New Rule: Federal Government Contractors Required to Make Representations About GHG Emissions Public Disclosures

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.

New FAR Provision on Federal Contractors Reporting of GHG Management Public Disclosures

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.