One year later: The path to carbon negative – a progress report on our climate ‘moonshot’

Lake and mountains

A year ago, we launched the biggest commitment in Microsoft’s history to focus on the climate crisis. As Satya Nadella, Amy Hood, and I announced last January, Microsoft committed to become carbon negative as a company by 2030 – meaning that by that date we will remove from the environment more carbon than we emit. By 2050, we committed that we’ll remove from the environment all the carbon that Microsoft has emitted directly or through electricity use since the company was founded in 1975.

As we reach the one-year anniversary of this pledge, which we coined our “moonshot,” I want to share the initial progress we’ve made and some lessons we’ve learned. We’re also announcing a few key milestones today:

  • We forecast that in our first year we reduced Microsoft’s carbon emissions by 6 percent, or roughly 730,000 metric tons.
  • We have purchased the removal of 1.3 million metric tons of carbon from 26 projects around the world.
  • We are committing to transparency by subjecting the data in our annual sustainability report to third-party review by the accounting firm Deloitte and to accountability by including progress on sustainability goals as a factor in determining executive pay, starting with our next fiscal year.

Today we are also publishing our most comprehensive sustainability report to date, and you can access it here. It reviews not only our commitment to be carbon negative, but also to become water positive, zero waste, and create a “planetary computer” to gather data that will help improve the world’s biodiversity. In this blog I want to address our most significant steps since last January, and perhaps most important, share some thoughts on lessons we’re learning as we move forward.

Reducing our carbon emissions

First, while we’ve naturally spent much of the first year building the foundation for the decade ahead, we’ve also started to make real and measurable progress in reducing Microsoft’s carbon emissions. During our first year, we reduced our emissions by 6%, from 11.6 million metric tons to 10.9 million metric tons.[1] By 2030, our goal is to cut our emissions by more than half. This means that if we sustain and then improve upon these reductions for 10 consecutive years, we will reach and hopefully exceed this goal.

A small part of last year’s reduction was due to the type of decreased activity the world experienced because of COVID-19. Obviously that aspect is unsustainable, making other and more significant sources of progress more important. At the top of this list is the need to accelerate a shift from fossil fuels to renewable energy in our facilities and emissions reductions by our suppliers.

As we take stock, two underlying changes are proving critical in moving us faster and farther. The first is the expansion of our internal carbon tax to “scope 3 emissions,” meaning carbon emissions by our suppliers and from customer use of our products. For years we have applied an internal carbon tax to our scope 1 and 2 emissions. This meant that each part of Microsoft paid internally (at a rate of $15 per metric ton) for the carbon emitted for its direct emissions like travel and electricity. At the start of our new fiscal year this past July 1, Amy Hood expanded our internal carbon tax to include scope 3 emissions, beginning with a lower rate of $5 per ton that will increase each year.

Already this is incentivizing teams across the company to focus on their suppliers and the emissions from their products. My favorite example comes from our Devices team, which built an Audit Management System using Microsoft Power BI to track performance and enable continuous supply chain improvements. Similarly, our Xbox team developed a new feature that reduces power from 15W to less than 2W when the device is in “standby mode.”

These improvements point to the long-term importance of the change we made last year to our Supplier Code of Conduct by requiring a greenhouse gas emission disclosure. This has increased transparency and helps us to more effectively partner with our suppliers to reduce their emissions. Now we’re making this data an explicit part of our procurement processes, including in our buying decisions.

As we share in our Environmental Sustainability Report, one thing we continue to learn from this aspect of our work is that we must raise the bar on standards. As we said last January, we need to get real on carbon math. The current methods used for carbon accounting are ambiguous and too discretionary. We need clear protocols to ensure that progress reported on an accounting statement is truly progress in the real world.

Another point of progress, while not splashy, is also indispensable. As we work to decarbonize our supply chain, the role of contracts is key. Supplier contracts today do not include a price on carbon – and they must. Passive purchasing is not sufficient.

Our experience this year has given us greater conviction that the foundation for almost all progress is the combination of accurate standards, real economic incentives, and effective technology-based measurements. We think that it’s a powerful mix that can accelerate progress around the world.

Removing carbon from the environment

Our most dramatic action this past year has been our work to remove carbon from the environment. We’re announcing today that we have now purchased the removal of 1.3 million metric tons of carbon from 15 suppliers across 26 projects around the world.

This is both a giant leap and a modest step. On the one hand, we believe this is the largest annual carbon removal purchase any company has ever made. It’s creating a new and dynamic economic market that the world needs. But compared to what we need to accomplish by 2030, it’s only an initial step. Using our moonshot analogy, I think of it this way – if our goal is to get to the moon by the end of this decade, this is the equivalent of sending an astronaut into orbit around the earth. It puts us on the right path, but we have a long journey ahead.

These purchases come from a Request for Proposals (RFP) we published in July, with the goal of removing 1 million metric tons of carbon. The response was incredible. We received proposals from 189 projects from 79 applicants in more than 40 countries, including proposals for 55 million metric tons of carbon removal this year.

In partnership with our third party technical and scientific experts, Carbon Direct and Winrock International, we reviewed all these bids. We sought to be clear eyed about the durability and risk of each removal proposal. In other words, for how long would carbon be removed? How much of the removal would have happened without the project? And what were the risks of leakage by shifting emissions to another area?

