The Federal Supplier Climate Risks and Resilience Rule: What To Know In 2023

A basic introduction to the Federal Supplier Climate Risks and Resilience Rule

On November 10, 2022, the Biden-Harris Administration made a significant move to tackle greenhouse gas emissions and safeguard the Federal Government’s supply chains from financial risks linked to climate change. In line with President Biden’s Executive Orders on Climate-Related Financial Risk and Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability, the Administration proposed the Federal Supplier Climate Risks and Resilience Rule.

This rule would mandate that major Federal contractors disclose their greenhouse gas emissions and climate-related financial risks publicly and establish science-based emissions reduction goals.

This latest announcement makes the United States the first national government to openly acknowledge the climate-related financial risk and strengthen its supply chain by making major suppliers Paris Agreement-aligned emissions reduction goals.

This climate change-focused rule will affect many contractors in the United States. 

What is the Federal Supplier Climate Risks and Resilience Rule?

The Federal Supplier Climate Risks and Resilience Rule is a proposed regulation that aims to address greenhouse gas emissions and protect the Federal Government’s supply chains from climate-related financial risks. If implemented, the rule would require major Federal contractors to publicly disclose their greenhouse gas emissions and climate-related financial risks and set science-based emissions reduction targets. The goal of the rule is to support the Biden-Harris Administration’s efforts to address climate change and promote clean energy industries and jobs.

The goal is to build resilience in the supply chain and make sustainable investments that protect the government from extreme events caused by climate change. The government is taking steps to not leave itself exposed.

There are two groups impacted by the Federal Supplier Climate Risks and Resilience Rule: major contractors and significant contractors. 

The impact of Federal Supplier Climate Risks and Resilience Rule on major contractors

For major contractors those whose annual revenue from federal contracts exceeds $50 million, of which there are over 4,4000:

• Disclose greenhouse gas (GHG) Scope 1, Scope 2, and relevant Scope 3 emissions through the CDP (formerly called the Carbon Disclosure Project)
• Assess climate-related financial risks through the Task Force on Climate-Related Financial Disclosures (TCFD)
• Set emission reduction targets that have been validated through the Science Based Targets Initiative (SBTi)

The impact of Federal Supplier Climate Risks and Resilience Rule on significant contractors

For significant contractors: those whose annual revenue from federal contracts are between $7.5 million to $50 million, of which there are over 1,300 entities:

• Disclose Scope 1 and Scope 2 emissions in alignment with the GHG Protocol Corporate Standard

Contractors whose annual federal obligations are under $7.5 million are currently exempt from the rule and are not required to report.

Why was the Federal Supplier Climate Risks and Resilience Rule put in place?

The Federal Government faces substantial financial risks from climate change. The governments’ climate risks are related to its supply chain. As the government is the greatest consumer of goods and services in the world, spending more than $630 billion in the past fiscal year.

Every industry has been affected by supply chain interruptions over the past year. Some of these disruptions have been directly attributed to climate change. The federal government and its essential contractors and subcontractors are, as a result, all subject to climate risks caused by climate change. In order to increase efficiency and lower climate risks, the new Federal Supplier Climate Risks and Resilience Rule would fortify the resilience of weak Federal supply chains.

 

 

Part of the rationale behind the rule comes from President Biden’s stance that managing emissions builds efficiency and effectiveness, and can help to reduce costs for federal suppliers. 

Since establishing the Federal Government’s own climate goals, energy use by buildings and vehicles has dropped 32 percent, saving taxpayers $11.8 billion annually. Suppliers understand that you cannot manage what you don’t measure—tracking emissions and setting and meeting targets can increase resilience and reduce costs. The President’s Federal Sustainability Plan, which aimed to achieve net-zero carbon procurement by 2050, is closely related to the action that is being recommended today.

Key findings suggest that currently more than half of significant Federal contractors currently make climate-related information available.

The 18,700 businesses worldwide, including 1,800 small and medium-sized businesses, that voluntarily publish emissions and climate risk through CDP include these federal contractors. These 18,700 businesses account for more than half of the global market capitalization. Additionally, nearly 4,000 businesses worldwide—representing one-third of the market value of the global economy—have voluntarily committed to establishing science-based targets.

The 60-day public comment period for the Federal Supplier Climate Risks and Resilience Rule is scheduled to close on January 13th, 2023 (FAC/FAR Case/Docket No. 2021-015).

This recent announcement is in line with the general trend we are seeing in the industry where ESG reporting requirements are being tightened. As GreenBiz has noted, “The tide is changing — and fast.”

Whether it is recently proposed changes by the EPA and the inclusion of new industries, states updating their requirements to require more data, like in New Jersey recently, the EU focusing on double materiality and increasing climate change focus, the forthcoming SEC Climate Disclosure, banks and investors requiring more detailed ESG Reports or the federal government requiring reporting from its contractors, the trend is clear.

Federal Supplier Climate Risks and Resilience Rule and how TrakRef can help (and already IS helping!)

Trakref understands the frontline struggles of HVAC/R owners/operators better than anyone. Our goal is to simplify data reporting and collection, and provide a single source of truth for Scope 1 refrigerant fugitive emissions reporting.

Climate risk to assets from extreme weather events is something every company is going to have to get their arms around. But equally as important is understanding the risk of improper reporting, delayed reporting, bad data, and a host of other complications that can have you in hot water with the SEC, EPA, states, US Federal Government, and the EU.

Getting your Scope 1 reporting wrong can lead to significant financial risks. Fines from government agencies are just the start. Operations may be suspended leading to lost revenue. Companies need relevant risk management processes to address these concerns.

Trakref Is Built for Refrigerant Emissions Tracking and Reporting

Trakref provides an automated rules engine that allows service technicians to quickly and easily enter accurate data regarding HVAC/R assets. Our software allows companies to track and manage their refrigerant cylinders, track leaks, and get ahead of compliance and sustainability requirements thereby managing risk and helping companies accurately report.

When it comes to refrigerant management and tracking, Trakref provides the critical investor-grade data companies need.

Federal Supplier Climate Risks and Resilience Rule across Scope 1, Scope 2, and Scope 3 emissions

Interested in learning more about what defines scope 1, scope 2 and scope 3 emissions. Download this handout to learn more about what each of these reports may include and how you can prepare against future risks and economic challenges caused by climate risks due to climate change.

If you have additional questions about the Federal Supplier Climate Risks and Resilience Rule and where your business stands with it, just reach out.