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Microsoft Sustainability Calculator helps enterprises analyze the carbon emissions of their IT infrastructure

By Noelle Walsh Corporate Vice President, Cloud Operations + Innovation

Posted on January 16, 2020 3 min read

We also understand customers want transparency into the specific commitments we are making to build a more sustainable cloud. To make that information easily accessible, we’ve built a view within the tool of the renewable energy projects that Microsoft has invested in as part of its carbon neutral and renewable energy commitments. Each year Microsoft purchases renewable energy to cover its annual cloud consumption. Customers can use the world map to learn about projects in regions where they consume Azure services or have a regional presence. The projects are examples of the investments that Microsoft has made since 2012.

A path to actionable insight

Azure enterprise customers can get started by downloading the Microsoft Sustainability Calculator from AppSource now and following the included setup instructions. We’re excited by the opportunity this new tool provides for our customers to gain a deeper understanding of their current infrastructure and drive meaningful sustainability conversations within their organizations. We see this as a first step and plan to deepen and expand the tool’s capabilities in the future. We know our customers would like an even more comprehensive view of the sustainability benefits of our cloud services and look forward to supporting and enabling them in their journey.

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• Sustainability
• News and announcements

Introducing new ESG data and reporting capabilities in Microsoft Cloud for Sustainability

• By Shefy Manayil Kareem, General Manager, Microsoft Cloud for Sustainability
• Microsoft Industry Clouds

New tools can play a critical role in helping organizations prepare for CSRD.  

It’s been a year of many advances for Microsoft Cloud for Sustainability . Now, with the expected onset of new environmental, social, and governance (ESG) reporting regulations, including those coming from the European Union’s Corporate Sustainability Reporting Directive (CSRD) , we’re announcing powerful new capabilities to help organizations collect and manage more ESG data. Microsoft Sustainability Manager, a Cloud for Sustainability solution, is being expanded to give customers fuller visibility into their environmental impact across carbon, water, and waste. And new capabilities will help customers create a comprehensive ESG data estate and prepare to meet new reporting requirements. 

Read on to learn about these latest updates. You can also join Microsoft Chief Sustainability Officer Melanie Nakagawa and other sustainability leaders exploring the latest tech innovations helping companies address regulations —June 15, 2023, at 10:00 AM Pacific Time and then on demand.

See how far Microsoft Cloud for Sustainability has come over the past year .

Faster time to insights with Project ESG Lake (preview)  

With increasing market and stakeholder pressure to adhere to new ESG reporting rules and best practices, as well as growing demand for generative AI-based experiences, organizations around the world are exploring ways to apply and analyze data in new ways. The ability to predict risk and measure and manage sustainability issues across the entire operation and value chain hinges on the ability to stitch together a complex set of disconnected data sources and services and conduct a deep analysis of sustainability, operational, and financial data.   

As a result, many organizations are rethinking their data management systems and embedding sustainability more intentionally into their core business models and operations. The journey starts with organizing the data estate—from gathering, aggregating, standardizing, and analyzing data to tracing data back to the source to support audit activities.   

Today we’re introducing Project ESG Lake to help organizations better manage and prepare their data for holistic analysis and ultimately advance their progress toward achieving sustainability goals.  

The solution offers an expansive ESG data model with more than 400 tables covering carbon, water, waste, social, governance, biodiversity, and general business areas. Using it, organizations can build a comprehensive data estate, centralizing and transforming data from across business units and supply chains into a standard schema that’s ready for advanced analytics and reporting. Greater visibility into activities across the business will help decision-makers improve ESG and business performance while boosting long-term competitiveness.  

Project ESG Lake empowers organizations to bring together ESG data from various source systems and standardize it to the ESG data model to build a centralized ESG data estate.  

With this solution, organizations can: 

• Bring calculated emissions data from Microsoft Sustainability Manager or other third-party solutions into their ESG data estate, leveraging data integration and transformation frameworks that are offered within Project ESG Lake.  
• Integrate their Microsoft-based emissions related to their usage of Microsoft Azure and Microsoft 365 into their ESG data estate. The data can be transformed and standardized to the analytical ESG data model using Project ESG Lake’s transformation framework to prepare for analytics and reporting initiatives. 
• Further enrich their data using external datasets that are offered through Project ESG Lake across various sustainability categories, including biodiversity, climate risk, energy, and ESG.
• Leverage standardized ESG data in Project ESG Lake in the new Microsoft Fabric , an end-to-end, unified analytics platform that enables developers to leverage the power of generative AI against their data and helps business users glean meaningful insights from their data. Fabric can be used to access, deploy, and compute the solutions and services offered by Project ESG Lake. 
• Connect aggregated and standardized ESG data in Project ESG Lake to a set of Power BI reporting templates aligned to ESG data models. These can help organizations accelerate the analysis and reporting of ESG categories and to visualize applicable metrics in Power BI. Power BI reports and visualizations can be customized to focus on specific metrics and targets for reporting initiatives. 

