Microsoft is trying every trick in the book to maximize its climate fund

Microsoft Corp. was the only computer firm to make a significant financial commitment to address global warming when it introduced its $1 billion Climate Innovation Fund three years ago. Since then, the threats to the earth have gotten worse, and the fund only has roughly $400 million left.

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The pressure is on to maximize the remaining funds. The directors of the fund will focus on regions that stand to gain from the $370 billion in climate investment authorized by the historic Inflation Reduction Act signed into law by the Biden administration to boost the impact of its remaining expenditures.

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"The Inflation Reduction Act and even the current policies in Europe are excellent ways to provide policy tailwinds for expanding investment and investment possibilities," Microsoft's chief sustainability officer, Melanie Nakagawa, stated in an interview.

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At the White House, where she served as President Joe Biden's special assistant and the National Security Council's senior director for energy and climate policy, Nakagawa worked to reverse President Donald Trump's decision to withdraw the US from the Paris Agreement to combat global warming. She left the White House for the company in January. "Coming from the realm of policy, I'm extremely keen to follow where the tailwinds are, and the Inflation Reduction Act is one of the most exciting tailwinds we've seen recently," she said.

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Microsoft, based in Redmond, Washington, will focus its future spending on initiatives it is already engaged in and where the IRA plans to participate, such as carbon removal and sustainable aviation fuels. Focusing on new sectors like clean water and green construction materials and fostering the growth of renewable energy, it will help connect funding with legislation.

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Sophie Purdom, an early-stage climate innovation investor and co-founder of the Climate Tech VC newsletter, commended the company for concentrating on the advantages of the IRA. According to her, when more customers, businesses, and investors join in, the bill's climate spending impact could double or triple its initial cash amount.

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"Everyone enjoys free money, including venture capitalists," she claimed. And while the law's passage made it simple for funds and companies to simply put "IRA" on their pitch decks to attract funding, its impact "is real. Furthermore, it is probably undervalued."

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Microsoft made its fund public in January 2020 with the intention of removing or lowering a gigaton of carbon emissions from its operations by the year 2050. In June of the same year, Amazon.com Inc. followed with a $2 billion program, and numerous oil and gas, power, and mining corporations also established venture capital arms with a focus on climate projects. In the beginning, Microsoft made investments in other climate funds to gain experience, but it now prioritizes direct investments based on four criteria: significant impact, equity, or ensuring that developing economies benefit, tech that is pertinent to Microsoft's products and customers, and underfunded markets.

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Using its resources and support to attract additional investors has been a crucial component of its financial strategy.

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"We are pretty clear-eyed, this is a $50 trillion problem and we have a $1 billion fund," Director of Microsoft's fund Brandon Middaugh remarked in an interview. "Thus, the greatest significant impact comes from the work we undertake to inspire others."

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Generation Investment Management, the investment company co-founded by former US vice president and environmental activist Al Gore, benefited from this. It was creating Just Climate, a fund that will focus on decarbonization technology, in 2021. Microsoft decided to participate as an initial investment and connect and suggest others. Joel Combs, who is in charge of funding for climate change and affordable housing as Microsoft's director of impact investments, stated that this pledge helped attract commitments worth more than ten times Microsoft's initial investment. Microsoft spokesperson declined to provide details on the fund's investments. Just Climate declined to comment or provide any information regarding the fund.

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Microsoft is also interested in advancing technology that will help it meet its carbon-negative objectives.

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Microsoft has provided support beyond a financial commitment to Twelve, a California-based firm that turns electrified CO2 into jet fuel, which the company claims has up to 90% fewer emissions during the product's lifecycle than traditional fuel. In July, the two businesses established a partnership to expand the market for Twelve's product, including a push for a commercial demonstration flight, along with Alaska Airlines, the Seattle-based carrier Microsoft utilizes for business travel. Microsoft minimizes its carbon emissions and qualifies for sustainable aviation tax credits by utilizing the fuel on its Alaska Air flights.

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"Without the Microsoft backing, the acquisition might not have played out like this, certainly not with the pace and the ambition of the initiative," according to Nicholas Flanders, CEO and co-founder of Twelve. "What the Microsoft collaboration truly provided was speed and scale."

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An investment made in Boston Metal in January that employs technology created at the Massachusetts Institute of Technology to run its steel production on renewable electricity rather than coal is another example of how the approach is being implemented. Microsoft must reduce embodied carbon, or the emissions caused by the production and transportation of construction materials, to achieve its environmental goals as it expands its business and creates additional offices, products, and data centers. Embodied carbon contributes 13% of the world's emissions from the built environment.

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According to Middaugh, "embodied carbon represents a considerable percent of global emissions" for steel and concrete. "Also, they account for a large portion of our own emissions impact, which we haven't addressed."

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Microsoft anticipates using up the remaining money early in the following year. She opted not to comment on whether the business would launch a second climate fund.

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Nagakawa stated that bringing about enough change quickly enough is the difficulty facing Microsoft and its competitors in the climate investment space. The world is rapidly losing the opportunity of avoiding the most severe effects of rising temperatures, according to the most recent assessment from the UN's Intergovernmental Panel on Climate Change. This study will further heighten the urgency.

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"I want to make sure that these investments can be made as rapidly as they need to be, that we can hasten the adoption of new technologies, and that the milestones are occurring on the timescale we require," she said. "The necessity just becomes more and more obvious."