In mid-November 2022, the Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) proposed an amendment to the Federal Acquisition Regulation (FAR) to increase the transparency of climate-related information related to government contracting.
The proposed regulation would require applicable federal contractors to:
The proposed rule divides the federal contractor supplier base registered in the System for Award Management (SAM) into two categories:
In FY2021 alone, there were more than 5,500 qualifying contractors. This proposed rule is expected to cover 86% of annual federal spending and about 86% of the federal supply chain’s GHG and climate impacts .
See the requirements for each contractor category:
|Type of Contractor||Scope 1 and 2 GHG emissions||Scope 3 GHG emissions||Description of climate risk assessment process and risks identified||CDP climate change questionnaire sections that align with TCFD||Science-based targets with validation by SBTi|
($7.5M - $50M)
While there isn’t a clear timeline for approval, the proposed rule states that after one year of publication, all federal contractors must have completed their GHG inventory and disclosed scope 1 and 2 GHG emissions. The additional requirements for major contractors would begin two years after publication of the final rule. These additional requirements include reporting on scope 3 GHG emissions, conducting a climate risk assessment to identify risks in alignment with the TCFD, completing the CDP climate change questionnaire and committing to developing a science-based target validated by the SBTi.
In March 2021, the SEC announced plans for a greater focus on climate-related risks. The proposed disclosure ties to the TCFD and the newly formed International Sustainability Standards Board (ISSB), a part of the International Financial Reporting Standards (IFRS) Foundation. The TCFD focuses on governance, strategy, risk management and metrics and targets of climate change disclosures. The details of the disclosure requirements are extensive, and registrants will be required to disclose both qualitative and quantitative climate information, such as disclosures of climate-related risks, GHG emissions, events and plans. The proposed SEC rule demonstrates a great reporting burden for public companies.
The reporting burden for federal contractors due to the proposed amendment to the FAR will vary depending on the value of contracts received. See the chart above for specific requirements. In comparison, the SEC climate-related disclosures will require a greater level of reporting but that shouldn’t diminish the reporting requirements for FAR.
The proposed climate-related disclosure and reporting requirements will soon be a reality for contractors of the U.S. federal government. Now is the time to start thinking about how the changing regulatory landscape could affect your organization. Companies can prepare by executing the below steps:
Navigating the proposed regulation and its potential impact to your organization can be daunting. Lean on us to help you understand and respond to the rapidly changing ESG reporting landscape.
In ESG Today, Baker Tilly’s Patricia Wellmeyer and Joe Donnelly discuss important aspects of the Securities and Exchange Commission’s (SEC) recent high-profile enforcement actions and its expanding, proactive pursuit of ESG-related reporting misconduct.