Microsoft’s astonishing climate change goals, explained

Microsoft’s astonishing climate change goals, explained

2020-07-30 14:10:00
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You could be forgiven for missing it, given the surplus of news, but the last few years have seen a profusion of climate change commitments from big tech companies. Facebook, Google, Amazon, and Apple have all promised to shrink their climate footprints, each attempting to outdo the others.

Climate advocates are naturally leery of these commitments. Those who lived through the faddish interest in climate in the mid-2000s, around the release of Al Gore’s An Inconvenient Truth, will recall the endless torrent of breathless corporate announcements. NBC had a “green week,” big corporations bought cheap offsets to become “carbon neutral,” automakers sold SUVs with vegan leather seats, and dozens of companies sold “sustainable” coffee cups, T-shirts, and tchotchkes. It was a greenwashing parade.

But times really have changed. The steps tech companies are taking these days represent a sea change in engagement. Climate change has moved out of the public relations department, into the C-suite, and down to the shop floor.

To explore the strength of recent corporate climate commitments (and their limits), I want to focus in on Microsoft, a widely acknowledged leader in the field. Earlier this year, it committed not just to reducing its emissions, but to going carbon negative, wiping out all the carbon the company and its suppliers have emitted since its founding in 1975. In recent weeks, Microsoft has released a flurry of announcements updating its progress, so now seems like a propitious time to take a close look.

Microsoft President Brad Smith, Chief Financial Officer Amy Hood and CEO Satya Nadella preparing to announce Microsoft’s plan to be carbon negative by 2030.
Brian Smale/MSFT

Over the last week I’ve been talking to corporate sustainability experts and people who have worked with, and at, Microsoft to try to wrap my head around how big a deal its work on climate is — how seriously to take it, what influence it may have, and where it might fall short.

To spoil the ending: it is a big deal. The company is setting new standards, especially in the rigor and transparency it is applying to the effort, and it is deliberately attempting to bring other companies, both suppliers and competitors, along with it into a world of shared metrics and data. There is more it could do, but it is earning its good climate reputation.

I’ll dig in to what Microsoft is doing and what makes it unusual. But first, some background.

A quick note on kinds of emissions

In the carbon world, the emissions of a company (or person, city, or country) can be divided into three buckets:

  • Scope 1 emissions come directly from resources the business owns or controls, like furnaces or delivery vehicles;
  • Scope 2 emissions come from the power plants that generate the electricity the business uses;
  • Scope 3 emissions are indirect, “embedded” in the materials and services the business uses, representing the emissions of the full supply chain. (Business travel is a common example — there are carbon emissions embedded in every plane ticket.)

In the early days of corporate climate engagement, companies typically measured and reduced only their direct energy emissions (scope 1 and 2). But in the last several years, in part thanks to the example set by companies like Dow, Unilever, Apple, and Microsoft, measuring and taking responsibility for scope 3 emissions has become the new norm.

This is significant, because for most companies, including Microsoft, scope 3 emissions are substantially larger than scope 1 and 2 combined.

“At Microsoft, we expect to emit 16 million metric tons of carbon this year,” president Brad Smith wrote in a January blog post. “Of this total, about 100,000 are scope 1 emissions and about 4 million are scope 2 emissions. The remaining 12 million tons all fall into scope 3. Given the wide range of scope 3 activities, this higher percentage of the total is probably typical for most organizations.”

Microsoft has a recent history as a sustainability leader

On Monday, Microsoft announced it has completed the largest-ever test running data-center servers on hydrogen fuel cells, which can be powered by zero-carbon hydrogen generated from renewable energy. Currently, even if they run entirely on renewables, data centers have diesel generators on site for long-term backup in case of an outage.

Fuel cells: Power Innovations built a 250-kilowatt fuel cell system to help Microsoft explore the potential of using a hydrogen fuel cells for backup power generation at datacenters. In a proof of concept, the system powered a row of datacenter servers for 48 consecutive hours.

Power Innovations built a 250-kilowatt fuel cell system to help Microsoft explore the potential of using a hydrogen fuel cells for backup power generation at datacenters. In a proof of concept, the system powered a row of datacenter servers for 48 consecutive hours.
Power Innovations.

