Expanding beyond our

carbon neutral operations to

accelerate global and local good
 This white paper is a follow-up to “Making an impact with Microsoft’s carbon fee,” which we
published in March 2015. In this paper, we share insight into the evolution of our carbon program
to accelerate global and local good.

Contents
Foreword by Patricia Espinosa, Executive Secretary, UNFCCC ...................................... 3
Foreword by Brad Smith, President and Chief Legal Officer, Microsoft ...................... 5
Executive summary ................................................................................................................... 7
A holistic carbon program: The urgent need for action ................................................. 9
Our program focus to date ................................................................................................................................. 10
What we’ve accomplished................................................................................................................................... 11
What’s next................................................................................................................................................................ 13
How we meet our program goals ....................................................................................... 15
Renewable energy: increasing the supply of renewable energy .......................................................... 15
Carbon offset community projects: supporting sustainable development...................................... 19
Climate Grants: catalyzing and accelerating innovation ......................................................................... 23
Track-and-report: ensuring transparency and accountability ............................................................... 30
In closing ................................................................................................................................... 35
Appendix A: Carbon program partnerships and memberships .................................. 36
Appendix B: Renewable energy procurement criteria .................................................. 39
Appendix C: Carbon offset community project investment criteria .......................... 40

© 2016 Microsoft. All rights reserved.

2 Beyond carbon neutral

Foreword
by Patricia Espinosa, Executive Secretary, UNFCCC
In 2015, governments of the world came together to determine a new direction for global
growth and development. In September, the Sustainable Development Goals, or SDGs, were
agreed. Then, in December, the Paris Climate Change Agreement was adopted, rapidly entering
into force in November 2016. These two visionary agreements hold great potential to stabilize
our climate, proliferate peace and prosperity, and open opportunity for billions of people.

To fulfill this potential, the SDGs and Paris Agreement must transform development, now and
forever, building to ever greater action and ambition over time. This transformation cannot be
achieved by governments alone, no matter how closely national policies and national action
plans align with international cooperation. It will only work if all sections of society—from local
and regional governments to business, investors, and citizens—also contribute at increasing
levels of scale and acceleration.

The good news is that many are already contributing, with some setting ambitious targets on
utilizing renewable energies and others moving funding into ever greener investments. By the
time the landmark United Nations (UN) Paris climate conference was held, well over 11,000
individual and collective commitments to action had been registered by the UN Framework
Convention on Climate Change (UNFCCC), and the numbers continue to grow.

Microsoft is among these corporate leaders on climate change. For example, the UNFCCC
Momentum for Change initiative named Microsoft a 2015 Lighthouse Activity winner, in
recognition of the role that Microsoft’s internal carbon pricing is already playing in meeting the
climate challenge.

A carbon price translates climate impacts into business language. Applying this price internally
encourages ownership of the issue while promoting action across the organization and its
supply chains. Sustainability investments enabled by the pricing structure can accelerate
innovation and drive transformation to a low-emission economy. The greater efficiency enabled
by these investments can drive improvements in profitability and the bottom line.

This represents a new way of doing business. It also shifts corporate accountability out of the
corporate sustainability office to the whole company while providing a clear statement to
shareholders, consumers, and the global community of the corporation’s commitment to
climate action.

An internal carbon price is one action—of many—that progressive companies can take. These
kinds of clear, climate action plans need to be socialized so that more and more businesses in
both the developed and developing world will adopt them.

I welcome the fact that Microsoft is now looking at how to go beyond “carbon neutrality,” not
least because it aligns with one of the Paris Agreement’s long-term aims: namely, to manage

Beyond carbon neutral 3

global emissions down so low that by the second half of the century, everyone is living in a
climate-neutral, carbon-neutral world. The goal is to reach a point where all greenhouse gas
emissions are safely absorbed by healthy forests, soils, and other natural or nature-based
infrastructure.

The Paris Agreement and the SDGs provide a clear pathway to a better future for every man,
woman, and child. Increasingly, companies understand that the successful implementation of
these common and shared agendas will define their future too.

We look forward to working with many more businesses like Microsoft as economies worldwide
embrace global climate action and the wider imperative of sustainable development, now and
over the years and decades to come.

Patricia Espinosa
Executive Secretary
UNFCCC

http://unfccc.int

4 Beyond carbon neutral

Foreword
by Brad Smith, President and Chief Legal Officer, Microsoft
Our world is in the midst of a digital transformation that is changing the way we live, work and
communicate with one another. Advancements in data analytics, machine learning and cloud
computing are creating insights and capabilities that offer the potential to not just help
business, but also address some of humanity’s most pressing problems, including climate
change.

At Microsoft, we recognize that our responsibilities as a leading cloud services provider require
that our business practices have a positive impact on the communities we serve. That’s why we
are creating new solutions with our partners to realize a low-carbon future.

Microsoft’s carbon program is central to our commitment to sustainability. Since 2012, we have
applied a global internal carbon fee model that charges Microsoft business units for carbon
emissions from their operations. The fee is designed to incent efficiency, investments in carbon-
reducing innovations, and the development of sustainable energy projects and technologies—
all of which help minimize our environmental impact.

We in turn invest these fees into global carbon offset projects aimed at building sustainable
communities. These investments not only benefit the environment, but they are also good for
local communities. A byproduct of Microsoft’s investments in reforestation, conservation, clean
water, and clean energy are human health and economic development opportunities, which
have improved the lives of more than 7 million people around the world.

We’re pleased to share our latest carbon program updates and results in this paper and detail
how Microsoft’s carbon fee funds are driving advancements in the following areas:

Renewable energy: We are using the funds to drive long-term commitments and develop
new renewable energy procurement options.
Community projects: We are investing in projects that align with the United Nations (UN)
Sustainable Development Goals, and we are working to help organizations realize the
potential of technology to achieve improved environmental, human health, and biodiversity
outcomes.
Climate Grants: We are evolving our Climate Grant program, which provides funds to
catalyze and accelerate climate-related energy and technology innovation in the
communities where we operate.
Reporting: We are expanding our tracking and reporting to better measure our impact
over time.
Our vision is to create a cloud that is trusted, a cloud that is responsible, and a cloud that is
inclusive—a cloud for global good. Operating our business in a sustainable way is an important

Beyond carbon neutral 5

part of this vision. By sharing our experiences, we hope to spark conversations and provide
lessons that we can all learn from.

Brad Smith
President and Chief Legal Officer
Microsoft Corporation

6 Beyond carbon neutral

Executive summary
We are at the dawn of a new era of unprecedented pace and scale of change: the Fourth
Industrial Revolution, powered by technologies from the physical, digital, and biological spheres.
This revolution holds significant promise for addressing the critical challenge of climate change
by facilitating transformation across every aspect of society as the world transitions to a low-
carbon economy. The revolution is enabled by cloud computing, and in our recently launched
initiative and book A Cloud for Global Good, we detail our commitment to public policy to make
the cloud more trustworthy, responsible, and inclusive.

“At Microsoft, our mission is to empower every person and every

organization on the planet to achieve more. In a world of more than
7 billion people, this plainly comes with a responsibility to advance
sustainability in our operations and to deliver innovative solutions that
will help address the environmental challenges and opportunities that
lie ahead.”
—Brad Smith, President and Chief Legal Officer, Microsoft, May 2016

We believe that a responsible cloud requires a commitment to foster sustainable environmental

practices. Effective July 2012, we made a companywide commitment to operate carbon neutral.
This commitment has led our business to proactively adopt more efficient, sustainable, and
innovative business practices. We fund our commitment through an internal carbon fee, which
holds our business groups financially accountable for the carbon emissions1 associated with
their operations. Since making our carbon neutral commitment, we have reduced emissions by
more than 9 million metric tons of carbon dioxide equivalent (mtCO2e) while integrating
sustainability into our business model.

