Biden Administration Pressed to Act on Federal Contractor Climate Disclosure

It was a key pledge in President Joe Biden’s effort to show renewed international leadership on climate change: The U.S. government, the largest purchaser of goods and services in the world, would require its contractors and suppliers to disclose their carbon emissions and climate risks. 

The biggest contractors would need to set carbon reduction targets for themselves aligned with the Paris Agreement. With the U.S. making $700 billion in purchasing decisions annually, the rules would set obligations for thousands of businesses, particularly those in the massive defense and aerospace industries.

But 16 months after Biden made this announcement at the 2022 climate talks in Egypt, and with an election fast approaching that could upend the plan, a group of Congressional Democrats is pressing the administration to finalize the regulations.

“This rule will help the federal government protect taxpayer dollars, our national security, and government operations from the threats posed by climate change,” wrote Sen. Elizabeth Warren (D-Mass.), in a letter sent to administration officials Friday, joined by six colleagues in the Senate and 19 in the House, all fellow Democrats. “We urge you to finalize this critical regulation as soon as possible.”

A number of federal contractors have voiced support for the proposal, including Verizon, Microsoft, Pfizer and Trane Technologies. But foes of the initiative, including the U.S. Chamber of Commerce, have argued that forcing such disclosures would be costly, of dubious value for addressing climate change, and a threat to national security.

Facing similar backlash over its climate risk disclosure rules for publicly traded companies, the Securities and Exchange Commission eased some of the requirements in the regulations it finalized last month.

The new climate rules for federal suppliers are being developed by the Federal Acquisition Regulatory Council, which consists of  Secretary of Defense Lloyd Austin III, NASA Administrator Bill Nelson and the head of the General Services Administration, Robin Carnahan, who together set procurement policy. According to the FAR Council’s latest case status update, the team writing the new climate rules for federal suppliers originally expected to have a draft one year ago. Now, they are scheduled to report to the FAR Council leadership by May 22.

That timeline puts the FAR Council perilously close to missing an unwritten deadline that looms over the Biden administration as it seeks to ensure its rules are durable in case of an electoral upheaval in November. Under the Congressional Review Act, Republicans would be able to easily reverse any regulations finalized late in the Biden administration if they gain control of Congress and the presidency. Although the drop-dead date is unknown, and depends on how many days Congress is in session this year, experts believe any rules finalized after May will be at risk.

Former President Donald Trump has displayed  disdain for Biden’s climate initiatives affecting the military, dismissing them at one recent campaign rally as a way to ensure “that fewer pollutants will be released into the air as we blast our way into enemy territory in an environmentally friendly way.”

In an email, Warren made clear that the election is on the minds of members of Congress pressing the Biden administration for action.

“It’s no secret that Republicans will try to overturn President Biden’s policies if they win in November,” she wrote. “That’s why the Administration should finalize a strong rule as swiftly as possible right now.” 

Targeting a Small Group of Big Polluters

The FAR Council tailored its proposal to impose obligations only on the largest federal contractors, the estimated 5,700 companies that do more than $7.5 million per year in business with the government. 

The agency estimated the proposal would implement new reporting requirements for only 1.5 percent of its suppliers, but those big contractors accounted for 85 percent of the greenhouse gas emissions in the federal supply chain. The largest of the big contractors, the less than 0.2 percent who do more than $50 million in business with the government annually, would have additional obligations: They would have to provide a climate transition plan and disclose climate risks throughout their supply chains—so-called “Scope 3” emissions.

The companies most affected would be those who provide equipment and services to the Department of Defense, which accounts for two-thirds of federal contracting. In comments submitted to the FAR Council soon after the proposal was unveiled in November 2022, the Chamber of Commerce warned that the rules created national security risks for the companies providing aircraft, combat ships, guided missiles and other military equipment, suppliers whose role is especially important in the conflict in Ukraine.

“Military and defense products’ ‘use phase’ GHG emissions … are nearly impossible to accurately calculate, given how sensitive this information is for national security reasons,” wrote Martin Durbin, senior vice president of the Chamber and president of its Global Energy Institute.

But supporters of the rule noted that the proposed regulations included a national security exemption, and, in any case, were not seeking detailed on-the-ground activity reporting but company-level emissions and risks. The U.K.-based Conflict and Environment Observatory, a nonprofit dedicated to research of military environmental impacts, wrote that its own work had shown that such reporting is already being done by the biggest names in the industry.

“Many large defense companies, such as Lockheed Martin, Boeing and Raytheon Technologies, already have a relatively progressive approach to environmental reporting,” the group wrote. “Therefore, this ruling has the potential to standardize reporting across the industry in the U.S., which would be an important step towards transparency.”

Warren and the other members of Congress who pressed the FAR Council to act did urge one change to address national security concerns. They said the government should develop its own standards, not rely on outside parties, to verify that the greenhouse gas reduction targets set by large companies are science-based. The FAR Council had proposed verification be handled by the international Science Based Standards Initiative, a partnership among the corporate disclosure nonprofit CDP, the United Nations Global Compact, and two environmental organizations, the World Resources Institute and the World Wildlife Fund for Nature.

The Aerospace Industries Association warned that such a setup was an avenue for foreign interference in U.S. procurement decisions. “Our primary concern is the authority that the proposed rule would grant to non-governmental international entities with foreign national personnel in leadership or advisory roles over approval of U.S. federal contractors,” said the AIA in comments submitted last year.

The Security Risks of Doing Nothing

Proponents of the new rules have stressed that the government already faces national security and fiscal risks by not requiring its contractors to disclose emissions or produce plans for managing risks like extreme weather, drought and pressure on shipping logistics.

“The federal government could be signing contracts with companies that have many risks they haven’t planned for, and in fact, they may not be able to deliver on their contracts as a result,” said Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets.

The FAR Council’s work to develop strong climate reporting rules “strengthens the reliability of our supply chains, reduces our climate risk, and better prepares the country for threats to economic and national security,” Warren and her colleagues wrote.

Ceres, a Boston-based nonprofit advocacy group for sustainable investing, has long been advocating for mandatory rules on climate risk disclosure. But only now is the idea gaining ground. Along with the SEC regulations, similar rules are being developed by the European Union, and the California Legislature voted to implement a plan last fall for companies that do business with the largest state economy in the U.S.

Rothstein said disclosure rules for U.S. government suppliers could have a unique economy-wide impact. For example, he noted, roughly half of the steel used in the United States is paid for by the federal government, either directly or through grants to local governments. There’s no guarantee that disclosure rules will cut emissions in steel or other industries that serve the government, but proponents say it’s a starting point.

“Disclosure alone won’t save emissions,” Rothstein said. “Disclosure is a first step. As they say in business, you can’t manage a problem if you can’t measure it.”