Authors: Jodi Wildeman, K.C., Andrew Konopelny
If you’re hoping to win a large federal government contract, you’ll soon need to have a plan to reduce your greenhouse gas (GHG) emissions.
On February 28, the Government of Canada unveiled its new green standards for federal procurements worth $25 million or more. Beginning April 1, 2023, companies vying for major government contracts will need to publish their annual GHG emissions as well as a plan to reduce their emissions.
You can comply with these requirements by participating in the federal government’s Net Zero Challenge, which we blogged about last year. The challenge requires participants to:
- Set a net-zero target for 2050 or earlier
- Develop a preliminary net-zero plan within 12 months and a comprehensive plan within 24 months
- Set at least two interim emissions reduction targets
- Make annual progress reports on achieving emissions targets
- Make public climate-related financial disclosures (small- and medium-sized businesses are exempt from this requirement)
Participating in the Net Zero Challenge is not a requirement for winning a $25-million government contract. The federal government will also consider other “internationally recognized and functionally equivalent” standards or initiatives.
Government encourages “credible” net zero plans
While the government is encouraging industry to develop “credible” transition plans through the Net Zero Challenge, it hasn’t provided details on how credibility will be assessed – or what will happen to government contractors that fail to achieve their emissions targets.
However, if you have a public-facing net zero strategy that lacks credibility, you could be at risk. We recently saw the shareholders of a major energy company file a lawsuit against the company’s directors, seeking to hold them personally liable for an allegedly deficient net zero plan.
Meanwhile, the Canadian Securities Administrators have been warning companies about making “overly promotional” ESG disclosure while the Competition Bureau investigates allegations of greenwashing at Canada’s biggest bank.
Given that the federal government’s green procurement strategy applies only to contracts worth $25 million or more, it seems unlikely that many companies will be required to make GHG disclosures. Last year, the government awarded contracts worth at least $10,000 to 45,000 different companies – but only 127 contracts were worth $25 million or more, according to the Canadian Press.
Even so, companies vying for major contracts could face significant risks if their ESG disclosure lacks credibility. There’s more at stake than missing out on a $25-million contract – there are regulatory, litigation and reputational risks to consider.
New evaluation criteria for procurement personnel
The green procurement strategy will also affect procurement personnel working for the federal government and Crown corporations. When companies are bidding for major contracts, you’ll now have to consider their plans to reduce GHG emissions as part of your evaluation criteria.
To make the process easier, procurement personnel may want to update their template procurement documents, contracts and corresponding user guides to ensure that all procurements are conducted in accordance with the government’s new strategy.
While the green procurement strategy lacks details on assessing the credibility of net zero plans – and consequences for companies that fail to achieve their targets – procurement personnel would also benefit from understanding the risks of hiring a company that hasn’t put forward a credible plan. Contracting with a company that’s facing litigation, regulatory action and/or reputational damage over an allegedly deficient net zero plan could prove problematic.
Whether you’re a company bidding for a government contract or you work in procurement for the federal government, the lawyers at MLT Aikins can assist you. We have wide-ranging experience advising companies on their net zero plans and developing procurement policies for public sector clients. Contact a member of our ESG or Procurement teams to learn how we can help.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.