We recognize that there is more that we can do outside of our operations. We continue to
expand on our vision, going “beyond carbon neutral” to take a more holistic approach, both
globally and locally. This includes engaging our suppliers, quantifying emissions from our
customers’ use of cloud services, working to ensure that our operations are resilient to impacts
from climate change, and accelerating energy and technology innovation.

The carbon fee model remains the cornerstone of our program. As we expand our program, we
will base our work on four desired outcomes: (1) internalize the external cost of our emissions,

1
Throughout this paper, “carbon” and “emissions” refer to all greenhouse gas (GHG) emissions.

Beyond carbon neutral 7

(2) transform the culture of our company, (3) catalyze and accelerate climate-neutral innovation,
and (4) support the transition to a low-carbon economy. We will use the carbon fee funds in
four investment categories to achieve these outcomes:

Renewable energy, helping to expand the renewable energy market worldwide.

Carbon offset community projects, supporting sustainable development globally, in
particular in the areas of our datacenter operations.
Climate Grants, driving climate-related energy and technology innovation, both for our
own internal operations and to contribute to global climate action.
Track-and-report projects, helping to ensure our transparency and accountability.
Our commitment is to work continuously locally to minimize the carbon footprint associated
with our technology while maximizing the potential that it represents for creating positive social
impact globally. By committing to a more holistic approach, we will help our customers, our
partners, and communities around the world to use Microsoft technology to achieve a more
sustainable future.

8 Beyond carbon neutral

A holistic carbon program:
The urgent need for action
The Fourth Industrial Revolution, powered by technology, is transforming how people live
worldwide. We’re seeing a convergence of the physical and digital worlds, driven by the advent
of ubiquitous connectivity, big data, and the cloud. What started as water and steam to
mechanize production was transformed with electricity to fuel mass production and then
electronics and IT to enable automation. As the world enters the Fourth Industrial Revolution, a
fusion of technologies is blurring the lines between the physical, digital, and biological spheres.

Today, these technologies—enabled by the cloud—are “impacting all disciplines, economies and
industries, and even challenging ideas about what it means to be human.”2 As our CEO, Satya
Nadella, says, our vision is that “in the Fourth Industrial Revolution, data is the new currency.
Cloud technology should make it possible for [non-governmental organizations (NGOs)] and
civic organizations to access world-class tech, and from that be able to create world-class
solutions.” Microsoft also recently launched the A Cloud for Global Good initiative and book,
which details more than 70 public policy recommendations in 15 categories to help make cloud
technologies more trustworthy, responsible, and inclusive. This effort reflects our company’s
view of the potential for cloud-powered transformation globally and the shared responsibility
that we have to move technology forward without leaving people behind.

At the same time, in the World Economic Forum (WEF) annual assessment of global risks in
2016, “failure of climate change mitigation and adaptation” was ranked the number one risk in
terms of potential impact on the global economy. It is the first time an environmental risk has
made it to the top category.

This result followed the landmark outcome of the 21st Session of the Conference of the Parties
(COP21). In November 2015, the world’s leaders convened in Paris to reach an historic climate
agreement to limit global warming to well below 2 degrees Celsius above preindustrial levels.
Signed by 195 nations, the agreement ties together ambitious national targets set by
developing and developed nations alike in a bid to significantly reduce the risks and impacts of
climate change. The Paris Agreement received unanimous approval and entered into force in
record time, less than a year after the Paris gathering.

The urgency for action and the need to transition to a low-carbon economy have never been
clearer. Every corporation, organization, and governmental body has the opportunity to

2
“The Fourth Industrial Revolution, by Klaus Schwab,” World Economic Forum (WEF)

Beyond carbon neutral 9

contribute to the goals set out in the Paris Agreement by developing a robust and accountable
plan, helping the world tackle the formidable, urgent challenge represented by climate change.

At Microsoft, we are committed to taking significant action to address climate change. We have
taken a number of steps to manage our environmental footprint, perhaps most notably through
our carbon program. Since 2012, our commitment to carbon neutrality and our carbon fee
model have helped us ensure that we responsibly manage the direct carbon (or climate) impact
of our business.

However, our commitment does not end there. While we are addressing the carbon impact of
our operations and cloud services, we are also embracing the potential to use our technology—
in particular our cloud services—to help individuals, organizations, and communities in the
global transition to a low-carbon economy.

Our program focus to date

Since July 2012, we have operated at 100 percent carbon neutrality—or climate neutrality3—for
all of our operations, including our datacenters, offices, software development labs,
manufacturing plants, and business air travel. As we pursue sustainable operations, we aspire to:

Be lean—reduce energy consumption and travel.

Be green—make environmentally responsible choices with our renewable electricity and
carbon credit procurement.
Be accountable—quantify and hold groups responsible for carbon impact.
Our carbon neutral commitment, together with a focus on being lean, green, and accountable in
our operations, enables us to operate responsibly and grow sustainably.4

Our carbon neutral commitment is underpinned by an internal carbon fee, one of the first of its
kind,5 that holds our business units financially accountable for the emissions from their
operations, including energy consumption and air travel. We earmark the funds that we collect

3
Read the UNFCCC Climate Neutral Now press release to learn more about this initiative.
4
Download our white paper “Becoming carbon neutral: how Microsoft is striving to become
leaner, greener, and more accountable” to learn more about our carbon neutral commitment.
5
According to CDP, the use of internal carbon pricing is on the rise and gaining visibility, as
evidenced through recent articles by Triple Pundit and Environmental Leader.

10 Beyond carbon neutral

through the carbon fee for emissions reduction and climate protection initiatives.6 Our carbon
fee plays a pivotal role in our carbon program.

What we’ve accomplished

Since we implemented the carbon fee in July 2012, we have reduced our emissions by more
than 9 million mtCO2e, invested in more than 14 million megawatt-hours (MWh) of green
power, and had an impact on more than 7 million people through carbon offset community
project investments. The fee has helped establish a culture of sustainability in our company:
sustainability is now an expectation of our leadership for how we operate our datacenters
and facilities.

The model has been recognized globally for its innovation and impact—Microsoft is the US
Environmental Protection Agency (EPA) 2016 Climate Leadership Award winner and a 2015
Lighthouse Activity winner under the United Nations (UN) Framework Convention on Climate
Change (UNFCCC)’s Momentum for Change initiative.7

6
Download our white paper “The Microsoft carbon fee: the what, why, and how of Microsoft’s
efforts to drive culture change” to learn more about the carbon fee model.
7
See also the Momentum for Change video on the Microsoft carbon fee.

Beyond carbon neutral 11

 “Microsoft’s Global Carbon Fee is a strong example of the private sector
leading the way towards [a] highly resilient low-carbon future. Microsoft’s
financial model that puts an incremental fee on carbon emissions, as well
as its focus on projects that will accelerate climate friendly innovation, is a
replicable example of non-state action that will help achieve the goals of
the Paris Agreement.”
—UNFCCC Momentum for Change Annual Report, 2016

The immediate benefits from our carbon program are clear—it has helped us to increase
awareness and education while raising funds to ignite environmental initiatives across the
company. In the long term, it is also helping us to grow strategically as a sustainable business.8

Partnerships with NGOs, environmental associations, coalitions, and industry experts play an
important role in our carbon program. We form partnerships to support our work, from helping
to define our internal processes for maximum effect to sharing our lessons learned to
supporting our work in communities. For a list of some of our key partnerships and
memberships to date, please see Appendix A.

Sharing our best practices

When we made a commitment to carbon neutrality and introduced our carbon fee model in July
2012, we made an additional commitment to share our best practices and learnings, to help
other organizations benefit from our experience. We built our carbon fee model to be as simple
and replicable as possible, in the hopes that others would adopt and adapt it to fit their own
organizational requirements. In the last four years, we have published several white papers9 and
participated in a number of advisory councils to help our customers overcome potential hurdles
as they work to implement their own ambitious emissions targets and internal carbon fees.

