The Biden-Harris Administration recently published a proposed rule on Federal Supplier Climate Risks and Resilience (Proposed Rule). The Proposed Rule intends to further the goals set forth in Biden’s Executive Order on Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability (E.O. 14057) and to reduce the financial risks faced by the federal government from climate change-related supply chain disruptions. The Proposed Rule would set standards on emissions reporting, climate-related financial risk disclosure, and emissions reduction targets for federal contractors and subcontractors.

Primarily, the Proposed Rule would require major suppliers to establish Paris Agreement-aligned emissions reduction goals. The goals are based off data associated with three emissions-related scopes outlined in E.O. 14057:

• Scope 1 pertains to the direct greenhouse gas emissions from sources that are owned or controlled by an organization;
• Scope 2 pertains to the indirect greenhouse emissions resulting from the generation of electricity, heat, or steam purchased by an organization; and
• Scope 3 pertains to greenhouse gas emissions from sources not owned or directly controlled by an organization but related to an organization’s activities, such as vendor supply chains, delivery and transportation services, and employee travel and commuting.

Under the Proposed Rule, federal contractors and subcontractors would need to meet the following requirements:

• federal contractors and the largest suppliers that receive more than $50 million in annual contracts would be required to (1) publicly disclose emissions related to Scope 1, Scope 2, and relevant categories of Scope 3; (2) publicly disclose their climate-related financial risks; and (3) set science-based emissions reduction targets;
• federal contractors with more than $7.5 million but less than $50 million in annual contracts would be required to report Scope 1 and Scope 2 emissions; and
• small businesses with over $7.5 million in annual contracts would only be required to report Scope 1 and Scope 2 emissions.

Of note, all federal contractors with less than $7.5 million in annual contracts would be exempt from the Proposed Rule.

The Proposed Rule reaffirms the Biden-Harris Administration’s goal of reducing U.S. greenhouse gas emissions and the climate-related financial risks associated with climate change. While it moves toward becoming a final rule, contractors and subcontractors should continue to comply with E.O. 14057 by incorporating cleaner and more sustainable operation standards.