Companies must commit to net-zero emissions before bidding for government contracts

New measures apply from September but only relate to public work costing more than £5m per year

Businesses will have to commit to the UK’s 2050 net-zero target before they can bid for major government contracts, under new rules announced on World Environment Day.

Firms will also have to publish "credible" carbon reduction plans setting out their existing greenhouse gas emissions such as fuel usage, power consumption and staff travel.

The Cabinet Office said the measures would be put in place by September for contracts worth more than £5m, making the UK government the first in the world to require such commitments.

It comes as the UK prepares to host the 2021 United Nations Climate Change Conference, also known as Cop26, in Glasgow in November.

“The government spends more than £290bn on procurement every year, so it’s important we use this purchasing power to help transform our economy to net-zero," said the minister for efficiency and transformation, Lord Agnew of Oulton, in a statement.

“Requiring companies to report and commit to reducing their carbon emissions before bidding for public work is a key part of our world leading approach. These measures will help green our economy, while not overly burdening businesses.”

Carbon emissions will be reported using an internationally-recognised standard which categorises them under three groups or "scopes".

Scope 1 includes direct emissions from activities controlled by the business, such as fuel combustion in furnaces and vehicles or chemical production.

Scope 2 relates to indirect emissions from consumption of purchased electricity, heat, steam or cooling, while scope 3 includes other indirect emissions from business travel, employee commuting, transportation, distribution and waste disposal.

While some large companies already report scope 1 and 2 emissions, the new rules will also require some scope 3 emissions to be included as well.

Firms failing to meet the requirements will be excluded from bidding for contracts worth more than £5m per year.

The government said that the £5m cut-off was designed to “not overly burden and potentially exclude small and medium sized enterprises (SMEs) from bidding for government work”.

The measures were welcomed by the Confederation of British Industry (CBI), which represents 190,000 firms employing nearly 7 million people.

Tom Thackray, director of infrastructure and energy at the CBI said: "As the world looks towards the UK and Cop26 for leadership on decarbonisation, business is already playing a vital role in driving progress towards a greener future.

"The CBI has long supported using procurement policy to ensure government spending supports the UK’s environmental objectives and these changes will encourage more firms across the country to demonstrate their own commitment to net zero when bidding for government contracts.

"Partnership between the public and private sectors can make the UK a global role-model, not only in delivering vital public services but working together to tackle climate change."

The Business Services Association, which contributed to drawing up the new rules, said it was "another important step on the road to net zero".