8
Download our white paper “Making an impact with Microsoft’s carbon fee: inspiring a virtuous
cycle of environmental investment and action” to learn more about what we have achieved with
the carbon fee.
9
(1) “Becoming carbon neutral: how Microsoft is striving to become leaner, greener, and more
accountable”; (2) “Corporate policies for carbon impact: how Microsoft uses corporate
environmental policy to increase accountability”; (3) “The Microsoft carbon fee: the what, why,
and how of Microsoft’s efforts to drive culture change”; (4) “Making an impact with Microsoft’s
carbon fee: inspiring a virtuous cycle of environmental investment and action”

12 Beyond carbon neutral

 Sponsoring a working group for voluntary corporate carbon pricing

Microsoft has sponsored a working group for organizations interested in exploring the value
of internal corporate carbon pricing models to drive emissions reductions and potentially raise
funds that can be spent for tangible environmental and social outcomes. Convened by the
Center for Climate and Energy Solutions (C2ES), the purpose of the group is to provide a
forum for sharing and learning about internal pricing models, rather than discussing carbon
pricing policy.

In July 2016, the first meeting was held in Washington, D.C., in conjunction with the C2ES
Business Environmental Leadership Council (BELC). Approximately three dozen companies
participated, discussing the drivers for setting a carbon price, the various models of internal
carbon pricing, and considerations when establishing an internal carbon price. This meeting
was followed by a webinar in September 2016, focused on the experience of Microsoft in
implementing an internal carbon fee.

If you are interested in participating, either to learn more about internal pricing models or to
share your own experience, please contact Timothy Juliani, Senior Director of Business Strategy
and Partnerships at C2ES ([email protected]).

What’s next
As a company, we continually push ourselves to do more and to ask ourselves, “what’s next?”

“How can we make a difference in this world in a way that no other

company can?”
—Satya Nadella, CEO, Microsoft

To address this question for our carbon program, we began by outlining our vision through four
sequential desired outcomes:

Internalize the external cost of our emissions

By charging our business groups a carbon fee, we give a voice to climate change in our
organization, internalizing the external cost of our emissions to make the carbon impact of
our business overt and understandable in business language. It helps us to educate our
organization on the need to invest upfront for long-term business and social impact.

Beyond carbon neutral 13

 Transform the culture of our company
Internalizing the external cost of our emissions has helped us to transform the culture of our
company. Our carbon neutral commitment, together with our carbon fee model, establishes
an expectation for environmental and climate responsibility in our company. To enable this
culture shift, the fee provides funding for efficiency and innovation initiatives that have a
long-term impact—enabling our response to climate change. This financial model has
implanted sustainability into the core of our organizational culture.

Catalyze and accelerate climate-neutral innovation

By transforming the culture of our company, we have the foundation to catalyze and
accelerate climate-neutral innovation. The carbon fund provides the financial means to
support and drive innovative climate-neutral projects. We prioritize investments that will
deliver long-term global and local impact—providing climate resiliency for our business
while enabling a long-lasting contribution to social good and the climate change challenge.

Support the transition to a low-carbon economy

Our investments in climate-neutral innovation directly support the transition to a low-carbon
economy. As we evolve our carbon program, we are beginning to measure its impact not just
in terms of organizational value (building business resilience to climate change) but also in
terms of social contribution. We prioritize investments that take into account our effect on
the world outside of our direct organizational boundary and that empower communities
globally to respond to climate change. Through the financial resources and technological
innovations made possible by our carbon program, we are helping with the long-term
transition to a low-carbon economy.

As we expand our vision and aim for even greater impact, we will continue to share our best
practices along the way.

The following sections provide a closer look at how we

are investing our carbon fee fund in renewable energy,
carbon offset community projects, Climate Grant
innovation, and track-and-report projects to help us
meet the goals of our expanding vision while
continuing to meet our carbon neutral commitment.

14 Beyond carbon neutral

How we meet our
program goals
Our carbon fee model, which has been fundamental to our carbon program, will continue to
provide essential funding as we broaden our approach. To help ensure that we successfully
meet the goals of our carbon program, we invest the funds in projects in four key categories:
renewable energy, carbon offset community projects, Climate Grant innovation, and track-and-
report projects. The following sections provide a closer look at our investments in each of
these categories.

Renewable energy: increasing the supply of renewable

energy
Energy consumption is the single biggest contributor to our carbon footprint. Our datacenters
around the world consume as much electricity as a small state in the United States, and there
may come a time in the future when our datacenters will consume the same amount of
electricity as a small country in Europe. We recognize our responsibility to work together with
industry and governments to ensure that our electricity use takes into account the needs of
the environment.

Increasing our direct sourcing of renewable energy

Microsoft has publicly committed to having our datacenters rely directly on a larger
percentage of renewable electricity over time. Today roughly 44 percent of the electricity used
by our datacenters comes directly from renewable generated electricity sources. Our goal is to
pass the 50 percent milestone by the end of 2018, to top 60 percent early in the next decade,
and then to keep improving from there.10

10
See the blog post “Greener datacenters for a brighter future: Microsoft’s commitment to
renewable energy” by Brad Smith, Microsoft President and Chief Legal Officer, on our
commitment to renewable energy for our datacenters.

Beyond carbon neutral 15

We address the carbon footprint of our electricity use through our carbon program. With help
from the carbon fee fund, Microsoft has been purchasing 100 percent renewable electricity since
FY14 (beginning in July 2013), and in November 2015 we joined RE100, a collaborative initiative
of influential businesses committed to 100 percent renewable electricity.

“By joining RE100, we have the opportunity to collaborate with other

sustainability leaders, share best practices, and work collectively to drive
change to achieve greater global impact. Together, we send a strong
market signal to utilities that there is demand for more renewable energy
on the grid, which should in turn lead to increased supply, benefitting both
companies and the public.”
—Rob Bernard, Chief Environmental Strategist, Microsoft

We are committed to using our renewable energy procurement policies and decisions to help
increase the size of the renewable energy market and ease access to renewable energy for
everyone, globally. Specifically, we are:

Supporting the renewable energy market by making long-term commitments.

Developing new renewable energy procurement options.

Supporting the renewable energy market by making long-

term commitments
To date we have achieved our commitment to 100 percent renewable electricity in large part
through external green power purchases (in the form of renewable energy certificates [RECs] or
the equivalent11) equal to our electricity consumption (megawatt-hours [MWh]). Our
investments have been at a scale to earn Microsoft our third US EPA Green Power Partner of the
Year award as the second largest green power purchaser in the United States in 2015. We have
publicly committed to retiring—and not reselling—all of the “green” or renewable energy
attributes to ensure that we maintain the exclusive ownership of the renewable energy claim.
This ensures that there is no double counting for the renewable energy that we purchase,
thereby increasing our impact in expanding the renewable energy market.

11
We purchase renewable energy attributes through renewable energy certificates (RECs) in the
United States, guarantees of origin (GOs) in the European Union, GreenPower instruments in
Australia, and various other instruments including iREC and GoldPower across other markets.
See Appendix B for a list of our renewable energy procurement criteria.

16 Beyond carbon neutral

Microsoft green power purchases

An interactive Bing map provides information on each of these green power purchases.

Going forward, we are focusing on having a more direct impact on growing the renewable
energy market while maintaining our commitment to 100 percent renewable electricity. One of
our strategies will be to increasingly shift from buying RECs (or the equivalent) on a short-term
basis to procuring them through long-term commitments, such as through power purchase
agreements (PPAs) in the areas of our operations, including our datacenters. Longer term
commitments can increase our influence on the renewable energy market by directly ensuring
that new renewable energy is added to the grid. This aligns with our stated principle of
accelerating the transition to a clean energy infrastructure by working to bring new renewable
energy sources online through investments in new projects in places in which we operate. When
we commit to a PPA, we are often providing essential financial backing to enable the initial
development of the renewable energy project.12

12
We discuss the benefits of long-term contractual commitments in greater detail in our white
paper “Making an impact with Microsoft’s carbon fee: inspiring a virtuous cycle of environmental
investment and action.”

