With a focus on climate change, the U.S. Federal Government has proposed amendments to the Federal Acquisition Regulation (FAR) under the “Federal Supplier Climate Risks and Resilience Rule”.
Under the proposed amendments, many federal contractors will be required to publicly disclose greenhouse gas (GHG) emissions to renew their contracts. In total this is anticipated to impact approximately 6,000 entities.
Under the new regulation, contractors would be classified into two categories based on the prior Federal fiscal year contracts awarded:
- Major Contractors – Contractors who received more than $50m in Federal contracts during the prior year would be required to disclose Scope 1, Scope 2, and certain Scope 3 GHG emissions along with financial climate risks and establish GHG reduction targets under the Task Force on Climate-Related Financial Disclosures framework (TCFD).
- Significant Contractors – Contractors who received between $7.5m and $50m in the prior Federal fiscal year would be required to disclose Scope 1 and Scope 2 GHG emissions. Major contractors who fall under Small Businesses for their primary NAICS code could also limit their disclosures to Scope 1 and Scope 2.
The amendment excludes certain entities including not-for-profit researchers, higher education institutions, and local and state governments. Contractors must aggregate the total amount awarded under various Federal agencies. Entities could meet these thresholds individually or at a consolidated level. Since Major Contractors would be required to report Scope 3 emissions, it is likely they would be requesting emission information from their subcontractors. The Federal Government is the world’s largest single buyer of goods and services, totaling over $630b last fiscal year. It estimates that Major Contractors represent 64% of this spend, while Significant Contractors represent another 22%.
The government’s intent under this regulation is to set GHG targets. The move is comparable to the movement in the European Union under their Corporate Sustainability Reporting Directive (CSRD) to align with the 1.5 degree Celsius maximum warming scenario as envisioned by the Paris Agreement
This also goes further than the Security and Exchange Commission’s proposal by requiring the establishment of climate goals, whereas the SEC only requires disclosure if the Company has set goals, as discussed in a previous article. Major contractors will be required to provide annual climate disclosures in line with TCFD through completion of the CDP Climate Change Questionnaire. Disclosures for contractors would then be posted on the Federal System for Award Management.
The Federal government is currently working to finalize the regulation. Scope 1 and Scope 2 GHG emission annual disclosures will be required for major and significant contractors one year after final publication, with the remaining Major Contractor disclosures effective two years after publication.
Environmental, Social and Governance Resources
- Schneider Downs ESG FAQ
- Schneider Downs ESG Infographic – Putting the ESG Puzzle Together
- Schneider Downs ESG Article – What Are the Key Roles Internal Audit Plays in ESG?
- Schneider Downs ESG Article – Top Ten ESG Questions for Board and Audit Committees
- Schneider Downs ‘Our Thoughts On’ ESG Articles
About Schneider Downs ESG Consulting
With our industry expertise and extensive knowledge of the risk advisory landscape, the Schneider Downs team can help your organization develop an ESG program, comply with ESG regulatory requirements and evaluate ESG risks and opportunities within the context of your ESG strategy.
For more information, please visit our ESG Consulting page or contact us at [email protected].
About Schneider Downs Audit and Assurance Services
Schneider Downs’ engagement teams are hand-selected by our shareholders based on skill sets and experience and are available around the clock for consultation. Each attestation engagement is subject to our comprehensive quality control and risk management system, providing an independent review of audit opinions, related financial statements and significant underlying working papers, to ensure that the highest levels of professional standards are met.
For more information concerning ESG matters and their impact to your organization, please visit the Schneider Downs Our Thoughts On blog, email us at [email protected] or visit our dedicated Audit and Assurance page.
