The promise and peril of Microsoft’s ESG policy plays

Microsoft aims to be carbon negative by 2030.
Chesnot—Getty Images

It can be hazardous these days for companies to speak out publicly on ESG matters. Ask AB InBev and Disney. But Microsoft’s Melanie Nakagawa did just that this week, and feels good about it, thank you very much.

Nakagawa, the company’s chief sustainability officer, this week called on “all governments to adopt firm carbon and electricity policy positions.” Such policies, geared to accelerate the green energy transition, should allow companies—including Microsoft—to succeed in their journey to net zero. “The world needs access to more carbon-free energy,” she wrote. “We ALL need to mobilize.”

In the politicized ESG landscape today, it’s a bet, but Nakagawa doesn’t see a problem.

“Taking a stand on relevant policy issues, like climate change, is part of our core business,” she told me. “We want to—and do—use our voice to advocate for the policies that we think the world needs.”   

So far, so sensible. Then again, BlackRock, Vanguard, and many others surely at one point felt the same. Then they got caught in the political crossfire over climate policies, faced bans, and changed tack.

Does Microsoft’s stance open a new chapter in the discussion on whether and how companies, especially those with $2 trillion in market capital, can and should weigh on public policy related to ESG? Nakagawa, who I met earlier this year at Davos, believes following a checklist with three criteria should help Microsoft avoid a similar fate. Before speaking out, the company asks itself the following questions, she said:

– Is it a policy issue that impacts our customers and their use of our or similar technology?
– Is it an issue that impacts our employees and their ability to work and live in the community?
– Does it impact the rest of our business?  

If the answer to all three is yes, it’s a go. “If you take a principled approach and apply the criteria articulated above,” she said, “it benefits our core stakeholders, including our shareholders.”  

Still, the global public good may not be the only reason why Microsoft now takes such a muscular stance on climate policies around the world.

In the company’s latest environmental sustainability report, issued the same day as Nakagawa’s call to accelerate the green energy transition, the company had to admit its progress towards net zero was too sluggish.

“While Microsoft’s business grew by 18% year over year in 2022, our emissions declined by 0.5%,” Nakagawa said. “While this can be counted as progress, it’s not happening fast enough because 96% of these emissions come from a global energy grid that is most difficult to us […] to control.”

Seen from that perspective, Microsoft’s muscular take on green energy policy starts to look more like a defensive play to shield it from criticism of its publicly announced target from 2020. At that time, the company declared it would be “carbon negative by 2030,” with an intermediary goal of reducing its emissions by much more than 0.5% per year.

Nakagawa, who joined the company last December after a stint in the White House as special assistant to President Joe Biden and senior director for climate and energy on the National Security Council, can’t be held accountable for those overly optimistic goals. But she acknowledges that without a policy boost, Microsoft’s future sustainability reports will not look as rosy—or green—as the company had said they would.

And she plans to take ownership. “It is important to be transparent about our progress, both the successes and the challenges,” she said.

If you’d like to know more about Microsoft’s sustainability journey, please mark Wednesday, June 28, 12 p.m. ET (9 a.m. PT) on your calendar. I’ll be interviewing Nakagawa in our first installment of “Sustainability 101,” open to Impact Report subscribers. More details to come.

More news below.

Peter Vanham
Executive Editor, Fortune


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