Enhanced ESG reporting capabilities to improve regulatory preparedness 

To get ready for regulations, customers need to understand their compliance posture, track required actions, and document evidence for upcoming regulatory initiatives. They also need to shore up data governance practices to prepare for audits and reporting. To address these needs, we’re rolling out targeted features and ultimately will provide a range of prebuilt ESG reporting templates aligned to major ESG regulatory reporting standards and workflows.  

CSRD template in Microsoft Purview Compliance Manager: Starting in July 2023, customers can learn what is required to be CSRD-ready according to preliminary European Sustainability Reporting Standards (ESRS). ESRS regulations are expected to be finalized in the second half of 2023. The template will help organizations begin to collect the data they need for ESRS reporting and will evolve once new standards are adopted. 

Reporting and goal alignment : Also in July 2023, organizations can use new capabilities in Microsoft Sustainability Manager to help collect quantitative emissions, water, and waste data aligned to preliminary ESRS regulations and track progress against Science Based Targets initiative (SBTi) designations. 1  

Comprehensive emissions data management to capture the entire carbon footprint 

To ensure complete accounting of their emissions impact, organizations need to collect and manage data for all categories of emissions across their operations and supply chains. Our final round of Scope 3 emissions calculation models in Microsoft Sustainability Manager—in preview in June 2023—enables customers to store, calculate, and report all 15 Scope 3 categories. Microsoft Sustainability Manager has supported Scopes 1 and 2 since its general availability in June of 2022. 

Emissions related to the processing of sold products—Scope 3 Category 10 (preview): The processing of sold products can have a significant environmental impact, particularly in industries where processing often involves energy-intensive activities like heating, cooling, and refrigeration. With Scope 3 Category 10 coverage, organizations can calculate emissions associated with this processing and identify areas where they can reduce their environmental impact and work toward more sustainable practices. These can include lowering indirect emissions generated from the processing of intermediate products sold by the reporting company but processed by third-party manufacturers before use by the end consumer. 

Emissions from the use of sold products—Scope 3 Category 11 (preview) : With the calculation of Scope 3 Category 11 direct and indirect emissions associated with the use of sold products, organizations can identify potential climate-related risks as well as the competitive advantages of developing low-carbon products and working with suppliers to reduce emissions. 

Emissions from franchise operations—Scope 3 Category 14 (preview) : Calculation of Scope 3 Category 14 emissions—including indirect emissions created by franchise operations—enables businesses to identify opportunities to improve their supply chain sustainability and reduce costs across all locations. Managing franchise emissions can help improve brand reputation, customer loyalty, and regulatory compliance while attracting and retaining franchises.  

Emissions associated with investments—Scope 3 Category 15 (preview) : Financial institutions mainly report emissions in Scope 3 Category 15, which refers to emissions resulting from their investments. This is an essential activity that can be quite complex as it involves gathering data from external sources and using advanced allocation methods. To facilitate this process, Microsoft Sustainability Manager provides a reliable methodology that can be directly adopted or customized to meet the specific needs of financial institutions.   

Other emissions from fuel and energy—Scope 3 Category 3 (preview): Most organizations will soon need to account for fuel and energy-related emissions in their value chain—for example, coming from supplier-related activities as well as transportation and distribution losses of purchased energy. With Scope 3 Category 3 coverage, customers gain the same simple access to accounting procedures used for Scope 1 and Scope 2 fuel and energy categories but with additional considerations for value chains. Also, emissions from this category will be aligned to the appropriate scope for reporting purposes. This includes energy losses from transportation, distribution of purchased energy in Scope 2, and any other utility or fuel information not covered by Scopes 1 and 2. 

