate/sustainability leaders.
 
For publicly capitalized companies that haven’t yet begun to assess which, if any, climate risks or opportunities may impact them, now is a good time to start. If you are a board member or senior leader at one of these companies, we recommend the following five initial steps:

1. Review and share the final FSB recommendations with the company’s senior leadership, including board members. Chief Financial Officers, in particular, should be in the loop to assess and implement the recommendations.
2. Consider whether and how positioned your company is to make the recommended, voluntary disclosures.
3. Research whether your trading exchange (and/or its regulatory body) is exploring specific climate-related disclosures in addition to those already required.
4. Assess your key analysts’ and major shareholder’s climate-risk management and disclosure expectations.
5. Initiate development of: (i) a GHG emissions and energy use inventory (and water, if relevant) and (ii) a plan to explore how your company might be impacted by climatic changes and shifts to a lower carbon economy.
   • Both activities will require access to the requisite subject matter experts who can develop GHG/energy/water inventories, build climate-knowledge capacity among your senior leadership, and facilitate adequate board oversight.
   • While the FSB final recommendations clarify that GHG emissions and energy usage metrics do not need to be publicly disclosed in the annual financial filings if deemed immaterial, companies will need the data to assess the materiality, governance, and risk management practices in light of potential climate-related financial impacts.

 
If your next annual financial filing occurs before you’ve taken these steps and you choose to omit any of the recommended disclosures, you should consider providing a rationale for omitting the disclosures. This could include a statement that the company acknowledges the FSB’s recommendations, is assessing how it will implement them, and will reflect any such implementation in the next annual filing.

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Thank you for reading this blog post. Here at Corporate Sustainability Advisors LLC blog and on LinkedIn, I regularly write about organizational, community, and personal sustainability. If you would like to read my future posts then please subscribe via the adjacent link. Also, feel free to connect via Twitter and Facebook.

The GHG reps appear in Question 32 (FAR response page 4). The image below is a screen shot from the SAM reps section, after selecting "yes" for the first value (i.e., the company received $7.5+ million in Federal contracts during the prior Federal fiscal year).

The image below is from the most recent SAM Questionnaire for Representations and Certifications  (Reps and Certs user guide) (February 24, 2017).

There is a noted departure between the final FAR rule and how the representation is stated in SAM. The SAM language implies that GHG emissions inventories and goals must be publicly disclosed (for those with $7.5+M the prior Federal fiscal year).  In the final rule making, however, the FAR Council was very clear that they are only seeking information about whether companies are making public GHG disclosures. So, the FAR just requires you to report whether or not you publicly disclose GHG emissions inventories/reduction goals. If you already publicly disclose either an emissions inventory and/or reduction goals, you are required to provide a link to the publicly accessible web site where the disclosure(s) have been made. 

​​If you're new to GHG emissions reporting or goal setting, we can help you navigate these new representations. Give us a call at (888) 807-5237 or email us at info@corporatesustainabilityadvisors.com. 

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Thank you for reading this blog post. Here at Corporate Sustainability Advisors LLC blog and on LinkedIn, I regularly write about organizational, community, and personal sustainability. If you would like to read my future posts then please subscribe via the adjacent link. Also, feel free to connect via Twitter and Facebook.

Sharing a couple news items regarding GSA's Alliant 2 GWAC.

1.  GAO recently denied protests.  Evaluations and awards can now proceed. See the January 11th decision here. 

2. GSA issued a revised Information Collection Request (ICR) notice for the greenhouse gas (GHG) emissions information required under Alliant 2's Section G.25.  Based on comments to the first ICR notice, including those of Corporate Sustainability Advisors, GSA has a new burden estimate for the GHG reporting.  Per the new calculation, GSA estimates that the average Alliant 2 awardee will take about 120 hours each year to comply with the G.25 provisions.  This is up from GSA's original estimate of 80 hours. The revised ICR notice is here.  The public comment period closes February 13th. 

Good news for EDWOSB's like Corporate Sustainability Advisors, LLC. A recently finalized FAR rule provides an additional tool for Federal agencies to ensure that WOSBs have an equal opportunity to participate in Federal contracting and ensures consistency among SBA's socioeconomic small business contracting programs. The provision puts the WOSB/EDWOSB Program on a level playing field with other SBA Government contracting programs with sole source authority and provided an additional, needed tool for agencies to meet the statutorily mandated goal of 5 percent of the total value of all prime contract and subcontract awards for WOSBs.

​See here for additional details.

Summary
Federal agencies have amended the Federal Acquisition Regulations (FAR) to require certain contractors to indicate whether or not they publicly share information about their corporate greenhouse gas (GHG) emissions inventory or goals. Published in the Federal Register on November 18 (81 FR 83092), the new rule does not actually require contractors to calculate or reduce their GHG emissions, just that they indicate whether they publicly disclose either emissions or goals information.
 
