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FYI

Link to submit your comments to the Federal Acquisition Regulations Council by February 13, 2023

Feel free to use this template comment letter from Ceres for your submission.

Episode 39: Transcript

Announcer:

Welcome to Budget Watchdog All Federal, the podcast dedicated to making sense of the budget, spending, and tax issues facing the nation. Cut through the partisan rhetoric and talking points for the facts about what’s being talked about, bandied about, and pushed to Washington, brought to you by Taxpayers for Common Sense. And now the host of Budget Watchdog AF, TCS President Steve Ellis.

Steve Ellis:

Welcome to All American Taxpayers Seeking Common Sense. You’ve made it to the right place. For over 25 years, TCS, that’s Taxpayers for Common Sense, has served as an independent, nonpartisan budget watchdog group based in Washington, D.C. We believe in fiscal policy for America that is based on facts. We believe in transparency and accountability because no matter where you are on the political spectrum, no one wants to see their tax dollars wasted.

And today, dear podcast listeners, we are joined by a special guest, one who not only hates seeing tax dollars wasted, but he’s also got a plan to fix it. And it boils down to this, small adjustments can mean major savings, especially when the scale of the operation is as large as the federal government of the United States.

Uncle Sam is the world’s single-largest buyer of goods and services, purchasing over $630 billion in the last fiscal year alone. And with that kind of purchasing power comes the ability and responsibility to make the small adjustments that provide the best returns. Sound a bit like the way big business and capital markets operate? Well, it is.

As the Managing Director at Ceres Accelerator for Sustainable Capital Markets, Steven Rothstein is on a mission to reduce the worst financial impacts of the climate crisis and other sustainability threats. And from where he sits, the Biden administration’s proposed Federal Supplier Climate Risks and Resilience Rule would be a game changer. Steven Rothstein, welcome to Budget Watchdog AF podcast.

Steven Rothstein:

Thank you so much. It’s a special pleasure to be with you.

Steve Ellis:

It’s great to have you here. Steven, the federal government faces significant financial risks from climate change. Supply chain disruptions over the past year have impacted every sector including the federal government and its critical contractors and subcontractors. You believe the new Federal Supplier Climate Risks and Resilience Rule would strengthen the resilience of vulnerable federal supply chains. What does the new rule prescribe, and how do you see it increasing efficiencies while reducing climate risks?

Steven Rothstein:

So there are thousands of companies that sell to the federal government. This does not affect over 98% of them because they’re small. They sell less than $7.5 million a year to the federal government. So there’s three tiers. If you sell less than 7.5 million, there is no requirements there. If you sell between 7.5 and 50 million, then you have to disclose your own admissions. What falls in the field Scope 1, Scope 2. But basically what does it take to run your plant, your operation? If you do 50 million or more, and that is less than three-tenths of 1% of the total suppliers. So it’s just the very big ones. Roughly half are defense contractors and half are non-defense roughly. Then they have to disclose their supply chain, who they buy from, the major suppliers, not everyone, just the major ones. And then talk about what their transition plan, how they protecting for the future. Because as you said, there is greater risk.

If you look at another nature-based crisis, the pandemic, we’ve seen how fragile the supply chain is, and whether it be on diapers to computer chips and almost everything in between is affected. In the United States, just last year alone, NOAA said there was $165 billion of economic risk. We’ve seen that number more than double around the world and people, whether it be the floods or the fires or the tornadoes, are seeing it, and the companies are.

So there’s growing risk. This is A, it’s good for the environment. More fundamentally, it’s good for taxpayers and the risk that we spend, $630 billion, everything from paperclips to helicopters and everything in between.

Steve Ellis:

To your point, Steven, even when you just go to the ones that are selling more than 7.5 million on up, I mean, you’re only talking about, according to the council that governs the Federal Acquisition Regulations, which is what this rule change is to, the FAR, you’re only talking about less than 1.2% of the total contractors that contract with the federal government. And that small adjustment yields a big result because those contractors represent an estimated 80% of the greenhouse gas emissions by federal contractors. So really targeting this is going to achieve great results for taxpayers and for the environment, which is why we’re so excited about this as well.

Steven Rothstein:

Absolutely. Yeah. I mean, with any business problem, you can’t manage a problem if you can’t measure a problem. And so whether you’re a consumer, whether you’re an employee, whether you’re an investor, knowing about the risk in those companies are important. And again, as we just talked about, whether you’re a large real estate company or food company or industrial company, whatever it is, selling to the federal government, it’s where your plants are located, but also where are your suppliers, the major suppliers, not the small ones, but the major ones as part of it.

There is growing number of companies. Over 90% of Fortune 500 companies today provide some type of climate disclosure publicly. But it varies. It’s called, I mean what I call kind of the Climate Tower of Babel where they use different language, different methodologies. They’re all helpful, but they’re a little different. What would helpful is having a consistent method and the federal government proposes both through this area as well as some others for the SEC and other areas.

