Behind the jargon and complex science of GHG emissions and climate change lies a simple fact: companies that reduce emissions from their day-to-day operations mitigate risk.
The myth that decarbonizing operations impedes the course of business is untrue—decarbonization doesn’t limit growth; it can fuel it. Adjusting how you conduct business to consume fewer resources or use the same resources more efficiently can result in significant emissions cuts while lowering costs. For example, in 2022, Microsoft experienced 18% company growth while achieving a 0.5 % reduction in overall emissions, an impressive achievement in “decoupling” economic growth from GHG emissions, something that’s unusual for a company of its size.
When data-driven and planned and executed carefully, greenhouse gas emissions reductions are almost always worthwhile investments that generate long-term benefits in the form of lower costs or higher revenues, and a path to net-zero. To understand these benefits and how to secure them, let’s dive deeper into how Microsoft does it.
Decarbonization for risk management and mitigation
Climate change has enhanced both physical risks like floods and wildfires and transitional risks like new regulations and shifting public sentiment at a jarring rate. The global shift toward a decarbonized economy and large-scale adaptation to new climate realities is well underway and irreversible. Any company that fails to assess and respond to the climate risks impeding its prospects for future success.
Operational decarbonization effectively reduces the risk of being identified as “part of the problem” by regulators, customers, or other vital stakeholders. At the same time, a reduced carbon footprint helps companies adapt to and thrive under current and future climate realities. Forward-thinking companies are setting good-faith emissions targets; some are reporting on the operational changes they are making to reach those goals. Microsoft is one of the few companies doing both, rightfully making them critical components of its enterprise risk management strategy.
Setting a precedent, Microsoft has committed to becoming carbon negative by 2030, with a further aim to remove from the environment all the carbon it has emitted since its founding in 1975 by 2050. This goal is unique in its ambition and represents the broad array of decarbonization options available to Microsoft as one of the world’s largest technology companies. Although the company is singular in its sustainability goals and ability to undertake initiatives beyond the standard enterprise, its decarbonization strategies provide useful guidance for other companies of all sizes and types.
Bringing certainty and security to energy use
By 2025, Microsoft plans a significant energy transition to a 100% renewable energy supply, securing Power Purchase Agreements (PPAs) for clean energy to cover all carbon-emitting electricity consumed across its data centers, buildings, and campuses. Moreover, by 2030, Microsoft will strive to ensure that zero-carbon energy purchases match all of its electricity consumption, which is a pivotal step toward sustainable operations. Utilizing real-time device telemetry-based measurement, investing in renewable energy, procuring sustainable aviation fuel (SAF), and obtaining unbundled renewable energy certificates (RECs) are among the strategies Microsoft employed to achieve its climate goals. Leveraging telemetry data to assess the annual electricity consumption associated with its sold products has allowed Microsoft to adopt a market-based accounting approach, thereby reducing downstream scope 3 emissions.
These approaches to procurement and consumption tracking reduce the price and regulatory risk associated with energy resources and use, which is central to every company’s operations.
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Less waste, Less risk
Microsoft has bolstered its reuse and recycle rates of all cloud hardware to an impressive 82% and slashed single-use plastics across all packaging to a mere 3.3%, with plans to eliminate their use entirely by 2025. While waste management is primarily a concern for companies that deal in physical products, it is an opportunity for decarbonization for any company. The more material a company sends to landfills, the more material (and money) it wastes while also increasing scope 3 emissions. Solutions for landfill diversion, from plastic recycling to takeback programs, are growing and becoming more innovative. Tapping into one or more of those solutions can reduce risks linked to scope 3 emissions and uncover unexpected revenue growth opportunities.
Value creation through investor and employee satisfaction
Shifts in policies, investor expectations, and consumer demands are driving corporate actors to meaningfully and holistically decarbonize across their business activities’ value chains. These decarbonization efforts also produce multiple positive ripple effects—ancillary benefits that reduce other forms of risk and create value. Perhaps most notable are employee retention benefits, capturing top talent, and lowering the cost of capital. Put another way, the risk of falling out of favor with increasingly climate-focused investors, employees, and customers grows with each passing day, and cutting emissions is one of the best ways to lower that risk.
While companies face mounting pressure from regulations and stakeholders to report their emissions, consumers have also shown that they prefer companies with valid sustainability practices. Operational decarbonization measures improve brand image to potential consumers and employees. According to a Deloitte global customer survey, employees ask their employers to reduce carbon usage, use renewable energy, and reduce waste.
To earn these benefits, you, like Microsoft, must communicate your decarbonization goals and back them up with meaningful actions. The company has embraced transparency by producing reports and regular updates on their progress.
Climate change is altering economies and increasing business risks in every industry and corner of the world. Microsoft and others are proactively mitigating those risks by operationalizing their decarbonization efforts, which are examples of how your company can create value, enhance resilience, and mitigate physical and transitional risks. The faster companies act, the sooner they will realize the benefits of risk mitigation and earn favor from their most important stakeholders.
Sources
1. Microsoft, “On the road to 2030: Our 2022 Environmental Sustainability Report,” https://blogs.microsoft.com/on-the-issues/2023/05/10/2022-environmental-sustainability-report/
2. Microsoft, “2022 Environmental Sustainability Report,” https://news.microsoft.com/wp-content/uploads/prod/sites/42/2023/05/2022-Environmental-Sustainability-Report.pdf
3. Microsoft, “Carbon Accounting at Microsoft,” https://query.prod.cms.rt.microsoft.com/cms/api/am/binary/RW13XCo
4. McKinsey & Company, “Consumers care about sustainability—and back it up with their wallets,” https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/consumers-care-about-sustainability-and-back-it-up-with-their-wallets
5. Deloitte Insights, “Engaged employees are asking their leaders to take climate action,” https://www2.deloitte.com/uk/en/insights/environmental-social-governance/importance-of-sustainability-to-employees.html
