Coming Soon: New Greenhouse Gas and Climate-Related Financial Disclosure Obligations Affecting the Government Contracting Community

Many federal contractors may soon be required to evaluate and disclose their greenhouse gas emissions and climate-related financial risk. The proposed rule to implement these new requirements has not yet been published, but it is undergoing final review at the White House’s Office of Information and Regulatory Affairs (“OIRA”) and will, therefore, likely be made public in the relatively near future. Like other recent U.S. federal regulatory efforts concerning climate-related corporate disclosures, this new regulation could have significant effects on major federal contractors, which will likely include a wide range of public and private companies that supply the U.S. Federal Government, whether directly or indirectly. Stakeholders should take notice and prepare to engage in the rulemaking as soon as possible.

Background

The U.S. Federal Government has aggressively pursued a range of cross-cutting climate-related and other environmental, social, and governance (“ESG”) disclosure requirements. Many of those efforts were kicked off by presidential executive orders, including Executive Orders 14008, 14057, and 14030. Parallel regulatory efforts have followed suit, including the U.S. Securities & Exchange Commission’s (“SEC”) proposed rules on climate change-related disclosures and ESG fund disclosures, which have attracted considerable public attention and comment. International efforts related to ESG disclosures are also on the rise. For example, European Union (“EU”) regulations and directives have already entered into force and are creating downstream commercial obligations for companies doing business with the EU. Similarly, the U.S. federal contracting community may soon experience new ESG-related contractual mandates.

Two Forthcoming FAR Council Rules

The Federal Acquisition Regulatory Council (“FAR Council”) is actively developing two climate-related regulations for federal contractors: (1) FAR Case 2021-016, Minimizing the Risk of Climate Change in Federal Acquisitions (RIN #: 9000-AO33); and (2) FAR Case 2021-015, Disclosure of Greenhouse Gas Emissions and Climate-Related Financial Risk (RIN #: 9000-AO32). There has been some public discussion of the first rule but relatively little about the second.

Rule 1: Minimizing the Risk of Climate Change in Federal Acquisitions

The first of these upcoming rules attracted some public attention because the FAR Council issued an advanced notice of proposed rulemaking (“ANPRM”) concerning the contemplated standards. That ANPRM requested input on a range of issues. For example, “How might the Federal Government give preference to bids and proposals from suppliers, both domestic and overseas, to achieve reductions in greenhouse gas emissions or reduce the social cost of greenhouse gas emissions most effectively?” Also, “What impact would consideration of the social cost of greenhouse gases in procurement decisions have on small businesses, including small disadvantaged businesses, women-owned small businesses, service-disabled veteran-owned small businesses, and Historically Underutilized Business Zone (“HUBZone”) small businesses? How should the FAR Council best align this objective with efforts to ensure opportunity for small businesses?”

After receiving many comments and requests for additional opportunity to provide input, the Council extended the comment period by means of an additional ANPRM. Such early notices and requests for input provide the public a helpful early window into the government’s thinking, as well as a good opportunity to provide information and perspective that can be useful in determining whether and how to proceed with the development of a standard.

Rule 2: Disclosure of Greenhouse Gas Emissions and Climate-Related Financial Risk

The second forthcoming rule has received comparatively little public attention, probably in part because the FAR Council has not published an ANPRM that sketches out its initial thinking and provides an opportunity for input on specific issues under consideration. Rather, here, it appears the Council is jumping right to a proposed rule concerning disclosure of greenhouse gas emissions and climate-related financial risk. Stakeholders cannot see the draft text while it is under review, but it is already clear the rule will have considerable impact on the market. OIRA has indicated that the rule will be “economically significant,” which means it will likely have annual effects of $100 million or more on the economy. As such, the rule must include a detailed regulatory impact analysis that weighs the costs, benefits, and economic transfer effects of the policy. In the end, the rule’s benefits must justify its costs.

Stakeholders should consider whether and how they might contribute to that analysis and other aspects of the rulemaking. Once the rule is published, contractors will want to review it closely and provide input as appropriate, but they may also want to engage, through OIRA, the drafters and other Executive Branch stakeholders now, while the proposal is being finalized.

Follow-Up

For help navigating these or other federal contracting and environmental legal and regulatory issues, please contact the authors, who collaborate across disciplines to provide clients with comprehensive regulatory and contracting counsel. The former chief of staff and counselor of OIRA, Anthony P. Campau helps clients to understand and impact regulatory developments, make business decisions in complex regulatory environments, and develop internal systems for managing ongoing compliance and effectiveness. A longtime leader in federal contracting and procurement, Bret Wacker helps clients win federal contracts, prevail in bid protests, and navigate the complex set of requirements included within federal contracts. A former enforcement attorney with the U.S. Environmental Protection Agency, Patrick Larkin leads the firm’s Environmental and Natural Resources practice, counseling clients on all manner of environmental regulatory and legal issues. A former federal contractor specializing in environmental, health, safety, and sustainability (“EHS&S”) management and compliance, Maram T. Salaheldin counsels on a wide range of EHS&S issues, environmental management system (“EMS”) development, and the creation of environmental, social, and governance (“ESG”) programs.

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The views and opinions expressed in the article represent the view of the author(s) and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is intended to be a substitute for professional legal advice.