UK Government Contracts Will Require Net Zero Commitment

On World Environment Day, 5 June, the UK Government announced a new requirement for its suppliers to commit to the UK's net zero target. As per the Procurement Policy Note ("PPN") released on 5 June 2021, all businesses bidding for government contracts for services, works or goods, with annual value above GBP 5m must publish a Carbon Reduction Plan ("CRP") within which they commit to net zero emissions by 2050 and detail clear and credible carbon reduction plans. Importantly, a valid CRP must now include not only direct and indirect emissions from owned or controlled activities (known as Scope 1 and 2 emissions) but also emissions relating to the whole of the value chain (Scope 3 emissions).

The UK Government aims to use its power with the circa GBP 290bn spent on procurement each year to transform the UK economy to net zero and meet its Net Zero 2050 target.

Who will be affected?

This requirement will be mandatory for all companies bidding for government contracts, not just those that are successful in winning, and is required for all Central Government Departments, their Executive Agencies and Non Departmental Public Bodies. Any company that fails to comply will be excluded from the bidding process.

The UK Government expects the PPN requirement to apply to the majority of contracts with very few exceptions. At present, there is no guidance on what those exceptions will be, if any.

What are the new requirements?

The CRP must meet the following required standards:

1. Confirmation of commitment to achieving Net Zero by 2050 for UK operations;
2. Baseline emissions footprint as a reference point against emissions reduction can be measured;
3. Current emissions reporting for Scope 1, Scope 2 and a subset of Scope 3 (value chain) emissions;
4. Emission reduction targets completed or implemented since baseline, plus future additional measures;
5. Carbon reduction projects, to be applied when performing the contract;
6. Reporting on the six greenhouse gases covered by the Kyoto Protocol on climate change, not just carbon dioxide;
7. Publication of the CRP, with clear signposting, on the supplier's UK website;
8. Approval by Board of Directors (or equivalent senior leadership) to demonstrate commitment at the highest level; and
9. Updated regularly, at minimum annually.

What is the timeline?

Any company that would like to bid for government contracts on or after 30 September 2021 will be required to fulfil this requirement by providing a CRP.

What should you be doing?

Companies wishing to participate in public procurement need to start preparing a CRP that defines where emissions come from and what environmental measures are in place to reduce or offset these. The CRP must confirm commitment to Net Zero by 2050 for UK operations and back that up with actions that will achieve this.

Reporting on emissions is not a new task, however most current reporting is limited to Scope 1 and Scope 2 emissions. The new requirement also includes the reporting of a subset of Scope 3 emissions, including business travel, employee commuting and up / downstream transportation and distribution, which is likely to require significantly more work. Companies need to act now to ensure sufficient time to prepare this prior to 30 September 2021, and draw up plans for the continual update of their CRPs.

What are the wider implications?

CRPs need to be submitted at the selection stage of bidding for government contracts and will be evaluated as part of the selection process. Whilst more detailed guidance is awaited, it is likely that those organisations able to move more rapidly towards net zero and who can provide credible plans will be at an advantage.

Additionally, given UK Government commitments to net zero, we also anticipate more comprehensive auditing and tracking of climate commitments contained in CRPs during the life of the contract to ensure continuing compliance. Firms should prepare for audits or testing by developing robust internal controls for the collection and reporting of data relating to promises made in their CRPs.

We also predict that that firms will need to prepare for and manage the risks arising from the new transparency requirements for CRPs. There is a strong appetite in investigative journalists and amongst activist groups for calling out inconsistencies and discrepancies in environmental claims, which can lead to significant reputational issues.

Overall, the UK Government's move in public procurement is just one part of a wider wave of measures relating to ESG commitments and reporting which continues to put these issues to the top of the corporate agenda.

This post was written with the support of FRA Manager Ruth-Ellen Pintillie.