Beyond carbon neutral 17

We have signed several long-term agreements with funding support from the carbon program.
Examples include a 20-year PPA to purchase 100 percent of the output from the 110-megawatt
(MW) Keechi Wind farm in Texas (which began generating power in 2015) and a 20-year PPA to
purchase 100 percent of the output from the 175-MW Pilot Hill Wind Farm in Illinois.

Developing new renewable energy procurement options

Although we will continue to look to PPAs as an important tool in our renewable energy
purchasing strategy, we recognize that they are not a one-size-fits-all solution. A PPA requires
both a large and a long-term commitment of funds, putting it out of reach for any but the
largest corporate purchasers. We have started to use our experience and our market influence
to ask the question, is there a better way? For example, we have already formed a unique
partnership in Virginia to support the addition of new renewable energy to the grid (see the
section Public-private partnership in Virginia to bring new solar energy online).

We are continuing to ask questions, such as could we bring additional partners to these
agreements—such as a utility, a bank trading desk, or even an insurer—to make the transaction
more appealing to both the buyer and the seller? Is there an opportunity to create a new
renewable energy purchasing structure that other companies could then replicate in a
simplified, standardized way that would help renewable energy products to sell more, and more
quickly? We have an opportunity to use our influence to develop new structures, products,
investments, and technologies to support the renewable energy industry in ways that have not
been considered before. Our carbon neutral and renewable energy commitments provide us
with the impetus to explore these solutions, and the carbon fee provides funds to pursue them.

Public-private partnership in Virginia to bring new solar energy online

One of the hurdles to achieving 100 percent renewable energy is that in some regions where
Microsoft facilities are located, renewable energy sources are simply not yet available. We are
beginning to work proactively with local power utilities to create a renewable energy supply.
For example, we recently announced the launch of an innovative public-private partnership
with Microsoft, the Commonwealth of Virginia, and Dominion Virginia Power that will bring 20
megawatts of new solar energy onto the grid in Virginia. This project will support the growth
of renewable energy in Virginia while allowing Microsoft to claim the green (renewable energy)
attributes from the project.

18 Beyond carbon neutral

Carbon offset community projects: supporting
sustainable development
Through carbon offset community projects, we purchase carbon credits that compensate for the
emissions associated with our business air travel and any energy consumption in regions where
we cannot procure renewable energy. These investments also positively affect communities
around the world. To date, the carbon offset community projects that we have invested in have
had an impact on more than 7 million people. These projects are directly contributing to the
development of a low-carbon economy while helping increase energy access, improve
education and healthcare, and empower women.

The Microsoft global carbon offset community project portfolio

An interactive Bing map provides information on each of these projects.

To help ensure that we maximize the impact of our investments while supporting sustainable
development, going forward we will focus on:

Increasing our investments in alignment with the UN Sustainable Development Goals.

Supporting community projects with technology.

Beyond carbon neutral 19

Increasing our investments in alignment with the UN Sustainable
Development Goals
We carefully select the projects that we invest in based on those we feel will have the greatest
impact and align most closely with our criteria (see Appendix C for a list of our criteria).
Furthermore, we increasingly prioritize alignment with the UN Sustainable Development Goals
(SDGs), helping ensure that our investments support a unified approach to climate action and
broader community action:13

SDG #6 Clean water and sanitation—SDG #6 is about ensuring the

availability and sustainable management of water and sanitation for all.
This includes supporting and strengthening the participation of local
communities. Today, a quarter of the world’s population uses
contaminated drinking water, and in Guatemala, water-borne disease has
been identified as a national priority.
Through one of our projects there,
water filters are disseminated in
partnership with the winner of the
World Bank 2011 Innovation Award,
Ecofiltro. The devices are gravity fed
and remove 99 percent of pathogens,
eliminating the need to boil water
before use.

SDG #7 Affordable and clean energy—SDG #7 is about ensuring access

to affordable, reliable, sustainable, and modern energy for all. This
includes substantially increasing the share of renewable energy in the
global energy mix and expanding and upgrading the infrastructure in
developing countries. Our offset investments include a number of

13
The UN has established 17 SDGs, which include 169 individual targets to achieve by 2030.
These goals are aimed at achieving long-term sustainable development, elimination of poverty,
and an overall healthy planet. Designed with a bottom-up approach, they help focus
government policy, programs, innovation, and spending. In addition, they help to highlight the
need for private sector involvement and partnerships for achieving success.

20 Beyond carbon neutral

renewable energy projects. For
example, solar projects in India are
enabling the poorest households to
access electricity and solar water
heating helps to displace more
carbon-intensive electricity from
the grid.

SDG #13 Climate action—SDG #13 is about taking urgent action to

combat climate change and its effects. It strives to improve institutional
capacity on climate change mitigation and by 2020 to mobilize
$100 billion annually from a variety of sources to address the needs of
developing countries. Our entire portfolio of carbon offset community
projects is designed to reduce emissions. Since 2012, Microsoft has reduced more than
2 million mtCO2e through 47 emission reduction projects in 26 countries. These projects
have all been validated and verified to independent standards—the Verified Carbon
Standard, the Gold Standard, Climate Action Reserve, and/or American Carbon Registry—to
ensure that they deliver the emission reductions claimed. As standards and processes
emerge for applying private sector investments and activities against SDG targets, we
expect our carbon offset portfolio to contribute fully to the climate action goal.

SDG #15 Life on land—SDG #15 is about protecting, restoring, and

promoting the sustainable use of terrestrial ecosystems, sustainably
managing forests, combating desertification, halting and reversing land
degradation, and halting biodiversity loss. More than a third of our offset
projects are forestry related. For example, in the Kenyan communities of
Meru and Nanyuki, a reforestation project has brought
together 8,700 tree planting activities across 63,000
members, half of whom are below the poverty line
(which is approximately US$2 per day).

Additional indirect benefits—Our offset project

portfolio has many secondary benefits, including helping to reduce poverty and hunger,
helping to improve health and well-being, and contributing to gender equality. For
example, more efficient stoves used for heating or cooking also improve indoor air quality
and free up time for women to spend on other family or income-earning opportunities.
Renewable energy projects help improve education, such as by providing students with

Beyond carbon neutral 21

 access to light through solar charging stations to study at home at night. And forestry
projects help add to the local food supply through the planting of new fruit trees and by
teaching farmers how to increase food yields by 2 to 10 times through conservation
farming.
We hope to work in closer partnership with the UN to explore opportunities to further align our
carbon offset community investments with the SDG goals and targets.

Supporting community projects with technology

In many cases, we actively work to support projects beyond a financial contribution by exploring
how we can help the project leaders use technology to achieve greater efficiencies and effect.
Through the program, we work with global NGOs, such as The Wildlife Conservation Society, to
provide these projects with continued technology support, including training local community
members on technology support to create new jobs and ensure that the technology use can be
sustained beyond the project. These partnerships help us meet our goal to empower every
person on the planet with technology.

