Beginning next week, a new federal procurement standard will make it harder for large companies to bid on government contracts without reporting on their emission reduction plans. In some cases, if they don’t agree to the disclosure, they’ll have no chance of winning the business.
Sustainable procurement experts maintain that most of the larger bidders affected by the standard are already paying attention to their emissions. A federal official says there’s no timeline for extending the new requirements to smaller contracts worth less than C$25 million.
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Treasury Board President Mona Fortier and Environment and Climate Minister Steven Guilbeault unveiled two separate standards, one for general procurement and the other for embedded carbon in construction, during the GLOBeXCHANGE conference in Toronto in late February.
“The big message we have today is that we’re championing sustainable procurement,” Fortier said at the time. “We’re bringing forward directives to make sure that businesses disclose their carbon emissions and how they will do so.”
“More and more businesses are aiming to make their operations net-zero, not just to fight climate change, but also to stimulate innovation and ensure the long-term sustainability,” Guilbeault said in a release. “By baking these requirements into the Government of Canada’s contracting, we will help bring more businesses on board the target of net-zero.”
With more than 30,000 buildings and 40,000 vehicles, the federal government is one of the country’s biggest buyers of goods and services. The disclosure requirement, which takes effect April 1 with the new federal fiscal year:
• Applies to contracts above the $25 million threshold;
• Requires bidders to participate in recognized emission reporting programs like the federal Net-Zero Challenge or UK-based CDP, previously known as the Carbon Disclosure Project.
The Net-Zero Challenge “requires disclosure of existing emissions, targets to get to net-zero emissions by 2050, interim targets along the way, and annual reporting on progress,” but “it does not require meeting any targets to remain part of the challenge,” The Canadian Press reported at the time.
Consequences for Contractors
Nick Xenos, executive director of Treasury Board’s Centre for Greening Government, said federal procurement officers will have flexibility to build the standard into bid documents in one of two ways—as a mandatory requirement, or as one of the point-rated criteria used to assess competing contract proposals. That will mean predictable consequences for companies that don’t meet the disclosure requirement.
“If it’s a [mandatory] requirement, then of course they won’t go to the next step. They won’t get the contract,” Xenos told The Energy Mix. “If it’s a point-based system, they’ll get fewer points, so they’ll have less chance of getting the contract.”
To make the system work, he added, procurement officers will have to attach a high enough point rating to bidders’ carbon disclosures to make a difference in a competitive bid. “If they assign points, they have to have some impact.”
Not Much Change for Big Bidders
Last month, The Canadian Press said the federal government, with $22 billion in annual procurement volume, awarded at least one contract worth more than $10,000 to more than 45,000 companies. “However, the government’s contracts database lists just 127 individual contracts worth more than $25 million last year.”
Xenos acknowledged that many of the companies that would bid on the largest federal contracts already practice some form of carbon disclosure, but now “it’ll be fairer, because we’re going to require this.”
When Treasury Board consulted vendors on the new disclosure rules, “we did find a lot of our companies already doing it, but not all of them, so this is a way for us to push people up,” he added. “In today’s day and age, on large contracts, it’s not really a surprise. A lot of companies are disclosing their emissions and taking action.”
At $25 million, the Canadian rules set a higher threshold for disclosure than the United States and the United Kingdom, where reporting begins at US$7.5 million and £5 million, respectively. The other two jurisdictions are also more specific about requiring companies to report on Scope 3, or downstream, emissions, though that level of disclosure only kicks in at the $50 million level in the U.S.
Xenos said Canada picked $25 million as a dividing line for project complexity, and while federal departments are welcome to apply the disclosure rules to smaller contracts, there’s no timeline for making that mandatory.
While the Treasury Board disclosure standard allows for exclusions, Xenos said the provision mostly applies to deals with other governments, or last-minute procurements to respond to emergencies like wildfires, floods, or pandemics. “I don’t suspect that will be many contracts, and we can address those on a one-off basis,” he said. “The idea is for this to become the default, and there will always be exceptions.”
The standard does apply to Department of National Defence procurements, a Treasury Board spokesperson said, even though military emissions were excluded from the Paris climate agreement, and the Kyoto Protocol before it.
More Ground to Cover
Sustainable procurement specialists Frances Edmonds, head of sustainable impact at HP Canada, and Bob Willard, author and speaker at Sustainability Advantage, agreed the new standard is a good start, but said Ottawa has more ground to cover.
“It was a good bundling of things which had been trickling out from the government over the last little while,” Willard said after attending the announcement in Toronto, and it was important that the event included both ministers, given Treasury Board’s enormous sway over federal procurement policy. But he said he would have liked to see more detail on when the standard will apply to smaller contracts, what suppliers will have to disclose, and how much weighting the bid process will attach to companies’ carbon performance.
Based on Fortier’s “passionate” presence at GLOBeXCHANGE, there’s “no lack of support to go further,” Willard said. “It’s just that they’re not doing it.”
Edmonds said the clear ground rules in the disclosure standard make it a “very important first step” on one of the most powerful tools to promote emission reductions. “The economy runs on procurement, which is why people spend so much time working on it,” she explained. “It is the key lever, and the only lever that will give us any chance of making our targets in Canada.”
But Edmonds pointed to a number of missing pieces in the federal plan, beginning with the $25 million threshold. “It’s such a high level that the firms they’re going to be requiring this from have probably already done this work,” she said. “It’s not the multinationals they need to move. It’s the rest of the market.”
Moreover, the standard doesn’t apply to Crown corporations that “are probably bigger in terms of buying power and the amount of importance they have,” Edmonds said. That’s an area where “Treasury Board would have some influence if they chose to,” she added. “But it is a more complex legal arrangement. Crown corporations by definition are arm’s length,” so that Treasury’s impact would likely be limited to suggesting best practices.
And as of mid-March, Ottawa had yet to release program details that would “give some assurance to the market that companies are going to have to invest to do this work. Because it’s not free to do this work.”
Greenpeace Canada Senior Energy Strategist Keith Stewart told CP the disclosure standard “could get interesting” if it were part of a “credible climate plan.” But “on its own, this announcement will not make anyone do anything they weren’t already prepared to do,” he said.
“These are baby steps at a time when we really need to sprint.”
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