With 160 data centers worldwide and multiple generators per data center, that adds up to a lot of diesel generators. The company has pledged to phase them all out by 2030. That’s why it is testing fuel cells as backup power.

It is the latest in a string of climate initiatives that go back almost a decade. The company has been 100 percent carbon neutral, through the purchase of carbon offsets, since 2012. In 2013, it implemented an internal carbon tax on the scope 1 and 2 emissions of all divisions, with the revenue going toward sustainability improvements. It created a business unit focused on climate solutions, which produces things like AI for Earth. It recently succeeded in buying enough renewable energy to account for all US domestic operations.

Its latest sustainability report recounts all these efforts and more, including substantial efficiency upgrades at its campuses. In 2016, it won a climate leadership award from EPA.

“We’ve seen them as a leader since 2013,” says Nicolette Bartlett, climate change director at the Carbon Disclosure Project (CDP), a global clearinghouse of corporate sustainability data. The CDP has a scorecard, which takes into account hundreds of sustainability and transparency metrics, and Microsoft has consistently gotten an A. “It really matters to them,” Bartlett says.

In recent years, thanks to the IPCC report and pressure from investors and employees, concern over climate change has risen to the highest levels of the company. Josh Henretig, who spent 12 years on the company’s global sustainability team, rising to Senior Director before leaving in February, says he witnessed the shift from his team pushing to his team being pulled. “We started to almost stumble under the full weight and examination that the executive team imposed on us around the question: what’s really required?” he says.

“At this stage,” says Verena Radulovic, director of corporate engagement at the Center for Climate and Energy Solutions, “Microsoft has enough experience with reducing its own emissions, and support from its leadership to keep doing so, that it is able to take its climate commitment to a more ambitious level.”

And that’s what it did in January.

Microsoft will go carbon negative and wipe out all the carbon it has ever emitted

In January, Microsoft made a startling announcement: not only will it reduce its scope 1, 2, and 3 emissions by 55 percent, it will continue beyond that and go carbon-negative, drawing down more carbon than it emits, by 2030. By 2050, it will draw down enough carbon to account for all the company’s emissions since its founding in 1975.

“It set a new bar for what is considered climate leadership,” says Radulovic.

As you can see on the graph below, the target represents a radical acceleration of Microsoft’s carbon reduction efforts.

microsoft emissions

Microsoft

The January announcement, which came from the company’s president Brad Smith, backed by CFO Amy Hood and CEO Satya Nadella, laid out a set of principles that would guide the company’s approach:

  1. Grounding in science and math.
  2. Taking responsibility for our carbon footprint.
  3. Investing for new carbon reduction and removal technology.
  4. Empowering customers around the world.
  5. Ensuring effective transparency.
  6. Using our voice on carbon-related public policy issues.
  7. Enlisting our employees.

The post goes into detail on each. I’ll just hit some highlights.

Nos. 1 and 2 are about proper measurement, scope 1-3 emissions, and historical emissions. “While we at Microsoft have worked hard to be ‘carbon neutral’ since 2012,” Smith writes, “our recent work has led us to conclude that this is an area where we’re far better served by humility than pride.”

“We had some very heartwarming, but also uncomfortable, conversations,” says Henretig.

Through these discussions, the company concluded that voluntary offsets are insufficient. It is now moving to a model where it directly contracts with renewable projects through power purchase agreements, (PPAs) — it is aiming to hit net-zero for its scope 1 and 2 emissions by 2025 — and will compensate for what it can’t directly reduce with negative emissions.

In this area, especially, Microsoft is showing real leadership.

As for No. 3, the company announced it will establish an investment fund that will target early-stage clean-energy technologies, aiming to spend $1 billion over the next four years.

Some critics have argued that the venture-capital model, built around big bets with potentially big returns, is a narrow way to approach the needs of the energy sector. Just recently, for instance, the International Energy Agency argued that crucial early-stage technologies need enabling infrastructure to continue developing.