Using Microsoft technology to support carbon offset community projects

While much of the discussion around the role of technology in addressing the climate crisis
focuses on the potential for transformative change, such as in the energy ecosystem,
technology also plays a valuable supporting role as pilots in our carbon offset community
projects. A number of the carbon offset community projects that we support now use
Microsoft technology—to collect and share data, as an educational tool, and to monitor
project process. For example:

The Rimba Raya REDD+ project in Indonesia is using Microsoft Lumia smartphones and
Windows Surface Pro tablets to acquire, annotate, and store geotagged photos and
videos, particularly from the field.
The Makira REDD+ project in Madagascar is using Surface Pro tablets to teach English,
computing, and social media skills to youth within a framework of environmental
education (such as sustainable agriculture); for this project, Microsoft has partnered with
the Wildlife Conservation Society (WCS), which supports the local community with
governance and education, including providing the tablets. The project is also enthusiastic
about investigating options to use tablets or smartphones for ecological monitoring
activities.
The Kulera Landscape REDD+ project in Malawi is using smartphones to support field-
based community monitoring of activities designed to reduce deforestation in and around
the project's protected areas; the phones are not only helping members to gather
important monitoring data but also breaking down difficult communication barriers
between law enforcement and project members.

22 Beyond carbon neutral

Putting Microsoft Research to work for carbon offset community projects

In recent years, Microsoft Research has been working on low-power location-aware (global
positioning system, or GPS) services. We are currently exploring the potential to use these
services to track species in wildlife reserves in Africa, in particular for one of the carbon offset
community projects that Microsoft invests in: the Kulera Landscape REDD+ project in Malawi.
Through this project, the Nkhotakota Wildlife and Nyika-Vwaza Community Associations
partnered with Malawi’s Department of Parks and Wildlife to co-manage three key protected
areas under significant risk of deforestation. The project covers 750,000 hectares and affects
more than 45,000 households (or 225,000 people) in 800 villages. The use of sensors to track
wildlife would support these communities in the transition from a focus on extraction of
carbon-dense forests to one of protection of wildlife, while creating an alternative revenue
stream though tourism.

Climate Grants: catalyzing and accelerating innovation

When we first introduced the Climate Grant program (originally called internal carbon reduction
projects) in 2012, a primary and important focus was to enable Microsoft subsidiaries and
business groups to implement sustainability projects beyond “business as usual.” These groups
have proactively implemented projects focused on efficiency (such as lighting, heating,
ventilation, and air conditioning [HVAC], and building management systems) and innovation
(such as a biogas feasibility study and an underwater datacenter; see the Supporting local
energy and technology innovation section for more information). Between FY13 and FY16, we
invested more than $4.2 million in these projects, generating net savings of more than
$6.5 million and 56,000 mtCO2e.

Beyond carbon neutral 23

Microsoft Climate Grant projects

An interactive Bing map provides information on each of these Climate Grant projects.

In many cases, this funding has accelerated making sustainability part of our local business
practices, driving awareness and education in our business groups and subsidiaries around the
world and creating momentum for environmental responsibility. We are beginning to transition
the more mature projects (developed in 2012) back into the business groups, for them to
manage using their own funds without further support through the carbon program; these kinds
of efficiency projects in particular are becoming a baseline expectation for how we operate our
business.

Over the years we have expanded our Climate Grant program, with a focus on catalyzing and
accelerating climate-related energy and technology innovation and the development of new
carbon reduction projects. We focus on a range of projects, with the aim of realizing measurable
results both across our operations and more broadly, particularly in our prioritized datacenter
locations.

Our goals with our Climate Grant funding include:

Supporting local energy and technology innovation.

Transforming the energy ecosystem.
Designing sustainable facilities.
Reducing, reusing, and recycling e-waste.

Supporting local energy and technology innovation

We will continue to support local subsidiary-led and business group–led innovation, with an
increasing focus on projects with the potential to enable energy and technology innovation and
drive change. For example, Microsoft Operations Puerto Rico (MOPR) recently used Climate

24 Beyond carbon neutral

Grant funds to conduct a feasibility study on the potential use of biogas from a nearby landfill or
natural gas to generate its own electricity using combined heat and power (CHP) technology.
MOPR aspires to be a pioneer in the industry, becoming the first Microsoft facility to use this
technology. The project will reduce dependency on the island’s petroleum-based power
production. This will reduce cost, provide an environmentally friendlier (cleaner) source of
energy, and help stimulate local economic investment in this kind of energy source.

Testing the viability of a subsea datacenter

Climate Grant funding recently supported the first phase of a pilot subsea datacenter, as part
of broader research that will explore alternative renewable energy generation. Through
“Project Natick,” we designed, manufactured, and operated the subsea datacenter on the
seafloor approximately 1 kilometer off the Pacific coast of the United States. Half of the world’s
population lives within 200 kilometers of the sea, so undersea datacenters could put the data
closer to users while providing greater sustainability. We are still in the early stages of the
research, but we envision that future subsea datacenters will be powered by renewable marine
energy sources such as offshore wind, wave, tide, or current. According to the US Energy
Information Administration (EIA), about 6 percent of energy is lost in transmission from the
power plant to the datacenter, but co-location virtually eliminates this loss. Furthermore,
subsea datacenters consume no water for cooling or any other purpose. In contrast, they
would require less than 10 watts for cooling, for a dramatic reduction in energy consumption.
We envision subsea datacenters to
be truly zero emission: no waste
products, whether due to the power
generation, computers, or human
maintainers, will be emitted into the
environment. And they will use
fewer materials, be made from
recycled material, and be fully
recycled at their end of life.

Beyond carbon neutral 25

 Supporting native woodlands afforestation in Ireland

Microsoft has both a datacenter and our EMEA (Europe, Middle East, and Africa) headquarters
in Dublin, Ireland. In keeping with our focus on investing in the areas in which we operate, we
investigated project options in Ireland and found that there were no suitable projects currently
available. To address this challenge, we are working with Natural Capital Partners and Forest
Carbon Limited to develop and fund an Irish Forest Creation project, which will help us
contribute to Ireland’s forest creation commitments and emission reduction efforts by
financing the creation of approximately 321 acres (130 hectares) of new native woodlands
through up to 15 sites. This project is similar to those that we invest in with carbon offset
community project funding, but in this case the project does not generate carbon credits and
therefore does not help us directly meet our carbon neutral commitment. Irish Forest Creation
activities will be conducted in accordance
with the UK Woodland Carbon Code to
ensure that they pass an additionality
test; are sustainably managed to Ireland’s
standards; provide reliable estimates of
the amount of carbon to be sequestered
as a result of the tree planting; and meet
transparent criteria and standards to
ensure that real carbon benefits are
delivered and independently verified.

Transforming the energy ecosystem

A portion of our Climate Grant funds is dedicated to supporting research into optimizing our
datacenters to achieve greater efficiencies and an even more sustainable cloud ecosystem. This
research has the potential to help accelerate the transition to a greener grid at large. We have
an ambitious goal to make the datacenter disappear: operating on 100 percent carbon-free
electricity and eventually eliminating our impact on the ecosystem. This is a multistage, long-
term plan to evolve datacenter technology with the grid in mind and then use that technology
to enable low-cost, highly available renewable energy for the world.

26 Beyond carbon neutral

 “We are training our datacenters to integrate with renewable energy,
helping clean up the grid for future generations. We believe the datacenter
is the ideal place to engineer, test, and optimize new technology that
benefits the rest of the world. The future datacenter will go from being a
liability on the grid to being an asset—using its infrastructure to balance
renewables and relieve congestion on the grid.”
—Sean James, Senior Research Program Manager, Energy Strategy &
Research, Microsoft

In the short term, we are building a prototype datacenter that replaces high-emission diesel
generators used in our backup power generation with lower-emission natural gas generators.
We are also exploring the benefits and challenges of integrating the datacenter with the grid,
initially by having these natural gas generators do double duty and replace the peaking plants
that grid operators use to balance the intermittent supply of renewable energy. Generators and
peaking plants are unavoidable realities for today’s datacenters and grid operators, but moving
to a single generator that uses lower emission fuel could go a long way to reducing the carbon
footprint.

