The Standard on the Disclosure of Greenhouse Gas Emissions and the Setting of Reduction Targets (Standard) in federal procurement came into effect on 1 April 2023. The Standard is part of the Greening Government Strategy: A Government of Canada Directive. The Standard sets out requirements for federal suppliers with respect to disclosure of greenhouse gas (GHG) emissions and reduction targets, in line with the commitments made in the Greening Government Strategy.
While a commendable approach by Canada, how it will be applied in the procurement context remains unclear.
How Will the Standard Affect Suppliers?
Suppliers awarded federal contracts valued at over $25 million will be required to measure and disclose their GHG emissions and implement GHG emission reduction targets.
Suppliers can meet the Standard by participating in the Net-Zero Challenge (NZC), or equivalent initiatives or standards.
The NZC is a voluntary initiative to encourage Canadian businesses to develop and implement credible and effective plans to transition their facilities and operations to net-zero emissions by 2050. There are three different participation streams based on the size of the businesses' operations. For further information on how to join the NZC, please refer to the Government of Canada website.
How Will the Standard Affect Government Buyers?
The Standard applies to virtually all government departments, and particularly, to Public Works and Government Services1 and Shared Services Canada – the two departments that purchase the vast majority of the goods and services for the government.
How Will the Standard Be Applied to Procurements?
Federal departments must ensure that the process for procurements over $25 million "induces" suppliers to measure and disclose their GHG emissions and adopt a science-based target to reduce GHG emissions in line with the Paris Agreement, as part of participating in the NZC or in an equivalent initiative or standard. Departments must report to the Treasury Board Secretariat (TBS) the total volume of spending and number of contracts that applied the Standard. Departments may exempt a procurement from the application of the Standard in certain situations. All exceptions must be approved by the designated official responsible for application of the Standard and reported to TBS.
What Isn't Clear ... Quite a Bit, It Would Seem
Despite the 1 April effective date, the government has not – as of the date of this bulletin – identified which initiatives or standards are considered equivalent to the NZC, leaving foreign bidders and bidders who may be participating in other GHG emission reduction target programs uncertain as to how they are to bid in procurements that the Standard applies to.
A February 2023 TBS announcement, Government of Canada champions sustainable procurement through new green standards for major contracts, appears somewhat at odds with the Standard, as the press release refers to equivalent international initiatives or standards (the Standard refers only to equivalent initiatives or standards). As such, it is unclear if Canadian companies must be part of the NZC or if an equivalent national initiative or standard would suffice.
The Standard may also create difficulties for smaller bidders or those in industries that find it challenging to achieve the NZC targets or who cannot manage the administrative burden and cost of doing so.
The Standard will have to be carefully considered and applied to ensure that it does not constitute a local supplier preference or barrier to trade under trade agreement-covered procurements.
As yet, only 64 companies are participating in the NZC.
Is This Happening Elsewhere?
Countries worldwide are increasingly recognizing the importance of environmental considerations and are looking for ways to integrate these important considerations into their procurement processes. The EU has introduced due diligence rules for companies, which require them to identify and prevent adverse impacts on human rights and the environment, such as child labor and pollution.
The rules apply to EU companies and non-EU companies with turnover thresholds aligned with the EU company groups:
- Group 1 companies with over 500 employees and over EUR 150 million in net turnover worldwide; and
- Group 2 companies, which include other limited liability companies operating in defined high impact sectors, who do not meet Group 1 thresholds but have over 250 employees and a net turnover of at least EUR 40 million worldwide.
The EU rules require a high degree of due diligence and prevention and mitigation measures, and provide for a complaints management process. National administrative authorities will be able to impose fines for non-compliance, while victims can take legal action for damages that could have been avoided with appropriate due diligence measures.
As sustainability concerns continue to gain importance in global commerce, suppliers should expect that government customers will begin to implement similar measures to ensure that their procurement processes align with environmental considerations.
The authors gratefully acknowledge the contribution of Peter Mangaly, Articling Student.
1. Also known as Public Services and Procurement Canada (PSPC)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.