“I think it’s a missed opportunity,” says consultant and former corporate social responsibility (CSR) executive Lindsay Baker. “There are opportunities to invest in infrastructure and other types of projects that have a market rate of return, more in line with just getting your money back — I would really like to see corporations making more of those kinds of investments.”

Baker also notes that there are “plenty of opportunities for charitable giving that will help move the needle on climate,” including in lab-stage research or companies still in product development. A company like Microsoft, with well over $100 billion in the bank, could put some money toward these other areas as well, or at least divert a portion of its $1 billion to them.

Nonetheless, a billion dollars in VC money is nothing to sneeze at. Nor is the signal Microsoft has sent to other companies by committing to a goal it admits it does not yet have the technology to achieve. It says going carbon negative will require “negative emission technologies (NET) potentially including afforestation and reforestation, soil carbon sequestration, bioenergy with carbon capture and storage (BECCS), and direct air capture (DAC).”

Some of those technologies don’t exist at meaningful scale yet, and Microsoft is making a concerted effort to accelerate them. Especially if it can inspire other companies to make similar investments — Amazon announced a $2 billion climate fund in June — the spillover effects will help boost the entire sector.

“While much of Microsoft’s focus is on technologies that will help it reduce its own footprint,” says Radulovic, “the hope and vision is that these technologies will scale and others can use them.”

No. 4 is about products and services Microsoft will design that will enable its clients to reduce their own emissions. We will return to No. 4 in a bit, since some of the biggest controversies reside here.

No. 5, transparency, is another area where the company is showing leadership. Every year, Microsoft will publish a sustainability report, breaking down its emissions and progress against its goals. It has had its targets verified by the Science Based Targets Initiative as being in line with a pathway to limiting temperature rise to 1.5°C. In reporting its emissions, it is following the World Resources Institute’s Greenhouse Gas Protocol. And it is sharing its data with the CDP. In short, it is modeling best practices in transparency.

Microsoft’s 2018 greenhouse gas emissions.

Microsoft’s 2018 greenhouse gas emissions.
MSFT

No. 6 is also interesting, but we’ll come back to that later as well.

The company just announced its first concrete steps toward its target

This month, Microsoft Chief Environmental Officer Lucas Joppa published an update on Microsoft’s progress, with several new announcements.

First, Microsoft is joining with nine other large companies — A.P. Moller-Maersk, Danone, Mercedes-Benz, AG, Natura & Co, NIKE, Starbucks, Unilever, and Wipro, along with the Environmental Defense Fund — in Transform to Net Zero, “a cross-sector initiative to accelerate the transition to a net zero global economy.” It will run on much the same principles that Microsoft laid out for itself, including science-based measurement and transparency, with a commitment to knowledge sharing and norm-setting.

“When you look at the reach of these initial eight companies, as well as the supply and value chains of those companies, you start to get a pretty big market share,” says Jenn Crider, senior director of communications at Microsoft. It will exert a pull on other companies to use “a common and standardized approach to the math, the language, and the accounting,” she says.

Second, Microsoft debuted a sustainability calculator that will help its cloud clients calculate and reduce their carbon footprint. Third, it pledged to be completely free of diesel fuel and diesel generators by 2030. Fourth, it raised its internal carbon tax and broadened it to encompass scope 3 emissions. Fifth, it updated its Supplier Code of Conduct to require suppliers to calculate and report their full scope 1-3 emissions.

Sixth and perhaps most intriguingly, it has issued a request for proposals (RFP) seeking, for this fiscal year, a million metric tons of “carbon removal from a range of nature- and technology-based solutions that are net negative and verified to a high degree of scientific integrity.” It recognizes that these technologies are not fully developed, acknowledges that it will make mistakes, and says it is explicitly “using this RFP to harvest and share best available science and market intelligence on carbon removal,” to make things easier for other companies that want to follow suit.

“Someday, CO2 removal will be fully commoditized,” says Julio Friedmann, a carbon researcher at the Center for Global Energy Policy at Columbia University, who has helped advise Microsoft on its RFP. “These actions help put us on that course.”