Flexible greenhouse gas global warming potentials assessment (preview) 

To generate more accurate calculations and help improve overall reporting and compliance, organizations can select a default greenhouse gas (GHG) global warming potentials (GWP) assessment report (inclusive of Assessment Reports 4, 5, and 6) set to use across all their calculations and still customize to a different set as needed within a calculation profile.

Waste data capabilities provide a unified view of waste sustainability data 

Waste data ingestion in Microsoft Sustainability Manager (preview) : Organizations have lots of waste quantity and quality data from different sources, and they need to be able to efficiently enter that data and prepare it for waste sustainability use cases. They can now link new and previously entered waste data to relevant waste categorization and disposal reference data that has been entered into Microsoft Sustainability Manager. They can also account for undigitized data sources, such as utility invoices and email or paper-based lab test reports, using waste data entry forms.  

Waste quantity data visualization with Microsoft Sustainability Manager dashboards (preview) : Organizations need detailed, current waste quantity data to drive accurate insights and reporting. They can now visualize up-to-date historical waste quantity data and filter, roll up, and drill down on the data at facility or organization levels, by time, waste type, and material granularity.

Waste sustainability disclosure using standard reports (preview) : Organizations that need to drive corporate waste sustainability goals and meet external waste reporting requirements can now generate custom and regulatory waste sustainability reports in Microsoft Sustainability Manager to disclose periodic waste quantity data.

New water data capabilities helping customers accelerate water sustainability

Water revenue intensity calculation (preview) : Organizations need to understand the efficiency of water usage based on overall revenue and meet external reporting requirements. Using Microsoft Sustainability Manager, they can calculate and report the total water consumed (in cubic meters) per net revenue across the organization. 

Water storage tracking (preview) : Where significant quantities of inflow or outflow water are stored, organizations can report on total water stored and changes in stored water volumes to achieve compliance with external reporting requirements. In the event of negative values of water consumption, they can understand whether facilities and organizations are truly replenishing water in the ecosystem.  

Water sustainability goal-tracking (preview) : Many organizations have complex water usage scenarios challenging their ability to make progress on water sustainability goals. Microsoft Sustainability Manager helps them overcome this complexity by creating and tracking water sustainability goals from individual facilities to their entire organization.  

Data lake export for Microsoft 365 and Azure emissions (preview) : Through the Microsoft Cloud for Sustainability API (preview) portal , customers can now export current and historic Azure and Microsoft 365 emissions directly to their Azure Data Lake Storage . They can aggregate emissions related to their Azure and Microsoft 365 usage directly in their Azure tenant to streamline analytics and reporting. This new capability also offers flexibility to connect data to other Microsoft and third-party data management and business intelligence tools.  

Accelerate your sustainability progress with additional resources 

Get news and updates. With regulations growing, we’re quickly innovating around ESG tracking and reporting. Sign up to receive email updates. 

Deepen collaboration with the Microsoft Cloud for Sustainability community portal—coming soon . Connect and grow your knowledge as part of a vibrant customer and partner community. The new Microsoft Cloud for Sustainability portal will let you share and find answers to questions, discover valuable resources, submit product feedback—including feature requests and track updates—and join user groups and forums to talk about your areas of interest. 

Dive deeper with new Let’s Talk Sustainability Tech Talks—coming in July 2023. Want to know more about Microsoft industry solutions? Join expert-driven, action-oriented monthly discussions to meet the people behind the technology and get high-level concepts with live product demos. Each show will end with a knowledge review, a handful of takeaways, and recommended actions. Tech Talks will be based on real customer questions, helping you speed up your time to value while helping us refine the technology so you have a better experience. Stay tuned for details. 

Explore partner sustainability solutions for your industry . Find experts and solutions that can help you address your unique ESG data management needs, available today on  Microsoft AppSource .   

Accelerate your sustainability journey

Drive operational and cost efficiencies to help meet your sustainability goals with Microsoft Cloud for Sustainability.

1 SBTi is a collaboration between the Carbon Disclosure Project, the United Nations Global Compact, World Resources Institute, and the World Wide Fund for Nature, providing guidelines and standards to help companies set emission reduction targets in line with climate science and Paris Agreement goals. Learn more . 

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Sustainability outcomes and benefits for business

• 18 contributors

Though the impact and benefits of the cloud have been traditionally measured with financial and efficiency metrics, it's become more common for customers to seek to understand how the cloud can help them to achieve their sustainability and environmental goals. Cloud computing can support your organization to reduce carbon emissions, use resources more efficiently, and lessen your environmental footprint.

