Challenge
In 2020, Microsoft set itself the goal of becoming carbon negative by 2030. As part of the solution to achieve this across 100 countries and 700 buildings, Microsoft decided to integrate sustainability as a business investment into the accounting of each business unit across Scopes 1, 2 and 3.
Solution
To accelerate the transition to net zero, Microsoft introduced an internal carbon tax model in 2012 that initially focused on Scope 1 and 2 emissions. Since 2020, the carbon tax has been expanded to include Scope 3 emissions, and in parallel Microsoft has worked with suppliers to help them understand and reduce their carbon footprints.
The carbon tax works by setting organizational carbon reduction targets for all business units. Carbon emissions are tracked and analysed across Microsoft’s operations and supply chain. An internal price on carbon is set annually in line with the company’s targets, and this is translated into a carbon fee that charges business units for their GHG emissions. All carbon taxes are collected into a fund that subsidizes investments in sustainable projects.
Impact
Through its internal carbon tax scheme, Microsoft has embedded a transformative approach to sustainability within its business units, leading to several important outcomes:
- Educated investment decisions: the carbon tax scheme has led to more informed and environmentally conscious decision-making
- Prioritization of low-carbon investments and operating practices: by attaching a tangible cost to carbon emissions, the scheme allows participants to highlight priority areas for decarbonization and create incentives for progress in them. For example, since 2022, Microsoft has hardened its stance on business air travel by increasing the associated fee from $15 to $100 per metric ton of CO2 equivalent
- A shift in mindset across the organization to embrace sustainability as a strategic business investment
Featured in our paper "The “No-Excuse” Opportunities to Tackle Scope 3 Emissions in Manufacturing and Value Chains"