So having consistent information, then the government can make a decision, but also consumers and taxpayers know better. And we understand then, companies are they located in areas where there are floods or fires or rifts? Do they sell to a company and then that company may be going out of business or that the business is going to change? And a variety of elements there.

We’re not talking just the oil and gas companies by any means. We’re talking there are 72 of the 77 sectors that are affected by climate change. Some in different ways. Some, again, because of where they’re located, fires, floods, tornadoes, hurricanes, droughts, and some on transition risks, and some on litigation areas. So there are a variety of areas. So this is a area that’s very good and strong for taxpayers we believe.

Steve Ellis:

Absolutely. And Steven, so climate change as a systemic economic risk is a topic that we focus on at Taxpayers for Common Sense frequently and on this podcast specifically because more and more of our tax dollars are spent responding to climate-related disasters and mitigating climate risks.

You mentioned that last year we had $165 billion in economic impact from disasters. And that put it as the third-largest year on record, actually bumping 2021 down to fourth place at $142 billion. But also, there were 18 billion-dollar disasters. So 18 separate billion dollars in disasters in the United States last year. There were 20 in 2021, and there were 22 in 2020. Considering all of this, it makes perfect sense to put our thumb on the scale a little bit to reduce climate risk and to that cost on taxpayers.

Steven Rothstein:

Right. And we’re not suggesting, and the federal government isn’t suggesting to choose industry. It’s not like it’s saying that solar or whatever else, but they’re saying is this is a risk. And just as any other risk, if a company had a lot of crypto or that you thought that they had a big risk because of pandemic or international currency risk or whatever, you would look at those and then make a judgment. If you’re in the federal procurement area, do you want to buy from them? And particularly, there are many contracts that are one year, but many contracts are multi-year. So if you sign a three-year or five-year or 10-year contract, it’s particularly relevant on these areas. So yeah, absolutely, we think it’s important.

And the President has said that as a country, we’re going to reduce our emissions by 50 to 52% because of the risk. Last year, there were there million people in the United States that were displaced from their homes. Some for a week, some for indefinitely because of climate risk, three million. That number is growing. We don’t even count the cost of those numbers.

So if we think about this, we as taxpayers are the payer of last resort for a lot of these areas. So it’s very important. And this is a simple way. Just as in the 80s and 90s, the federal government said we should start to use recycled paper. It made economic sense. And then they start to use in terms of high-efficiency lighting and things like that. The federal government, by changing energy out, light bulbs and other equipment and energy efficiency in buildings, they’ve already saved a few billion dollars a year and growing.

So this is not a program that in the overall will cost money. In the long run, it will save money either because you’re protecting against risk that are growing, or you’re going to use technology to have a better life cycle of [inaudible 00:09:39].

Steve Ellis:

Exactly. And just underscoring this, I mean government has a right to know its exposure through its contractors and how to limit that and deal with these sort of transition risks. And also there’s been a history through the Federal Acquisition Regulations of putting the thumb on a scale, whether you have set-asides for small business, for women-owned, minority-owned businesses. And so this is something that government gets. And as we’ve said, a small adjustment can have a huge impact because just the government is such a big buyer.

You’re listening to Budget Watchdog All Federal, the podcast dedicated to making sense of the budget, spending, and tax issues facing the nation. I’m your host, TCS President Steve Ellis, and we continue now with Steven Rothstein, Managing Director, Ceres Accelerator for Sustainable Capital Markets.

Steven, ESG remains a four-letter word for many on Capitol Hill. How do you answer the claims that what the Biden administration and Ceres and TCS are supporting here is something other than wise husbandry of taxpayer dollars and is instead so-called moral money?

Steven Rothstein:

It’s absolutely not moral money. It is fiduciary. If someone were to say to somebody who’s managing any of your listeners retirement funds, “Hey, I want a manager who doesn’t think about a certain category of risk. I don’t want them to think about pandemic. I don’t want them to think about inflation.” You’d say, “Of course not.” You want them to think about it and then make a reason judgment, what are the risks and opportunities? All we’re saying is on climate, you need to think about that. There’s a lot of evidence. We’ve shared some of it, a lot of the statistics that Steve just shared. And there’s a lot more out there. So what’s the evidence?

So if you look at investment managers, the biggest institutional investors, people who get paid for a living to manage money, and if they’re clients think they’re not giving them the highest return, they leave. So over half of the assets, so $66 trillion of assets under management have committed to be net-zero by 2050. And they’re all working on incremental plans by 2025, by 2030, et cetera. So these investors are not doing it, again they’re only doing it for business reasons.

Then if you go to the Fortune 500 company, almost every one of them, over 90% have taken action. Some have taken massive action. Let’s take the automobile company. They’ve said that they’re going to be only selling new EVs by 2035. The year varies by company, but roughly a decade from now. Again, they’re giving up their core business. They’re not doing it for any political reason. They’re doing it because they understand the marketplace, they understand the risks. If you go to big food companies, they’re looking at how to reduce water risk and other things so that these are fiduciary areas.