In the final rulemaking the government clarified the purpose and goals of the FAR modifications. The representations are intended to help the government better understand, not regulate, the GHG management practices of its industry partners. The rule is designed to be a low-burden, minimally intrusive effort to enable greater insight into the GHG management practices of the federal supply chain.
 
Effective December 19, 2016, the final FAR rule establishes an annual representation requirement for contractors to indicate whether or not they publicly disclose GHG emissions data and/or emissions reduction goals. For companies that do publicly disclose such information, they must also indicate where it is publicly available on the Internet. The requirements are applicable to companies that had $7.5+ million in federal contract awards in the prior federal fiscal year.
 
The final rule is almost identical to the proposed rule released in May 2016 (81 FR 33192). Some minor clarifications where made to address comments made to the draft rule.

Representations Required
New FAR provision 52.223-22 (and an equivalent at 52.212-3 for commercial/COTS items) representations:

1. The Offeror (itself or through its immediate owner or highest-level owner) [ ] does, [ ] does not publicly disclose greenhouse gas emissions, i.e., makes available on a publicly accessible Web site the results of a greenhouse gas inventory, performed in accordance with an accounting standard with publicly available and consistently applied criteria, such as the Greenhouse Gas Protocol Corporate Standard.
2. The Offeror (itself or through its immediate owner or highest-level owner) [ ] does, [ ] does not publicly disclose a quantitative greenhouse gas emissions reduction goal, i.e., make available on a publicly accessible Web site a target to reduce absolute emissions or emissions intensity by a specific quantity or percentage.
3. If the Offeror checks "does" [under either provision], the Offeror shall provide the publicly accessible Web site(s) where greenhouse gas emissions and/or reduction goals are reported: ___________________.

 
Implications
The new rule may be a target for repeal by the incoming administration because it is based on an Executive Order of President Obama (EO 13693). On the other hand, the EO and rule mirror the supply chain practices of many successful US-based and global corporations. Applying such practices to the US government’s $400 billion supply chain could well have bi-partisan appeal as they will likely result in cost savings to the companies and taxpayers alike.
 
GHG management is closely connected with cost savings from energy use reduction, and serves as an indicator of operational efficiency and excellent management practices.  Thus, organizations that purchase large volumes of goods and services (e.g., AT&T, Bank of America, Coca-Cola, Nike, Walmart) have started asking their supply chain (i.e., the companies they buy from) about these practices.
 
Private and publicly-traded companies are enhancing their environmental, social and governance (ESG) practices, including disclosing details about their GHG management and other sustainability practices through tools such as the CDP and the GRI Sustainability Disclosure Database. For example, nearly 10,000 organizations have submitted more than 35,000 reports via the GRI database. Last year, companies representing more than 50% of the combined market capitalization of the G20 reported emissions data to CDP.  These public disclosures, and the management efforts behind them, help the bottom line. 

• “The strong performance of three-year reporters [to the CDP] is also displayed in the carbon and cost savings in the reporting cohorts…Those reporting for three or more years reported an average savings of US$1.5 million per initiative, versus first-time reporters, which had an average savings of US$900 thousand per initiative.” ~ From Agreement to Action: Mobilizing Suppliers Toward a Climate Resilient World: CDP Supply Chain Report, 2016.

​In response to these efficiency opportunities, supply chain management practices, and investor expectations, many federal contractors already have GHG and energy management programs. This is especially true of the largest contractors. The Council on Environmental Quality (CEQ) just released the 2016 Federal Supplier GHG Management Scorecard that reflects a survey of approximately 80 companies and represents $214+ billion in FY15 federal procurement spending (about half the annual contracted amount). Of those surveyed, about 57% (by count) or 73% (by contracted dollars) have public GHG emissions inventories in 2015 or 2016. 

​Slightly fewer have public GHG reduction goals for 2016 or beyond—about 44% (by count) or 62% (by contracted dollars). 

​Whether or not the new rule remains in effect throughout the next administration’s term, there are compelling business reasons for federal contractors and other companies to manage their GHG emissions and energy use.

The 2016 scorecard about the top federal government contracting companies' greenhouse gas (GHG) emissions and climate risk management activities was released today.  Like other organizations that purchase a large amount of goods and services (e.g., AT&T, Bank of America, Coca-Cola, Ford Motor, Nike, Walmart)), the federal government asks its supply chain about these sustainability practices.

The CDP's supply chain program is a widely accepted portal through which private companies seek information from their suppliers about their GHG management, climate risk, and other sustainability practices and impacts The GSA and Navy also use the CDP.  The CDP supply chain program represents a combined purchasing power of more than $2 trillion US.