Our long-term focus is to transform the energy supply chain. We have a host of projects
addressing power generation, energy storage, renewable gas (including biogas and gas derived
from wind or solar), and cooling. For example, we are exploring how we can expand the capacity
of datacenter energy storage to be able to accommodate the needs of the grid as well. In
particular, we are conducting research into distributed generation technologies, such as flow
batteries and hydrogen energy storage combined with fuel cell technology, to make energy
storage higher capacity and longer lasting. Distributed generation systems have the potential
for radically greater efficiency—and therefore lower emissions. Bringing energy consumption
closer to energy generation helps reduce energy losses, improve reliability, and minimize the
need for costly investments in new infrastructure.

“Distributed generation represents a major shift in the energy sector that

will dramatically change how datacenters operate.”
—Brian Janous, Director of Energy Strategy, Microsoft

We collaborate extensively with other like-minded groups to support our research, including
universities (such as the University of Washington, University of California Irvine, Villanova
University, University of Maryland, Carnegie Mellon, and South Dakota State University),
corporations (including GE, Siemens, Eaton, NRG, Saint Gobain, and ABB), and startup
companies (including SolidPower, Redflow, Primus, Vizn, Redox, Super Critical CO2, ICRTech, and
Ceres Fuel Cell).

Beyond carbon neutral 27

Designing sustainable facilities
Operationally, a key concern for Microsoft is how efficiently we run our campuses. By some
estimates, buildings account for upwards of 40 percent of US total energy consumption,14 and
so they were a natural focus when our facilities team looked at tackling the growing cost and
footprint of Microsoft operations. In what became known as our Energy Smart Buildings (ESB)
program, the team used an analytical software “blanket” to join together 38,000 assets of
disparate, sensor-enabled equipment across the 125 buildings on our Puget Sound campus. The
program identifies thousands of maintenance and repair projects each year, accruing to 10–
11 percent building energy savings annually. In combination with lab consolidation and energy
conservation measures, the program helped us decrease energy consumption in our facilities
globally by 20 percent from FY12 to FY16. Many of the ESB projects have been accelerated using
Climate Grant funding. We’ve since expanded the program to our Silicon Valley and Las Colinas
campuses, with additional deployments underway globally.

“The next big opportunity for our facilities is to expand the capabilities of
our ESB program to develop ’sustainable smart buildings’—adding
capabilities that monitor and provide insight on other important
environmental elements beyond energy, such as water and waste.”
—Jay Pittenger, Senior Director, Real Estate & Facilities, Microsoft

The team is now looking to expand on the ESB program to encompass a broader sustainability
approach, incorporating elements such as water and waste. With Climate Grant funding, they
have initiated development of campus sustainability plans to address a common challenge faced
by owners of large real estate portfolios everywhere: buildings and systems that weren’t
originally designed to be optimized for sustainability. This effort has inspired a strong
sustainability focus within our facilities team.

Reducing, reusing, and recycling e-waste

As a large technology company, we inevitably generate e-waste (waste produced from retired
electronic equipment) through our internal operations. And although a much smaller
contributor to our emissions than energy consumption, e-waste carries its own carbon footprint.

14
US Energy Information Administration (EIA) [based on residential and commercial sector
energy consumption, which is mostly building related]; the remaining 60 percent of total energy
consumption is from the industrial and transportation sectors.

28 Beyond carbon neutral

Our Microsoft IT Asset Disposition (ITAD) initiative helps us to minimize this impact and limit the
amount of e-waste that we send to landfills. Through the ITAD initiative, we support the
recycling and reuse of equipment that Microsoft business units no longer require, helping to
reduce energy consumption, greenhouse gas emissions, and hazardous waste. Climate Grant
funding has enabled the growth of this initiative in both scope and geographic reach across our
company. In FY15, we processed more than 235,000 assets through this initiative in 50 countries,
saving 4,420 mtCO2e.

In FY16, we expanded the initiative to cover 70 countries and processed more than 300,000
assets. It is our ongoing commitment to ensure that we are acting in an environmentally
responsible manner across all areas of our business. Our philosophy is to reuse and recycle
wherever possible to optimize the value of our IT assets throughout their life cycle. This initiative
is an example of one that has matured to the point that it no longer requires Climate Grant
funding: it will begin funding itself from FY18 (which begins July 2017).

Hackathon* idea profile: Devices4Good

The goal: Empower youth, nonprofits, and migrants with devices, software, and skills by
redefining device giving within Microsoft.

The idea: Develop an initiative to donate in-scope unused devices to underserved communities
and augment that with skill building, mentorship, and impact metrics to help solve one of the
world’s greatest societal problems—access to technology and skills—while truly living our
mission of empowering others to do more and achieve more.

* The annual 38.5-hour Microsoft global hackathon brings together employees to work on projects that inspire
them. The best “hacks” (as voted by employees) go to the senior leadership team for review. Devices4Good won first
place in the “Inspired Me” category globally; it was also a winner at the Redmond Science Fair.

E-waste donation

We have recently initiated a pilot e-waste donation program in France. Developed in response
to increasing interest from both external stakeholders and our own employees, the pilot
program donates refurbished Microsoft-owned devices, notebooks, desktops, monitors, and
other equipment (typically 3–4 years old) to provide charitable organizations with access to
affordable, discounted hardware technology. TechSoup, our global partner for donations, posts
any suitable devices from the pilot to their online portal, where NGOs and charities can register
their interest and place orders. We plan to expand the program to other geographies pending
the results of this initial pilot.

Beyond carbon neutral 29

Track-and-report: ensuring transparency and accountability
Our track-and-report initiatives help ensure that we meet our transparency and accountability
commitments. A portion of track-and-report funding is dedicated to the fundamental logistics
and reporting requirements of our carbon program. We track our emissions and energy for
1,200 facilities in 110 countries, allocate our carbon fee by 12 business groups, and publicly
report our actions. Each year we have our emissions and the attainment of our carbon neutrality
and 100 percent renewable electricity commitments verified by a third party. We report the full
results of our carbon accounting and verification through both the annual CDP climate change
program and the annual Microsoft Corporate Social Responsibility (CSR) Report (formerly the
Microsoft Citizenship Report). We also respond to requests for our emissions and energy data to
support reporting by Greenpeace, the US EPA Green Power Partnership, RE100, the Dow Jones
Sustainability Index, and Newsweek. We have appeared on the CDP Climate A List—which
recognizes companies that are leading in their actions to reduce emissions and mitigate climate
change—since 2013.

The remainder of our track-and-report funding is committed to specialized energy and climate-
related initiatives. In FY17, these include:

Establishing ambitious science-based emissions reduction targets.

Measuring and communicating the emissions associated with our products and services.
Engaging with our suppliers to help reduce their climate impact.
Replacing business travel with online collaboration.

Establishing ambitious science-based emissions reduction targets

In our 2016 CDP climate change response, we reported publicly for the first time a science-
based target (SBT)—an emissions reduction goal in line with the level of decarbonization
required to keep global temperature increase below 2 degrees Celsius compared with
preindustrial temperatures. This target sets both mid-term and long-term emissions reduction
commitments: we will reduce our Scope 1 and Scope 2 (market-based) emissions by 25 percent
by 2020 and by 50 percent by 2036, from a 2013 base year (substantially more than the
2.1 percent annual reduction required by CDP). This commitment represents a level of ambition
that allows us to take responsibility for the emission impacts associated with our operations and
position in the global economy.

30 Beyond carbon neutral

We’re currently exploring the potential to expand this SBT to be more reflective of our large
value chain, from the suppliers that support our product manufacturing and operations to our
product design and performance.

Measuring and communicating the emissions associated with our products

and services
The emissions associated with our customers’ use of the products and services that we provide
vastly exceed the emissions from our own operations. By some estimates, these emissions from
customer activity are more than five times those from product development, manufacturing, and
service delivery. A key step in reducing the emissions associated with the use of our products
and services is to give our customers a clear picture of their carbon footprint, helping them
make conscious and more sustainable decisions about their use of our technology.

