DoD Requests Public Input on Sustainability and Climate-Related Disclosures

On July 8, 2021, DoD published a request for information (RFI) soliciting the input of interested parties on sustainability initiatives and climate-related disclosures. DoD’s request asks companies to comment on their voluntary efforts in measuring and disclosing Greenhouse Gas (GHG) Emissions, Environment, Social, and Governance (ESG) reporting, and Supply Chain GHG and Risk Management, but could be a prelude to a mandatory disclosure scheme for defense contractors.

ESG and other disclosures pertaining to sustainability and climate are growing in importance for a wide range of companies, as investors, stakeholders, and customers increasingly are interested in and evaluating progress on sustainability-related disclosures and the business practices and plans underlying them. Companies are now under more pressure to demonstrate forward movement on ESG and other sustainability metrics, particularly in the areas of climate change, environmental justice, industrial chemical use, diversity and inclusion, and compliance and ethical business practices.

Over the last several years, more and more companies have voluntary published sustainability reports. However, there is an evident lack of standardization in these disclosures, and companies vary greatly in what they measure and disclose. Without a standardized ESG disclosure framework, investors, consumers, stakeholders and the government may be unable to reasonably evaluate and compare companies’ ESG practices and risks. 

For defense contractors, risks flowing from such lack of standardization may be particularly acute as the new DoD RFI builds upon prior reports highlighting the lack of transparency into climate-driven risks to the defense industrial supply base and the Biden Administration’s emerging treatment of climate change as a national security risk in furtherance of Section 103 of E.O. 14008 (issued on January 27, 2021 and discussed here). Further, key aspects of E.O. 14030 (issued on May 20, 2021 and discussed here), direct the Federal Acquisition Regulatory Council to consult with the leaders of the Council on Environmental Quality and other agencies and consider requiring major federal contractors to disclose GHG emissions and climate-related financial risk (among other amendments to the Federal Acquisition Regulation (FAR)) and incorporating climate change risk into procurement decisions by giving preference to suppliers with lower GHG emissions.

It is within this broader context that the new RFI must be assessed. The RFI’s key provisions include: 

Disclosure of GHG Emissions

• Whether companies are measuring and reporting their GHG emissions, including Scope 1, 2, and 3 GHG emissions; and[1]
• Whether companies are willing to participate in a pilot program involving voluntary disclosure of actual GHG emissions and GHG emission targets. 

ESG Reporting

• Whether companies participate in ESG reporting and which sustainability platforms are used;
• Whether companies are engaging in third-party verification of ESG activities; and
• Whether ESG reporting includes disparate impacts on disadvantaged communities and communities of color and the creation of jobs away from carbon-intensive energy sources.

Supply Chain GHG and Risk Management

• Whether companies can provide GHG emissions information to customers specific to their purchases/contracts;
• Whether companies are collecting and reporting GHG emission information from suppliers and systems/standards used to collect the information; and
• Whether companies require suppliers to set GHG emissions reduction targets.

Companies operating within the DoD supply chain are strongly encouraged to track these developments closely, as they may be among the first to confront mandatory climate change disclosures.

 

 

[1] Scope 1 emissions are direct GHG emission that occur from sources controlled or owned by a company. Scope 2 emissions are indirect GHG emissions associated with the purchase of electricity, steam, heat, or cooling (e.g., emissions resulting from a company’s energy use). Scope 3 emissions include all other indirect emissions that occur in a company’s supply/value chain (e.g., emissions resulting from purchased goods and services, transportation and distribution.