Trio of agencies scrap their climate disclosure mandate, SEC should take note

Prior to Inauguration Day 2025, the Department of Defense (DoD), General Service Administration (GSA), and National Aeronautics Space Administration (NASA) collectively withdrew a proposal for mandatory climate disclosures. The proposed rule would have compelled climate change impact data from major federal contractors by amending Federal Acquisition Regulation (FAR).

This joint proposal sought to require “major” or “significant” contractors to reveal their climate financial risks by reporting greenhouse gases (GHG) emissions. According to the now-withdrawn rule, major contractors are those that receive more than $50 million from their work with the federal government. Significant contractors receive between $7.5-$50 million from the federal government, according to OMB circular A-11. Under these definitions, the rule targeted 4,413 significant contractors and 1,353 major contractors, for a total of 5,766 entities potentially covered by the proposal.

The proposal required major and significant contractors to produce Scope 1 (directly produced GHG emissions), Scope 2 (emissions from purchased energy sources), and Scope 3 reporting (exclusively from major contractors), which extends to emissions made across a contractor’s value chain.

Scrapping the proposal averted a substantial cost burden to contractors and their small businesses partners impacted by Scope 3. If implemented, the rule would have introduced compliance costs as high as $461 million annually (according to one metric), which equate to $3.9 billion over a ten-year period.

Beyond forcing federal contractors to disclose their climate-risks and GHG emissions data, the trio required thousands of federal contractors to establish and adhere to “scientific reduction targets.” This rule would have served as an enforcement tool for pressuring contractors to decarbonize their operations when working on behalf of the above agencies. In essence, the agencies sought to impose unjust terms and conditions that have nothing to do with the services they are hired to conduct.

FAR is jointly managed by DoD, NASA, and GSA to outline the process by which the federal government purchases supplies from private companies. FAR specifies a shared process for agencies conducting “sealed bidding, competitive negotiation, cost principles contracts, social-economic obligations, [and] commercial items acquisitions.”

These standards were never intended to micromanage private suppliers with carbon reduction goals. Rather, the goal for FAR is merely to outline politically neutral terms of public-private engagement. The proposed climate rule was completely antithetical to the regulatory boundaries of FAR by pressuring major suppliers to decarbonize. Neither DoD, GSA, nor NASA possess the authority to force their suppliers to adhere to a separate sustainability agenda.

The withdrawn rule represents a failed attempt to advance the Biden administration’s May 2021 whole-of-government initiative on climate change. On the first day of his second term, President Trump repealed Biden’s executive order that launched the initiative.

The agencies’ proposal relied on Biden’s initiative as authority to regulate environmental activity. Additionally, Biden’s Office of Management and Budget (OMB) issued a December 2021 memoranda that more specifically directed the agencies to establish an arbitrary carbon reduction policy for federal contractors.

Despite being proposed in November 2022, the rule was never finalized, plagued by the unworkability of promulgating climate disclosures. Neither the DoD, GSA, or NASA possessed the proper legal authority to enact environmental policy directives nor collect climate data under FAR.

The timing of the withdrawal was likely no accident, coming a week before President Trump returned to office and in anticipation of his administration’s widespread cancelation of climate-related policies. Indeed, President Trump notably withdrew the United States (for a second time) from the Paris Climate Agreement on the first day of his second term.

Despite this withdrawal, the Securities and Exchange Commission (SEC) is still pushing full steam ahead with its own more problematic climate disclosure mandate. The SEC proposal is like the joint proposal from DoD, GSA, and NASA, but the SEC removed its Scope 3 provisions from the final rule.

The SEC’s stubborn refusal to withdraw its stayed climate disclosure rule despite widespread legal opposition from multiple states, businesses, and trade associations is highly concerning.

Once a new Chair is confirmed, SEC commissioners should consider rescinding the rule as Congress contemplates parallel legislative remedies, namely the “Prioritizing Economic Growth Over Woke Policies Act.” No US company should be forced to comply with this absent statutory authorization and judicial precedent.