In November 2022, the U.S. Federal Government proposed the Federal Supplier Climate Risks and Resilience Rule. This rule would amend the Federal Acquisition Regulation to require large Federal Government contractors to disclose their greenhouse gas emissions and climate-related financial risks and set science-based emissions reduction targets. The FAR is the primary regulation used by Federal executive agencies in procuring goods and services with appropriated funds.
The proposed rule is intended to address GHG emissions and protect the Federal Government's supply chains from climate-related financial risks. The proposal is in furtherance of the Biden Administration's goal to achieve net-zero emissions procurement by 2050. The rule is discussed in detail in our earlier Alert here.
In early 2023, the Director of the Defense Acquisition Regulations Council tasked the Environmental and Contract Management Team with reviewing public comments on the proposed rule and drafting a final rule. The DARC is responsible for developing fully coordinated recommendations for revisions to the FAR. In the last Semiannual Regulatory Agenda of the Defense Department, the General Services Administration and NASA, the final rule was slated for April 2024, which of course came and went without the final rule being issued. The rule has been subject to multiple delays, beginning with the extension of the initial comment period.
In the July 19 list of "Open FAR Cases" – which indicates the progress of open and pending FAR rules – the due date of the Environmental and Contract Management Team's report has been extended to September 25, from April 19.
It remains to be seen whether the rule gets over the finish line before President Biden leaves office, given the extreme politicization of Federal climate regulation (among other factors). This charged atmosphere is illustrated by section 318 of the National Defense Authorization Act for Fiscal Year 2024, which limits the Defense Department's ability to require contractors to disclose GHG emissions as a condition of contract award, as described in this Defense Department Memorandum.
Our two cents is that the rule should be left to the next administration, whether that is a Harris or Trump Administration. If a Harris Administration wishes to move forward with this rulemaking initiative (we assume a Trump Administration will not), a revised rule that takes into account stakeholder feedback during the early 2023 public comment period should be released for further comment. Global climate disclosure and GHG emissions reduction target requirements have significantly advanced over the last year. To maximize regulatory harmonization and reduce compliance burdens on large Federal Government contractors, those developments, and related stakeholder feedback, should be considered as part of the final rule. Given their size, most of the contractors that would be subject to the rule are subject to multiple other climate disclosure and GHG emissions reduction requirements.
As noted in our recent post, other recently adopted U.S. climate disclosure requirements have been delayed. In response to the lawsuit challenging its climate disclosure rules, the U.S. Securities and Exchange Commission has voluntarily stayed the rules pending the completion of judicial review by the Court of Appeals for the Eighth Circuit (the stay is discussed further in our post here). In addition, on June 29, California Governor Newsom released a draft budget trailer bill that would push back by two years compliance with the Climate Corporate Data Accountability Act (Senate Bill 253) and the Climate-Related Financial Risk Act (Senate Bill 261) (these Acts are discussed in more detail in our earlier post here). The draft trailer bill contemplates initial disclosures in 2028, rather than 2026 (with a commensurate two year pushback of other reporting and related assurance requirements), among other changes.
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