Actively working toward an increased sustainability can help increase your revenue, reduce the operating costs, and improve your brand trust. Driving sustainability in your organization have several benefits:

• Track and control carbon emissions: Use the emissions impact dashboard to track carbon emissions. Reveal insights that can justify a data center migration. Use the Azure Migration and Modernization Program to get expert help needed to set up the cloud environments.
• Migrate to reduce the carbon footprint: Migrating to the cloud can be up to 98% more carbon efficient . Additionally, use the Azure Well-Architected Framework Sustainability workload guidance to further enhance your workloads and reduce the environmental footprint.
• Drive sustainable innovation in the cloud: Meet customer demands for clean energy solutions and sustainable products.

Microsoft has been leading in many of these areas. The company has been operating as carbon-neutral since 2012 and has made a commitment to be carbon-negative by 2030. The carbon benefits of cloud computing , a study on the Microsoft cloud in partnership with WSP, supports research on how moving on-premises datacenters to the Microsoft cloud can significantly reduce carbon footprints.

Bühler Group's 's IoT platform, known as Bühler Insights and powered by Azure IoT Hub, generates vital data so customers can monitor machine performance and generate accurate records for every product batch, helping food producers optimize safety, sustainability, and transparency across the supply chain.

Emerging software design principles

More opportunities have arisen recently to design software that is more sustainable. Green Software is an emerging discipline with principles, patterns, philosophies, practices, and competencies to define, develop and run sustainable software applications. The sooner this discipline is adopted into your sustainability journey, the better, as it will help to reduce the carbon emissions consumed by applications.

Read more about building Sustainable workloads on Azure in the Azure Well-Architected Framework guidance.

The Microsoft sustainability journey

The Microsoft journey started over a decade ago when the company started to apply new business practices and adopt cloud technology. We lowered our carbon emissions by 30 percent in 2009. Since then, Microsoft has made large strides forward by investing in reducing the company's carbon footprint further. Microsoft has focused on these four areas:

• Carbon: Cutting energy consumption across corporate offices, charging carbon tax to business divisions, and using cloud-powered technology to lower emissions.
• Ecosystem: Making a commitment to green datacenters and purchasing of 1.1 billion kilowatt-hours of green energy.
• Water: Reducing use intensity and investing in technology for managing water.
• Waste: Practicing responsible sourcing, recycling, and disposal; using software and technology to make buildings more efficient.

Additionally, there are four main drivers contributing to a lowered energy and carbon footprint of the Microsoft Cloud:

• IT operational efficiency, IT equipment efficiency, and datacenter infrastructure efficiency : reduce the energy required to deliver the services.
• Purchase of new renewable electricity : will power 100 percent of electricity consumed in Microsoft datacenters, buildings, and campuses by 2025.

Read more about how Microsoft's commitment to a planet-sized challenge has helped us plan and achieve sustainability goals.

Additionally, read how Microsoft measures datacenter water and energy use to improve Azure Cloud sustainability .

Building a sustainability strategy

Sustainability continues to gain importance as a performance indicator for organizations. As the sustainability transformation is making its mark on companies across industries, adding pressure from new types of stakeholders and challenging existing profit pools while creating opportunities to open new ones, companies are increasingly forced to respond effectively with new types of solutions and tech-enabled approaches.

This transformation is good for business. Research from multiple sources indicates that sustainability front runners have a lower cost-of-capital, deliver superior equity market returns, get easier access to new markets by creating new types of products and services, and/or are better at managing risk and ensuring more resilient operations.

Read about the Sustainability Executive Playbook

Common considerations for building a sustainability strategy could include:

• Developing new ways of working to increase productivity
• Migrating resources to a more carbon efficient infrastructure
• Net Zero commitments
• Improving emissions recording
• Increased Operational efficiencies
• Improving societal outcomes by co-developing with partners

Build green teams

Initiate the idea of building "green teams" that can have different sustainability metrics depending on the served domain, not dependent on the central sustainability team guidance but contributing to the overall green targets of the company.

Goals and metrics for teams owning sustainability

At Microsoft, we have a dedicated sustainability science team whose mission is to ensure that our sustainability work is grounded in the best available science. This drives our work in sustainability, from our climate commitments to partnering with our customers and partners on codesigning new solutions.

Establishing goals and metrics for teams owning sustainability in your organization is essential. Metrics can include greenhouse gas emissions, carbon footprint data, water use, and energy consumption.

