Government requires companies to commit to net zero to bid for contracts over £5m
The Cabinet Office has recently launched guidance in the form of a Public Policy Note (PPN 06/21)(1) and related guidance on taking account of Carbon Reduction Plans in the procurement of major government contracts. It applies to all Central Government Departments, their Executive Agencies and Non-Departmental Public Bodies, where the value of services is anticipated to exceed £5m per annum. It comes into effect from 30 September 2021.
As part of the selection criteria, bidding suppliers will be required to publish a ‘Carbon Reduction Plan’ (CRP), confirming the supplier’s commitment to achieving Net Zero by 2050 in the UK, and setting out the environmental management measures that they have in place. The plan must meet the standard as set out by the supporting guidance, including, but not limited to:
- Confirming the bidding supplier’s commitment to achieving Net Zero by 2050 for their UK operations. There is no requirement of interim targets, although the CRP template asks for a statement on anticipated percentage absolute emissions reduction over “the next five years”.
- Providing the supplier’s current emissions for the sources included in Scope 1 and 2 of the GHG Protocol (in accordance with SECR reporting requirements)(2) and a (voluntarily?) defined subset of Scope 3 emissions.
- Providing emissions reporting in CO2e (Carbon Dioxide Equivalent) for the six greenhouse gases covered by the Kyoto Protocol(3).
- Setting out the environmental management measures in effect, including certification schemes or specific carbon reduction measures adopted, and that will applicable when performing the contract and that support achieving Net Zero by 2050.
- Publication of the Carbon Reduction Plan (CRP) on the supplier’s website. The CRP should state that board of directors (or equivalent management body) approval has been given, with the date of approval, and be signed off by a Director or equivalent senior leadership.
- Expectation of an update to the CRP “at least annually”.
From the tone of the announcement, the objective of the PPN appears to be simply encouraging suppliers to undertake basic climate disclosure and to adopt net zero targets, albeit with the long timescales aligned with the national UK target of net zero by 2050.
It is not clear how responses will be scored in bid assessments or how Government might use the data. The basic template provided in the PPN would only allow a very high-level comparison of the companies’ climate responses in any case. The role of offsets in meeting net zero commitments is not mentioned. Presumably with the required net zero commitment not being until 2050, it is felt that there is plenty of time to work out the details of this part.
The Technical Guidance (4) specifies that suppliers are required to detail their emissions of just five of the fifteen Scope 3 emissions categories: upstream transport and distribution, waste, business travel, employee commuting and downstream transportation and distribution.
Surprisingly this misses out ‘purchased goods and services’ and ‘capital goods’ which are often the largest upstream emissions categories, e.g. in construction, food and manufacturing. There is no doubt that these categories can be challenging to quantify, but they are also an area where companies can make most impact e.g. by integrating climate into their procurement decisions (as the Government itself is doing) and hence cascading climate action further up supply chains.
On a practical level, it might also present an unexpected headache to those who have excluded some of the small emissions sources, such as employee commuting, based on their materiality compared to the larger emissions sources.
The PPN should provide another driver for corporate climate disclosure and net zero target setting. It will have most impact on those companies that have yet to establish a basic climate strategy. For companies that already disclose their carbon footprint, have a strategy and ideally have a Science Based Targets or are on track to adopt one shortly, the PPN will be just another item to complete within tender responses. SMEs in particular may benefit from support or additional guidance to help them fulfil the PNN requirements efficiently, to avoid the requirements creating a barrier to them for tendering for large Government contracts.Find our more about how this new guidance will affect you