It will be extremely interesting to see which and what type of carbon-removal projects Microsoft ends up choosing through its RFP.

direct air capture (DAC) of carbon dioxide

A mockup of a direct air capture (DAC) machine from Carbon Engineering.
Carbon Engineering

Seventh, Microsoft announced the first investment from its $1 billion Climate Innovation Fund: $50 million will go to Energy Impact Partners, “a leading venture capital firm focused on decarbonized, decentralized energy industry transition that shares learnings among partners and facilitates collaboration.”

Eighth and finally, the company is taking action on environmental justice, partnering with renewables developer Sol Systems on 500 megawatts of distributed solar energy projects “in under-resourced communities, working with local leaders and prioritizing minority and women-owned businesses.” Given that the average residential rooftop solar system is a bit over 5 kW and commercial solar rooftop systems around 100 kW, that’s a lot of solar projects, representing the “single largest renewable energy portfolio investment Microsoft has ever made.”

Alongside those projects, the company will provide $50 million in “community-led grants and investments that support educational programs, job and career training, habitat restoration and programs that support access to clean energy and energy efficiency.”

So that’s one big target, seven principles, and eight initiatives. It’s a lot! What should we make of it?

Microsoft is earning kudos for its climate efforts

I’ve talked with numerous experts in corporate sustainability over the last week, trying to wrap my head around how to judge Microsoft’s efforts. Without exception, they praised Microsoft as a leader on climate change. Its commitment to good science, shared metrics, transparent reporting, and full carbon responsibility (not relying on offsets) is already setting a good example.

“In Microsoft being among the first large companies to set such an ambitious target,” says Radulovic, “it allowed others, especially in non-tech sectors with more risk averse or less innovative cultures, a safe space to do the same.”

It is difficult to trace direct causal lines between Microsoft’s announcements those of other companies. Major corporate initiatives take years to develop. Their true effects will be measured by how many companies they pull into their wake in years to come. This was a common theme from experts in the field: Microsoft will have its biggest impact through the partnerships and collaborations it forms to spread its tools and ambitions.

Another notable feature of Microsoft’s efforts is the clear support from the top of the company. “All the big environmental announcements come from the CEO himself, which means there’s C-suite buy-in for everything they are doing,” says Jen Boynton, who works in corporate social responsibility at Cisco. “He’s making the commitment, he’s accountable, and there is financial and investor skin in the game.”

You could think of this as the evolution of corporate climate engagement, both within individual companies and across sectors: It begins in public relations, moves to the “environmental department,” and then gets taken up by top leadership, who look to their engineers to figure it out.

“The sustainability guys tend to think inside of a box,” says Bartlett, “but as soon as the shop floor gets hold of it, it becomes part of the DNA of the organization.”

Brian Janous, general manager of energy and sustainability at Microsoft, recalls the effect at the company when carbon reporting was expanded from scope 1 and 2 (energy) to scope 3 (supply chain, materials, and everything else): “Suddenly everyone is coming out of the woodwork. ‘Oh, we have to solve this, we have to solve that. We have to think about the amount of electricity being used to manufacture Xboxes. We have to think about the electricity being consumed by the people that use Xboxes.’”

It brought designers and engineers from every division to the task, people whose lives revolve around solving problems within resource parameters. Microsoft has made carbon a parameter for every team of engineers in the company now, and they are going to work on it.

And there’s one other feature worth celebrating. “The thing about Microsoft’s work that I love, love, love is the investment in climate equity and environmental justice,” says Alison Murphy, who has directed sustainability and social impact work at companies like Lime and Lulemon. “This has been missing from the corporate dialogue. More companies should take this kind of intersectional lens.”

As much as Microsoft is doing, though, this is climate change, which means it’s never enough. Climate advocates and activists are not going to stop pushing for more. What would more look like?

As I’ve asked around, the areas where Microsoft’s efforts could be critiqued fall into roughly four buckets.

Microsoft could go even further by requiring suppliers to reduce emissions

The same day Microsoft published its updates on progress, Apple announced that it would aim to be “carbon neutral across its entire business, manufacturing supply chain, and product life cycle by 2030,” an astonishing goal for a company that manufactures, ships, and disposes of so many devices.

“Apple has said their suppliers will all run on renewable energy,” says Bartlett. “It set targets for them.”

