Preparing for the Federal Supplier Climate Risks and Resilience Rule

By Corrin Wolf and Gregg Demers, ClimatePartner USA

The proposed Federal Supplier Climate Risks and Resilience Rule is a regulatory initiative that aims to address the growing concerns surrounding climate change and its impact on the US federal supply chain. Once implemented, this rule will require federal contractors to assess and disclose climate-related risks and resilience measures associated with their operations and supply chains.

The primary goal of this rule is to enhance the federal government's ability to understand and manage climate-related risks across its vast network of suppliers. With federal suppliers making up an estimated 85% of the federal government’s supply chain emissions, the first step towards reducing these emissions is for government contractors to begin preparing annual greenhouse gas (GHG) inventories for their businesses.

Once implemented, this rule will require federal contractors to assess and disclose climate-related risks and resilience measures associated with their operations and supply chains. It also provides an opportunity for contractors to identify areas where emissions can be reduced and to implement strategies to build resilience against climate-related impacts on their business.

The rule follows a tiered approach with different requirements based on the government contractors’ size.

GHG Protocol scope calculation requirements

The first step for a government contractor to comply with these requirements is to begin preparing annual carbon footprints in alignment with the GHG Protocol Corporate Accounting and Reporting Standard (GHG Protocol). The GHG Protocol defines the requirements and general guidance for the calculation of an organization’s GHG emissions. Within the GHG Protocol, there are three scopes that pertain to a company’s emissions:

Scope 1 emissions are direct emissions that result from sources that are owned or controlled by the organization. Examples include:

Combustion of fossil fuels in company-owned vehicles.
Emissions from on-site power generation, such as from boilers or furnaces.
Emissions from company-owned equipment and machinery.

Scope 2 emissions are indirect emissions associated with the generation of electricity, heat, or steam purchased by the organization. These emissions are not generated on-site but are a consequence of the energy sources used by the electricity or heat suppliers. Examples include:

Emissions from electricity purchased from a utility company, which may use coal, natural gas, renewables, or other sources for power generation.
Emissions from purchased district heating or cooling.

Scope 3 emissions are all other indirect emissions associated with the organization’s activities, but they occur from sources not directly owned or controlled by the organization. These emissions are typically more challenging to quantify and manage because they encompass a wide range of activities within the organization’s value chain, including suppliers, customers, and logistics. Examples include:

Emissions from the production and transport of raw materials and products
Upstream and downstream logistics
Business travel
Employee commuting
Use of sold products
End-of-life treatment of products (e.g., disposal and recycling)

Based on the government contractors’ annual federal obligations, organizations with between $7.5M and $50M in federal government obligations will have to calculate both scope 1 and 2 emissions. Contractors with obligations greater than $50M will have to account for all three scopes. The annual GHG inventory results will need to be reported via CDP (formerly known as the Carbon Disclosure Project), a not-for-profit that runs the global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts.

Climate risk assessment in line with recommendations from the TCFD

The second requirement only applies to government contractors with over $50M in annual federal obligations and involves completing a comprehensive risk assessment in line with recommendations from the TCFD. This risk assessment includes reviewing factors such as geographic location, availability of resources relating to business functions, potential exposure to extreme weather events, and any potential climate related impacts to business function. By reviewing these factors, contractors can identify and address climate-related vulnerabilities within their supply chain and business. The outcome of the climate risk assessment will need to be reported via CDP.

Emissions reduction targets confirmed by the Science Based Target initiative (SBTi)

The final requirement of the proposed regulation requires government contractors with over $50M in annual federal obligations to set emissions reduction targets. The SBTi is a partnership between CDP, the United Nations Global Compact, the World Resources Institute (WRI) and the World Wide Fund for Nature (WWF). The SBTi has developed a framework that companies can follow to set and achieve ambitious short- and long-term reduction targets in line with scientific climate goals, such as those outlined in the Paris Agreement. The SBTi provides guidance, validation, and recognition for organizations committing to science-based targets. Targets will need to be disclosed through the SBTi’s platform.

Recommendations for compliance

With the Federal Supplier Climate Risks and Resilience Rule anticipated to be finalized soon, it is important for government contractors to get a head start on understanding the requirements. Some valuable first steps you can take to get ahead of this rule include:

Evaluating which of the requirements apply to your organization based on which federal contractor segment your business falls under.
Partnering with an experienced provider to guide your organization through the process of preparing your GHG inventory, climate risk evaluation, and target setting.

The proposed Federal Supplier Climate Risks and Resilience Rule will be an important regulatory initiative for federal contractors. By requiring them to assess and disclose climate-related risks and resilience measures, the government can manage climate risks in its supply chains. It also allows contractors to improve their sustainability practices, identify vulnerabilities, and build resilient supply chains. Complying with this rule not only enhances a contractor's competitiveness in the federal marketplace, but also sends a signal to other customers, employees, investors, local communities, and other stakeholders that the company takes climate risks seriously and is taking action to leverage the opportunities and mitigate the risks.

ClimatePartner offers all the services needed to comply with the proposed Federal Supplier Climate Risks and Resilience Rule. We offer comprehensive GHG inventory calculation services, as well as providing consulting support for climate risk assessments and target setting. Please reach out to learn more about our services and approach.