This process helped us create a carbon removal portfolio that meets our needs today and bets on future technologies. Even more important, this has helped us assess a variety of strengths and weaknesses that will benefit from shared and continuous learning around the world.

First, the strengths. This begins with some key principles that worked for us this past year. This includes a commitment to combine carbon reduction with carbon removal, so the second doesn’t become an excuse to avoid the first. That’s what we’ve worked to do by reducing our own emissions and embarking on carbon removal.

In addition, it’s imperative that we move away from paying for carbon avoidance and focus on paying for carbon removal. What’s the difference? Think of it this way. Carbon avoidance may involve paying someone to not emit carbon on your behalf, while carbon removal involves paying someone to remove carbon on your behalf. Of course, the carbon crisis at times requires that we avoid taking new steps that would emit additional carbon. But paying someone not to emit carbon is literally paying someone to do nothing. And we know we won’t solve the climate crisis by doing nothing. We need to do something, and it needs to be big.

Now, the weaknesses in our efforts, which also are big. As we note in our lengthier report, today there is no real existing carbon removal ecosystem and the world must build a new market on an unprecedented scale and timeline, from nearly scratch. This will be incredibly hard, requiring integrity, public-private coordination, and heavy investment simultaneously.

We’re hopeful that our RFP will contribute to something that’s much bigger than ourselves. Our early sense is that the world is not just ready but anxious to create this new market. That’s why we are making all 189 carbon removal proposals publicly available, except for proprietary information. We’re also sharing our learnings about what worked and what didn’t so that others can accelerate their own carbon removal. I encourage you to read our carbon removal white paper to learn more.

There’s a second big weakness in our initial work as well. Reflecting the state of the market today and our immediate need for carbon removal, nearly all the carbon removal solutions we are purchasing are short-term and nature-based. The small remainder come from medium-term blended or big bets on long-term technology solutions.

If we look at this work through our moonshot analogy, this is not the rocket that will take us to the moon. The world needs to invent substantially stronger technology-based solutions than are available today. That’s why we established last year our $1 billion Climate Innovation Fund, which is now investing in new technologies like direct air capture. And it’s why the world will need many more investments from across the philanthropic, private, and public sectors. We’re encouraged by the broadening investments in this space and the public leadership of the European Union, the United States, and other governments. Much more will need to follow.

Advancing transparency and accountability

Quite rightly, another growing theme around the world is the need for institutions to put in place the transparency and accountability that will hold everyone’s feet to the fire. The European Union’s comprehensive Green Deal is a good example of the trend. And today we are taking two steps to help move Microsoft in this direction.

First, to be transparent, we are releasing our carbon, water, waste, and ecosystems data in our sustainability report, which was reviewed by an independent third-party. Today, we’re also committing to having our future reports reviewed by Deloitte.

Second, we are announcing today that progress on sustainability goals will be included as a factor in determination of executive pay starting with our next fiscal year in July. This will add to the practice we’ve had since 2016 to tie a portion of executives’ compensation to environmental, social and governance measures starting with diversity representation gains. Between now and July, the Compensation Committee of Microsoft’s Board of Directors will assess, review, and approve these changes. This will apply to the compensation of the members of the company’s Senior Leadership Team, including CEO Satya Nadella.

Looking ahead

As we look forward, we’re struck by both the daunting nature of the challenge and the increasing prospects for progress. Last year many companies around the world launched new sustainability initiatives. We’ve seen significant progress on net zero commitments, including by Starbucks, Maersk, Cemex, Unilever, Amazon, Apple, Google, and Stripe.

Increasingly, investors and shareholders are asking for or even demanding this type of change. As BlackRock CEO Larry Fink put it this past week, “We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.” In short, the world increasingly is putting the power of capitalism behind private sector investments to address the climate crisis. This makes it likely that the past year’s corporate announcements will reflect the wave of the future rather than a one-time sensation.

The geopolitics of carbon are also improving. As a company that never left the Paris Climate Accord, we take heart that the United States government is now back in it. There is a real prospect for a renewed and strong trans-Atlantic partnership between the European Union and the United States. In both Brussels and Washington, D.C., there is a rapidly growing focus not only on reducing carbon emissions, but on addressing environmental equity and the need for a just transition to a net zero carbon future, a principle we’re incorporating in our own work as well.

Clearly, closer trans-Atlantic cooperation is just the start. There is no issue that requires more consistent and broader multilateral collaboration than sustainability. And even in a world that is divided by so much, there is now hope on the horizon for the type of work that will bring every government to the table.

A final lesson from our work this past year is that when it comes to the carbon crisis, knowledge is the ultimate power. We all have so much to keep learning. During the next three decades we will need technology breakthroughs on a par with those that propelled humanity to the moon a half century ago. This will require new investments and collaboration.

The path toward progress also requires conversation. So much of our own learning has come from bringing people from different disciplines and places together. On a personal note, it has often come from our biggest cheerleader and most thoughtful critic – Bill Gates. We’re excited that Bill will do even more to expand the global conversation with the publication next month of his book, How to Avoid a Climate Disaster. We’ve been learning from Bill and the lessons in the draft of his manuscript for the past year.

As we’ve so often learned, a book isn’t just words on a page. It’s a platform for conversation. And as much as anything, this is a conversation the world needs to have.

[1] Due to differences between our fiscal year carbon accounting methods and this calendar year update the verified numbers included in our annual report differ slightly from those estimated in the blog.

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