Since 2014, all of Apple’s data centers have been powered by 100 percent renewable energy.

Since 2014, Apple has purchased enough renewable energy to offset the usage of all its data centers.
Apple

So far, Microsoft — which deals more in software and thus has a smaller scope 3 footprint — has only said that its suppliers must measure and report their scope 1-3 emissions. “Right now I read it to say, ‘we’re working with suppliers to find efficiencies’,” says Elizabeth Jardim, a corporate campaigner at Greenpeace USA. “And efficiency is important. But it only gets you so far.”

Apple will not simply cut off suppliers, Bartlett says, but will work with them to build their capacity to reduce emissions. “It’s not going to be every company in your supply chain” that needs special attention, she says. “It’s the 80/20 rule — go for the big ones first.”

There are signs Microsoft is heading in the same direction. In its commitments thus far, “you see a forecasting of where we’re going,” says Crider. “The first step is reporting requirements; the next steps will be reduction. You can make the assumption that there will be requirements on that reduction over time.”

For now, Apple is setting the bar on supply chain reductions, but it’s a close race.

It could stop selling products to companies that use them to dig up fossil fuels

Microsoft says it will develop products and services that will help its clients reduce their emissions, which is laudable. But there remains the question of how its other products are used.

In particular, attention has recently focused on contracts for cloud and AI services between big tech companies like Amazon, Google, and Microsoft and some of the world’s largest oil and gas companies. Journalist Brian Merchant had a great expose on this in Gizmodo last year. The services in question “are explicitly aimed at streamlining, improving, and rendering oil and gas extraction operations more profitable,” he wrote.

In May, Greenpeace issued a report looking closer at “how tech companies are helping big oil profit from climate destruction.” It found, among other things, that “Microsoft’s contract with ExxonMobil alone could lead to emissions greater than 20% of Microsoft’s annual carbon footprint.”

“Right now, the emissions from those contracts are not included in (Microsoft’s) carbon footprint,” says Jardim. “They’re not even tracking it.”

In response to the Greenpeace report (which followed on the heels of years of criticism from tech workers, investors, and politicians), Google announced that it will no longer “build custom (artificial intelligence or machine learning) algorithms to facilitate upstream extraction in the oil and gas industry.”

In Microsoft’s January announcement, Smith writes that the company is “committed to continuing to work with all our customers, including those in the oil and gas business.” Because a prosperous future will require more energy, he says, “it’s imperative that we enable energy companies to transition.” (The company issued a response to the Greenpeace report which says much the same thing.)

“Another acceptable path forward would be to show us how Microsoft’s machine learning technology is actually scaling up renewables or scaling down fossil fuel production,” says Jardim. “Right now their contracts are not doing that.” Improving fossil fuel extraction projects doesn’t do much to help fossil fuel companies transition away from fossil fuel extraction.

The oil company contracts are “a revolving debate within the company right now,” Henretig says. “It’s one of the areas a lot of employees are feeling conflicted about.”

If they want to stay ahead of the pack, Microsoft and Amazon should listen to their employees and follow Google’s lead.

It could throw some elbows on public policy

Microsoft says that it will use its voice to advocate for public policy in four areas: more public research, “the removal of regulatory barriers” to clean energy, market-based mechanisms, and universal standards for measuring the carbon content of consumer goods.

That is, relative to the breadth and specificity of its other commitments, fairly weak tea. It sounds like a devotion to incremental, bipartisan policy, which is not only inadequate, but has proven nearly impossible to achieve in practice.

In its defense, the company has spoken up on some important issues. It pushed for more renewables in Virginia, supported the carbon-tax initiative in Washington, and opposed the rollback of Obama’s Clean Power Plan.

1631

Support for Washington’s carbon-pricing initiative, 1631, was deep.
Hannah Letinich, Yes On 1631

“It’s great to see Microsoft and others stepping up in ways that clearly acknowledge the urgency of the climate crisis,” says Bill Wiehl, founder of ClimateVoice, a nonprofit working to organize tech workers behind climate ambition. “Now we need them to step up their lobbying for a broad range of public policies to address climate change, everywhere they operate.”