As the global demand for cloud computing grows, there is increasing interest in its
environmental impact, in particular the emissions from the electricity used to power cloud
services. In 2010, we published the results of a cloud computing sustainability study (sponsored
by Microsoft and conducted by Accenture and WSP | Parsons Brinckerhoff), which determined
that by switching from on-premises computing to Microsoft cloud services, companies could
reduce the associated energy use and carbon emissions by 30–90 percent. With Microsoft cloud
services, the inherent low-carbon advantage of using the cloud is complemented by our focus
on lean, green, and accountable operations, including our efficiency investments and
commitment to 100 percent renewable electricity.

We will continue to expand and evolve how we measure and communicate the carbon impact of
our cloud services, and with track-and-report funding through the carbon program we’re
currently exploring the potential to model customer-specific footprints for our growing portfolio
of services.

Engaging with our suppliers to help reduce their climate impact

With more than 50,000 suppliers to our business, we operate at a scale where our supply chain
policies and choices have the potential for broad positive impact. We work with both our direct
electronic hardware manufacturing and packaging suppliers and our indirect non-manufacturing
suppliers to understand and help to reduce their carbon footprints.

Manufacturing supplier engagement

Our manufacturing suppliers (direct supply chain) provide everything from hardware
components to packaging for our devices, including tablets, desktop computers, collaboration
devices, gaming consoles, and accessories. Since 2008, we have required all of our directly
contracted tier 1 manufacturing suppliers and we have requested our tier 2 manufacturing
suppliers that represent the remainder of our top 80 percent of manufacturing spend to report
their annual carbon emissions to Microsoft for inclusion in the Microsoft CDP climate

Beyond carbon neutral 31

response.15 Our goal is to understand our operating baseline, establish systems to routinely
measure and monitor sustainability indicators, and then work with our suppliers to establish and
work toward improvement goals that reduce the environmental impact of the Microsoft device
business. We embed sustainability requirements directly into the roles, responsibilities, and
business practices of our supply chain organization and partners and actively engage with our
teams and suppliers through training, systematic implementation and improvement, and
monitoring to help ensure that they meet these requirements.

Non-manufacturing supplier policies and engagement

Our primary method for engaging on emissions with our indirect non-manufacturing suppliers
(those supporting our operations) is through the CDP Supply Chain Program. After joining the
program, we quickly increased the number of participating suppliers by nine times in two years,
from 23 in 2013 to 155 participants in 2015. The current focus is on helping our top 100 non-
manufacturing suppliers to improve their CDP performance through capability training as well as
adding a quarterly emissions performance measure to our supplier business scorecards where
possible. Furthermore, strategic business process outsourcing (BPO) global suppliers who
respond to Microsoft requests for proposal (RFPs) can earn more points if they are CDP
responders.

“…all Microsoft Suppliers must, without limitation…endeavor to reduce or

eliminate waste of all types, including water and energy.”
—Microsoft Supplier Code of Conduct, 2016

In addition, in 2015 we established a Microsoft Supplier Program (MSP) Excellence Award for
Climate Change Leadership. This award recognizes the non-manufacturing supplier that best
demonstrates accountability for carbon management while reducing the emissions associated
with the goods and services that they provide to Microsoft—through activities that drive energy
efficiency, yield process improvements, or expand the use of low-carbon and zero-carbon
energy sources.16 For example, Infosys, the 2016 winner of the award, has committed to
reducing Scope 2 emissions by 100 percent, sourcing 100 percent renewable energy to meet
electricity requirements, and cutting electricity use intensity (consumption relative to full-time

15
The annual CDP disclosure includes the carbon dioxide equivalent (CO2e) emissions
associated with manufacturing, transportation, product use, and disposal throughout the life
cycle of a product.
16
See the Microsoft News Center announcement for more details on this award.

32 Beyond carbon neutral

equivalent employees) in half by 2018. Between 2008 and 2015 they reduced per capita Scope 1
and Scope 2 emissions by 57 percent.

We can influence supplier carbon performance through the choices that we make in procuring
goods and services to operate our business. We are beginning to look at the carbon embedded
in the services, products, and components that we purchase (that is, their carbon footprint
based on our suppliers’ operations, including energy supply, manufacturing processes, and
material selections). For example, one of the suppliers that we purchase carpet from is Interface,
a company long renowned for its commitment to sustainability in flooring design and services.
Interface offers carpet that is third party verified as climate neutral and publicly reports its
company's carbon emissions through CDP. Our goal is to increasingly direct our procurement
budget—for everything from the furniture in our offices to the concrete that we use in building
construction—to companies like Interface that prioritize the environment.

Looking forward, we are exploring options to deliver a supplier capacity-building toolkit based
on our experience. The kit would provide guidance on topics such as making a carbon neutral
commitment, implementing a carbon fee model, increasing energy efficiency, and making
effective investments in renewable energy attribute certificates, onsite renewable energy, and
carbon offsets.

Replacing business travel with online collaboration

Just as we continually push for increasing efficiency in our physical operations, we are also
working to reduce our business-related travel. Since 2007, our business has significantly grown
in revenue and we have increased the number of employees, while air travel emissions have
decreased by 2 percent over the same period. The net result is a 10 percent reduction in air
travel emissions per employee.

Key to helping us reduce our air travel emissions has been the widespread adoption of online
collaboration and meetings using Skype for Business. We see Skype as an important component
of our sustainable operations and a catalyst for reshaping how business will get done in the
future—at Microsoft and around the world.17 Online collaboration is a vital tool for our business
because a significant component of our employee base works from remote or satellite offices or
on the go. Our employees increasingly use technology instead of travel to get their work done, a
trend we expect to see increase in the years ahead.

17
To learn more about how we use Skype for Business at Microsoft, see the blog post How
Microsoft is Empowering a Modern, Sustainable Workplace.

Beyond carbon neutral 33

To encourage this shift, we are committing track-and-report funding to complete a global travel
analysis to identify travel hot spots. We’ll use the results of this analysis to work with Microsoft
business groups to identify additional opportunities to replace travel with online collaboration.

34 Beyond carbon neutral

In closing
In this paper, we outline how going forward we are taking a more holistic approach with our
carbon program, in particular in our focus on accelerating technology innovation. Although the
goal of the program is still to ensure that we are responsibly managing the carbon impact of our
business, we are taking a wider view of how we can enable greater impact. We will continue to
invest our carbon fee funds for ongoing improvements to the efficiency and performance of our
own internal operations. We will also expand our program to address the broader carbon impact
of our business on the planet while actively contributing to the low-carbon transition through
responsible and inclusive technology, research, and innovation. By evolving the boundary of our
carbon program beyond our direct operations to account for our global impact, we aim to do
our part in tackling the climate change challenge through our actions, our policies and, perhaps
most importantly, our technology and research.

“Over the past 50 years the technology sector has re-written what humans
are capable of achieving when they join forces with machines. At the same
time, climate change has become one of the broadest and most powerful
threats to the stability of the US economy and our way of life. One of
humanity’s grand challenges is to figure out how to leverage the
infrastructure of the information age to counter changing climates and
their associated impacts.”
—Dr. Lucas Joppa, Microsoft Research scientist and member of the
Federal Advisory Board for the Sustained National Climate Assessment,
July 2016

The kind of transformation that our world requires to make this transition and overcome the
challenge presented by climate change will not be possible without collaboration across
organizations, sectors, and geographies. We will continue to partner with other like-minded
organizations, and we will continue to share our learnings as we evolve and refine our carbon
program for the greatest impact.18

18
Our white paper “The Microsoft carbon fee: theory & practice: the what, why, and how of
Microsoft’s efforts to drive culture change” provides detailed guidance that other organizations
can use to help establish their own carbon fee model.