Companies (and investors and academic research) have found a close, positive correlation between financial performance from companies with good environmental, social, and governance (ESG) practices. Near the top of the list of environmental programming is GHG management because of its close connection to energy usage and costs. Companies with good GHG management programs and reduction goals can realize significant financial savings--something critical to all federal contractors in these hyper competitive times.  For example, those reporting to the CDP for three or more years reported an average annual savings of $1.5 million per initiative.  First time CDP reporters had an average savings of $900,000 per initiative.

Stay tuned for more in-depth analysis about the 2016 scorecard in an upcoming post.

The federal government's 2016 supplier scorecard is located here.  Does your company have red or yellow scores?  Let us help you get to green (and save some green). 

A dash of this. A dash of that. Like the best dishes, each company’s social responsibility recipe will be slightly different and evolve over time. Creating a recipe from scratch is both daunting and exciting.

The Silicon Valley Community Foundation (SVCF) recently published a helpful guide, Starting With Purpose, about why and how startups should bake in sustainability and other corporate responsibility as an integral part of creating a new business.

Investors, customers, and employees are increasingly seeking out companies that integrate environmental, social, and governance practices into their business strategy and purpose. The nimbleness and innate creativity of new companies provides an optimal atmosphere in which to embed social responsibility practices into the corporate strategy and culture. 

Doing so early can help the business thrive with a triple bottom line: prosperity, people, and the planet. This is especially true for businesses that are built around products or services designed to create positive environmental or social impact such as clean tech, clean and/or renewable energy, and energy management and efficiency companies.
 
Here are six ingredients recommended in the SVCF guide:

• Cultivate a Culture Committed to Social Change
• Connect with Local Communities
• Donate or Discount Products or Services to Drive Social Change
• Lay the Groundwork for a Sustainable Supply Chain
• Translate Diversity Values into Practice
• Make a Public and Formal Commitment to Social Responsibility

 
Does your startup seek to impart social change in addition to generating bottom line profit? We’d love to help you create your secret sauce. For more information on how we can help your company, please contact us at info@corporatesustainabilityadvisors.com. Let’s cook-up something great together.

E&E Publishing’s ClimateWire ran a story today, September 12, reporting on the draft FAR clause proposed by the DOD, GSA, and NASA in May 2016. As earlier blogged here, the proposed rule is expected to impact some 5,500 federal contractors, including about 2,700 small businesses.
 
As drafted, federal contractors with $7.5+ million annually in federal awards will have to disclose whether they publicly report on their greenhouse gas (GHG) emissions management. The proposed rule also raised the possibility of seeking similar disclosures about whether federal contractors publicly report if they conduct any climate risk analyses. Firms under $7.5 million will be encouraged, but not required, to disclose their GHG reporting.
 
I was pleased to share my thoughts on and support of the proposed rule for the ClimateWire article. Corporate Sustainability Advisors also submitted a comment letter to the government supporting the proposed rule and encouraging the government further address its supply chain emissions. This proposed rule is a small step forward for the federal government to mirror what the private sector has been doing with its supply chain for years.
 
To a large extent, publicly-traded federal contracting companies already disclose their GHG emissions to meet investor expectations. There is a close connection between GHG emissions and energy use. Companies that proactively address their GHG emissions often see reductions in their operational costs compared to business-as-usual scenarios where energy usage and costs are frequently ignored. Transparency about GHG emissions provides vital information to customers, investors, and taxpayers.
 
On a related matter, GSA is seeking public comment on the information collection request (ICR) associated with the GHG and other sustainability reporting that will be required of the new Alliant 2 unrestricted contract winners.  The comment period closes on October 24th. As previously blogged here, section G.25 of the Alliant 2 contract terms requires the awardees to publish a “Sustainable Practices and Impacts Disclosure” or SPID within 12 months of the notice to proceed of the master contract and annually thereafter for the life of the contract. After award, Alliant 2 contractors will have to a complete Scope 1 and 2 GHG inventory 12 months after the first SPID (i.e., 2 years after the notice to proceed). GSA provides another 12 months before the contractors must set and report on their GHG reduction targets. GSA is encouraging, but not requiring Scope 3 GHG reporting. GSA will evaluate compliance for these disclosure requirements via the Contractor Performance Assessment Rating Systems (CPARS) annual review.

We are pleased to announce that Corporate Sustainability Advisors is now certified via the US Small Business Administration's (SBA's) Women-Owned Small Business (WOSB) and Economically Disadvantaged Women-Owned Small Business (EDWOSB) program.   For more information about these SBA certification programs, please check here.

5416 is our primary NAICS code category. We also perform work under these other NAICS categories: 5413, 5419, 5614, 5619, and 5417.

We'd love to explore opportunities to partner with you on federal government contracts or subcontracts. Give us a call at (888) 807-5237 or email us at info@corporatesustainabilityadvisors.com.