US Federal Supplier Climate Risks and Resilience Rule

The Biden-Harris Administration has placed great emphasis on mitigating climate change and promoting sustainable corporate practices. As a result, businesses and contractors working with the federal government must be prepared to adapt to and comply with new US ESG regulations.

One such regulation is the proposed Federal Supplier Climate Risks and Resilience Rule, which aims to protect the federal government's supply chains from significant climate-related financial risks.

What is the Federal Supplier Climate Risks and Resilience Rule?

The Federal Supplier Climate Risks and Resilience Rule was proposed on November 10, 2022, as part of the Biden Administration's goal to achieve net-zero emissions procurement by 2050.

This Rule requires large federal government contractors to disclose their greenhouse gas (GHG) emissions and climate-related financial risks and set science-based emissions reduction targets.

Who is in the scope of the Rule?

The Rule applies to federal contractors who receive the highest annual federal agency contract obligations. The regulation differentiates between two types of contractors:

• Significant contractors: those who received between $7.5 million and $50 million in federal contract obligations during the previous federal fiscal year.
• Major contractors: those who received more than $50 million in federal contract obligations during the previous federal fiscal year.

Higher education institutions, non-profit research entities, and state or local governments are not contractors subject to the Rule.

What are the requirements for the companies falling under the scope?

1. Complete a GHG inventory for both significant and major contractors. This inventory should include annual Scope 1 and Scope 2 GHG emissions following the GHG Protocol Corporate Accounting and Reporting Standard.
2. Submit annual climate disclosures, which apply only to significant contractors, not small businesses. These disclosures should align with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations and be completed through relevant portions of the CDP Climate Change Questionnaire.
3. Set science-based targets (SBTs) for reducing GHG emissions that apply to major contractors who are not small businesses. The Science-Based Targets initiative must validate these targets.

When will companies have to start reporting?

• The comment period ended in February 2023, and the legislators are now working on reviewing the comments. The proposed rules still need to be finalised or implemented, with a final rule expected in late 2024.
• Companies will need to publish a GHG inventory and disclose total annual Scope 1 and Scope 2 emissions within one year of the final Rule's publication.
• The requirement to disclose annual climate disclosures and SBTs will apply beginning two years after the final Rule's publication.

As the US Federal Supplier Climate Risks and Resilience Rule approaches implementation, businesses and organisations should stay informed and prepare to adapt to the new requirements.

Compliance with this Rule will reduce climate-related financial risks and contribute to a more sustainable economy. Business leaders must proactively embrace these changes and lead their organisations toward a decarbonised and responsible business model.

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