Last month, the Biden administration announced a rule calling for federal procurement officials to select products and services from a list of those with ecolabels and other sustainability standards whenever practicable. This reorientation of procurement toward sustainable products is seen as a step forward on climate change mitigation, energy and water conservation, and other sustainability objectives. The administration is leveraging standards created by the private sector while ensuring appropriate vetting by the government with public input, creating a model of how procurement policy can build markets for socially beneficial products and services.
As the largest buyer of products and services with $750 billion in annual spending, the federal government has significant power to shape markets. The new rule aligns with Executive Order 14057, where the administration committed to using its market power to help scale businesses with sustainability solutions. Additionally, under the Federal Procurement and Administrative Services Act, the government has a duty to steward taxpayer funds and ensure effective program delivery through its procurement policy. The new rule achieves all these objectives by pushing procurement officers to consider sustainable options as the default choice and providing clear guidelines for selecting sustainable products and services.
Using the principles of behavioral economics, the new procurement rule provides a “nudge” toward sustainability by making sustainable products the default choice for officers who specify procurement requirements. While officers are free to choose other options, they must provide a written justification based on price, performance, or delivery schedule if departing from the default choice. The rule also requires officers to compare life-cycle costs before rejecting sustainable alternatives. By nudging officers toward sustainability, the rule reduces the chances of choosing cheap products that are not environmentally friendly.
The new rule relies on ecolabels and standards developed by the private sector and vetted by federal agencies like the Environmental Protection Agency. By including ecolabels like ENERGY STAR and WaterSense, the rule provides preferential treatment to hundreds of brands adhering to sustainability standards. The omnibus contract clause included in all procurement contracts specifies the product categories covered by the rule, making it easier for contractors to determine which products meet the standards. The flow-down provision requires contractors to ensure that their suppliers also use sustainable products, further scaling the sustainability solutions market.
While the new rule provides preferential treatment to products and services with established sustainability credentials, there are opportunities for expanding coverage to include more sustainable standards. The EPA has established a transparent assessment framework focused on environmental effectiveness and process adequacy to evaluate new entrants. Momentum is building for this public-private partnership, with EPA expanding its recommendation list and launching programs to develop new ecolabels. Companies in various sectors should consider how they can leverage the rule to accelerate decarbonization and promote healthy and sustainable options.
To ensure more sustainable federal supply chains, the Biden administration should finalize a rule requiring the nation’s largest contractors to disclose climate-related risks, greenhouse gas emissions, and reduction targets. This will provide visibility into how key suppliers are managing sustainability risks and help accelerate the shift to a more sustainable economy. The new procurement rule, along with additional disclosure requirements, creates opportunities for countless sustainability innovators to contribute to a more sustainable future.