Microsoft could speak up for clean energy money in the next stimulus bill, call out denialist politicians, push back on state-level conservative efforts to block electric vehicles or prop up coal plants, or help push a national clean electricity standard or tightened fuel economy standards. There’s a whole lot of policy needed to get where Microsoft says the world needs to go.

Perhaps most importantly, Microsoft is still a part of the US Chamber of Commerce, a conservative trade group that relentlessly lobbies against clean energy. Will Microsoft leave the Chamber (as Apple did in 2009) or at least step off its boards and lobby within it for a new direction (as Nike did in 2009)? Microsoft said they won’t participate in Chamber climate initiatives, but that’s it so far. (Read my story on a trio of Senators going after the Chamber on climate.)

Microsoft isn’t fully throwing around its weight. “We do have a PAC, the PAC does make investments,” says Crider, “but not at a level that sways an election in one direction or the other.”

A more vigorous form of power politics is called for in an age of climate crisis.

It could clearly pledge to eliminate its own emissions

Microsoft aims to reduce its scope 1-3 emissions by 55 percent by 2030, with negative emissions technology soaking up the rest. While it has said it will draw down enough carbon to account for all its historic emissions, it has not said how fast, or even whether, its own scope 1-3 emissions will reach zero after 2030.

While carbon-negative is an admirable and standard-setting target, it is, in the end, a way of buying time. Every sector and business that possibly can hit true zero — run on 100 percent carbon-free energy — must ultimately do so. Pushing for negative emissions is not a license to ease up on the broader goal.

Microsoft should make clear that true zero emissions, as fast as possible, is still its long-term target. “Its voice saying that we need to get to zero is really powerful,” Bartlett says. “Ultimately, you need a business model that will flourish in a zero world, right?”

True zero scope 1-3 emissions is a bit of a moonshot for Microsoft, but if Apple can do it, Microsoft can too. And there are reasons to think it will try.

“Obviously, the first thing we want to do is reduce emissions,” says Janous. “The goal is, get our scope 3 emissions down to as close as possible to zero. The commitment we made, 55 percent reduction — I think we’re going to do better than that.”

China International Cartoon And Game Expo

Can this be done sustainably?
Photo by Zhou You/VCG via Getty Images

Microsoft is doing what it can within the bounds of capitalism

Most of Microsoft’s scope 1-3 emissions are from energy and will ultimately be eliminated by a cleaner, more robust electricity grid. Janous says the company is experimenting with using its data centers to provide backup and other ancillary services to grids, in pursuit of a “holistic solution” to grid issues, but to get there, “markets need to evolve to create more opportunities for flexibility.”

While Microsoft is working on a better energy grid, its peers will be approaching the problem from other angles. “It’s not like we’re all going to solve electricity, right?” says Janous. “Amazon’s going to work on transportation; Apple is going to work on materials and inputs. I’m excited about the breadth of impact we’re going to have as an industry, because we are all going to attack this thing a little bit differently.”

It is difficult to predict anything in today’s world, but there’s every reason to expect that large, well-established companies like Microsoft, Dow, Apple, Unilever, and Amazon committing to net zero will reverberate.

It’s not just that the target could become the expected norm in the business world (though that appears to be happening faster than anyone expected). It’s that all the people working in those companies, and all the people who interact with those companies, will see that reducing emissions produces a torrent of innovation. They will see that the process draws top talent to these companies and gives their young, diverse workforces focus and motivation.

They will see that common purpose brings out the best in people and that decarbonization is not a hair shirt or a sacrifice, but a chance to design and build a better world. They will take what they’ve seen to the voting booth.

It is the nature of climate change that virtually nothing that is possible today amounts to enough, and that’s true of Microsoft’s climate efforts. Within the conventional boundaries of US consumer capitalism, the company is unquestionably a leader, but if climate is a crisis, it may call for pushing at those boundaries: throwing some political elbows, cutting off some clients, perhaps even questioning the imperative for continuous growth.

Microsoft has shown what can happen when engineers get ahold of the carbon problem. Now its leaders should trust its engineers and move farther, faster.


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