Beyond carbon neutral 35

Appendix A:
Carbon program partnerships and memberships
Key partnerships and memberships through our carbon program include (but are not limited to):

Build Change—We help fund the Improved Nepalese Cookstoves carbon offset community
project through the purchase of carbon credits. A portion of the proceeds has gone to
Build Change to help with rebuild efforts after the April 2015 earthquake in Nepal.
Center for Climate and Energy Solutions (C2ES)—As a member of both C2ES and its
Business Leadership Executive Council, we share our experiences and learn from others; we
have also partnered with C2ES in establishing a Working Group on Internal Carbon Pricing
to share best practices (see Working group for voluntary corporate carbon pricing for more
information).
CDP—CDP serves in an advisory role on our carbon program. We also report our emissions
and energy data and climate change strategy annually through the CDP climate survey and
request our top suppliers to do the same.
Conservation International—Through the purchase of carbon credits, we are partnering
with Conservation International, the primary carbon asset developer behind the Alto Mayo
REDD+ (Reduced Emissions from Deforestation and Degradation) carbon offset community
project in Peru.
Fondo para la Acción Ambiental y la Niñez (Environmental Action and Children’s Fund, or
Fondo Acción)—Fondo Acción is a key supporting NGO in the Pacific Coast Community
Rainforest Conservation carbon offset community project in Colombia, which we help fund
through the purchase of carbon credits.
GreenBiz—To learn from and share our experiences with other organizations, we
participate in the GreenBiz Executive Network and local industry events.
HELPS International—HELPS International is one of several key supporting NGOs in the
Mexican Improved Cookstoves carbon offset community project, which we help fund
through the purchase of carbon credits.
Murdoch Services—Murdoch Services provides marketing strategy and corporate
storytelling expertise, helping us share our experiences and accomplishments through
external reporting, white papers, presentations, infographics, and other communications.
Natural Capital Partners—Natural Capital Partners works with us on sourcing, contracting,
and managing our portfolio of carbon offset community projects, in addition to some of
our renewable energy investments.
Nisqually Land Trust—Through the purchase of carbon credits, we are partnering with
Nisqually Land Trust, the primary carbon asset developer in the Nisqually Improved Forest
Management carbon offset community project in the United States.

36 Beyond carbon neutral

RE100—In November 2015, we joined RE100, a collaborative global initiative of businesses
committed to 100 percent renewable electricity, working to massively increase demand
for—and delivery of—renewable energy.
Renewable Choice—Renewable Choice supports our annual renewable energy
procurement.
Renewable Energy Buyers Alliance (REBA)—We participate in REBA, a collaboration with the
World Resources Institute (WRI) and World Wildlife Fund (WWF), with input from the Rocky
Mountain Institute (RMI) and Business for Social Responsibility (BSR)’s Future of Internet
Power Initiative, to help grow corporate demand for renewable power and to help utilities
and others meet it.
Renewable Energy Buyers’ Principles—We have joined the Buyers’ Principles, a
collaboration of leading companies seeking simplified access to the renewable electricity
needed to meet their clean and low-carbon energy goals. The project is facilitated by WRI
and WWF, with input from RMI’s Business Renewables Center and BSR’s Future of Internet
Power Initiative.
Socorro Maya—Socorro Maya is a key supporting NGO in the Guatemala Water Filtration &
Cookstoves carbon offset community project, which we help fund through the purchase of
carbon credits. Socorro Maya manages the delivery, installation, and monitoring of the
cookstoves and water filters in this project.
Sterling Planet—Sterling Planet supports our annual renewable energy procurement.
The Nature Conservancy—Through the purchase of carbon credits, we are partnering with
The Nature Conservancy, the primary carbon asset developer behind the Valdivian Coastal
Reserve REDD+ carbon offset community project in Chile.
Total Land Care—Total Land Care is one of several key supporting NGOs in the Kulera
Landscape REDD+ carbon offset community project in Malawi, which we help fund through
the purchase of carbon credits.
UNFCCC—We support the UNFCCC through the Climate Neutral Now initiative, which
focuses on measuring, reducing, and offsetting emissions. We are also partnering with the
UNFCCC at the 22nd Session of the Conference of the Parties (COP22) as part of the
Momentum for Change initiative to share our experience with climate solutions.
We Mean Business—The goal of this coalition is to amplify the business voice, catalyze bold
climate action by all, and promote smart policy frameworks. As part of the coalition, we
have adopted a science-based emissions reduction target, put a price on carbon, and
committed to 100 percent renewable electricity, responsible corporate engagement in
climate policy, reporting climate change information in mainstream reports as a fiduciary
duty, and improving energy productivity.
Wildlife Conservation Society (WCS)—Through the purchase of carbon credits, we are
partnering with WCS, the primary carbon asset developer behind the Makira REDD+ carbon
offset community project in Madagascar.

Beyond carbon neutral 37

 World Resources Institute (WRI)—WRI provided strategic input on our carbon program. We
have also participated in technical working groups, giving guidance on the global
Greenhouse Gas (GHG) Protocol.
World Wildlife Fund (WWF)—Representatives from WWF serve as an advisory on our
carbon program, along with engagement via REBA and the Renewable Energy Buyers’
Principles.
WSP Parsons Brinkerhoff—WSP | PB’s sustainability and energy experts are trusted advisors
for Microsoft’s carbon program. They provide depth and breadth of expertise across a
variety of environmental areas including tracking, managing, and reporting carbon
emissions, renewable energy procurement, carbon and energy policy, climate change
preparedness planning, and sustainable product/service assessments.

38 Beyond carbon neutral

Appendix B:
Renewable energy procurement criteria
Geographic market limitations of claims—The renewable electricity must be in the same
market (prioritizing local datacenter operations) as our usage. We prioritize renewable
electricity purchased from generators within the area in which it is possible to physically
deliver electricity within the grid. Where we operate in countries that do not sell renewable
electricity (2 percent), we purchase it from the closest country where renewable electricity is
available.
Unique claims—We ensure that we have a unique claim to the renewable electricity that
we acquire. We prioritize renewable electricity that is in surplus to what is required by
regulations.
Retirement of claims—We retire or cancel the renewable energy attributes (that is, RECs)
via an official registry. We have made a commitment to not sell any renewable energy
attributes from green power that we have purchased.
Vintage limitations of claims—We match the period of generation for the renewable
electricity to the reporting year of the electricity consumption to which we apply it.
New installation date—To support the development of more renewable energy capacity,
we procure green power from “new” renewable energy facilities, prioritizing generators
installed within the past five years, and will not consider generators installed more than 15
years prior. The only exception is in the case of a long-term contract that extends beyond
15 years.
Technology type—We prioritize purchases of green power, defined as electricity produced
from solar, wind, geothermal, biogas, eligible biomass, and low-impact small hydroelectric
sources (per US EPA guidance). We will not focus on procuring electricity from large hydro
generators.

Beyond carbon neutral 39

Appendix C:
Carbon offset community project investment criteria
Geographical coverage—We prioritize investments in projects with local proximity to our
datacenters.
Other business priorities—We prioritize projects focused on access to energy and/or the
Internet and that involve or have the potential to lead to Microsoft technology adoption.
Eligible standards—All projects that we invest in must be approved under the
International Carbon Reduction and Offset Alliance (ICROA) Code of Best Practice, including
the following standards:
o Verified Carbon Standard
o Gold Standard
o Clean Development Mechanism
o American Carbon Registry
o Climate Action Reserve
o California Air Resources Board
Eligible technologies—We prioritize projects involving technology and delivering emission
reductions through land use (forestry), household efficiency (clean cooking, water),
renewable energy (energy access), and methane capture.
Project-level due diligence—We assess all project investment candidates for
counterparty, delivery, country, and public relations risk.
Accounting attributes—We require all projects to provide evidence of the project
implementation history/activity; additionality; the application of standards and
methodologies; audit project validation and registration; the audit credit verification
process; and the availability of credit volume and timing of delivery.

40 Beyond carbon neutral