To give you a context, Ceres and we met with the Securities and Exchange Commission 20 years ago in 2003 and said, “Investors want more information about this.” So this is not a new issue, but the problem has grown exponentially. So it is a financial risk. In fact, if you’re saying that it’s moral money, those are the people who really aren’t looking at the facts.

One other point, we talked about the risk, there’s also enormous opportunity in that sense, meaning that with things like the Inflation Reduction Act and other areas, there’s enormous growth. So businesses not just to think about because it protects the downside, but they can grow, not just if they’re in the solar business, but what are they doing for processes, what’s their subcontractors? So there’s enormous risk, but there’s also an equal exciting upside for companies.

Steve Ellis:

Absolutely. And as the federal government measures this more and drives this more, it’s going to drive down the cost of some of these products or techniques as well.

So Steven, the Pentagon has been not so quietly out in front on this issue for some time now. They know the situation on the ground level all too well. Sunny day flooding, high heat, wildfires. Hurricane Michael a few years ago hit Tyndall Air Force base on the Florida Panhandle and destroyed or damaged every single building. Have capital markets and the DOD already tacitly implemented the Federal Supplier Climate Risks and Resilience Rule?

Steven Rothstein:

There are many, many companies that are doing pieces of it. Not all have done everything. But you’re right that from a national security perspective, a national defense perspective, there is no global issue, and this is not me talking, but there are many banks and international agencies and foreign leaders, heads of state. If your listeners want to go to the UN website. And the Secretary General just gave a very powerful speech about this. And he basically said, “If you look at international risks, climate is the single biggest one.”

So have companies implemented this? There are many companies that have taken these first steps. They’re already doing some work, they’re already reporting, but it’s not in a consistent format. So this would ensure that there is a transparency and, as you said, it’s all public. So that’s all very important. That’s why we think this, what’s called the Far Rule, the Federal Procurement Disclosure Rule is so important to our country, to climate, and to taxpayers.

Steve Ellis:

Defense Secretary Austin has called it a existential threat to our national security. And clearly this is something that they want to tackle and have recognized it impacts their training abilities in certain areas with high heat or wildfires. That obviously impacts their naval shipyards. And so this is something that they are very interested in tackling.

And we mentioned about how big the federal government is in acquisition. Well, DOD is a major, major part of that. And we would certainly want to know the security risks and the climate risks of any of our suppliers because that’s going to be critical for our national security.

The Feds are accepting comments on the rule right now, and we’ve talked about how this makes sense. What’s a preview of some of Ceres comments on how to improve this rule? I know one concern we share with you are possible waivers contracting officers could give to contractors. Talk a little bit about that or any other slight concerns. I know the bulk of it is positive, but there are ways to tweak it and improve it, right?

Steven Rothstein:

Absolutely. You’re exactly right that one of the things in the draft rule, we felt that some of the language, a contractor is a little vague, so that a contracting officer, for example, can exempt the company if the company says it is “mission-critical” or affect national defense. And those words are not defined in the rule. So we think they are too much, too broad. Because in some level, every vendor would say their work is mission-critical or else why would we be spending taxpayer dollars? So we need to refine that language. The federal government’s proposing to work with four nonprofits who are doing various forms of rating and tracking, and that’s helpful, but figure out how to do that. We have some proposals there, timeframe.

But as you correctly said, overall we give the federal government, the White House, the General Services Administration, the Department of Defense, others, great credit for moving this forward. And we hope that it can be finalized and hope that every listener who wants to will submit a comment, again, by February 13th, and share their opinions. And they don’t have to be detailed. If they just think, generally saying, “We think this is a good idea and urge you to move forward,” that alone is a helpful message for the federal government to hear from taxpayers.

Steve Ellis:

Absolutely. And we’re not over the finish line yet. And that everybody listening to this podcast, all of our Budget Watchdog AF faithful, should get their organization or their individual support on the record. Just to underscore it, we said it a couple times, the deadline is now February 13, 2023. Steven will have a link on our show notes to the Ceres recommended comments on the FAR Council Disclosure proposal. Every voice matters right now.

Steven Rothstein:

Absolutely. This is critical. And it is the government for the people of the people. And all of us as taxpayers, this makes an impact in the short term and for the long term. I’m a new grandfather and I think about the next generation. It’s even more important.

Steve Ellis:

Well, certainly congratulations on the grandbaby, and certainly we all are looking forward to the future generations and need to be doing our part. And certainly adjusting the Federal Acquisition Regulations a little bit is something that can have a far-reaching impact.

Well, there you have it, podcast listeners. The power of the federal purse is mighty if we use it correctly. This is the frequency, mark it on your dial, subscribe and share, and know this, Taxpayers for Common Sense has your back, America. We read the bills, monitor the earmarks, and highlight those wasteful programs that poorly spend our money and shift long-term risk to taxpayers. We’ll be back with a new episode soon, and I hope you’ll meet us right here to learn more.