The ultimate responsibility for measuring and owning these goals rests with the sustainability team, who aligns with the company's sustainability strategy set by the board.

Sustainability for your company's brand

There's a demand that customers, their executives and stakeholders, and their investors provide greater transparency into the environmental impact for the company from an operational point of view. Proactively working toward sustainability helps you establish a healthy brand for your company.

A sustainable business model can improve reputation, build trust and attract new talent/partners/investors. You can also see the benefits of sustainability as part of your business signature, combining your sustainability exercises with the capability to communicate the reasoning behind your green journey further.

Sustainability is critical to ensure long-term success as a player in the dynamic business space. Transforming the company towards a green model can also enable people's intrinsic motivation and attract new talent with an active interest in sustainability in the end.

Sustainability is an approach beyond a marketing play, with a conscious business purpose that can be part of a customer's brand identity. See Improve customer experience and engagement in the Cloud Adoption Framework.

• Add sustainability and environmental responsibility to the mission statement, ensuring that brand value alignment with the business activities and practices.
• Additionally, you should evaluate the end-to-end supply chain to ensure Scope 3 is also measured .
• Ensure transparency on your commitments and progress through publicly exposing annual sustainability reports. Read more in Microsoft's 2021 Environmental Sustainability Report .
• Be consistent in the communication of promoting your green efforts, thus ensuring maintaining consistent brand integrity.

Regulatory compliance

Customers are responsible for ensuring they're up to date with regulatory compliance regulations across their industry. Additionally, consider how government regulations or policies for your region might influence your organization's motivations for migrating to the cloud.

A few governmental sustainability goals include:

• The UK Government targets bringing all greenhouse gas emissions to net zero by 2050.
• The US Government target to achieve net zero by 2050.
• A European Climate Law with a 55% reduction target in greenhouse emissions by 2030 and the European Union target to achieve net zero by 2050.

Understanding your current emissions

As defined by the Greenhouse Gas (GHG) Protocol, the operational boundaries of a carbon emissions inventory are broken down into three "scopes" (both direct and indirect) of emissions data, each further broken down into distinct emission sources:

• Scope 1: Emissions that your organization produces directly (such as using carbon-based fuels).
• Scope 2: Emissions that your organization incurs indirectly through purchasing electricity, heat, or steam.
• Scope 3: Emissions that your organization incurs indirectly beyond Scope 2 emissions (for example, emissions related to your supply chain, waste disposal, business travel, and employee commuting).

Your sustainability journey starts with working towards understanding the factors contributing to the three scopes, followed by measuring and tracking the organization's progress with each category.

• Read additional information about Greenhouse gas emissions to gain insights into the contributors to your organization's emissions.
• Read about measuring and tracking carbon impact in the Azure Well-Architected Framework .

Sustainability tools and resources

To help you build your strategy Microsoft has a range of tooling and resources available.

Microsoft Cloud for Sustainability

Microsoft Cloud for Sustainability empowers organizations to accelerate sustainability progress and business growth by bringing together a set of Environmental, Social, and Governance (ESG) capabilities across the Microsoft cloud portfolio plus solutions from our global ecosystem of partners.

• Learn more by reading what is Microsoft Cloud for Sustainability?

Microsoft Sustainability Manager

The Microsoft Sustainability Manager is an extensible solution that unifies data intelligence and provides comprehensive, integrated, and automated sustainability management for organizations at any stage of their sustainability journey. It automates manual processes, enabling organizations to more efficiently record, report, and reduce their emissions.

Microsoft Sustainability Manager covers data input from sources beyond just Azure workloads. For example, you can connect to AWS, GCP, SAP, and more.

Cloud migration

Many businesses understand that migrating workloads to the cloud can cut energy consumption and costs and reduce the physical footprints of their datacenters. Transitioning workloads to Microsoft Azure can produce up to 98 percent more carbon efficiency and up to 93 percent more energy efficiency than on-premises options, depending on specific server usage, renewable energy purchases, and other factors.

Use the Azure Migration and Modernization Program to apply best practices based on the proven Microsoft Cloud Adoption Framework for Azure and Well-Architected Framework at every stage of your cloud adoption journey.

Migrate and modernize your apps, data, and infrastructure using proven cloud migration tools and patterns.

Emissions savings estimator for Microsoft Cloud

The Emissions savings estimator for Microsoft Cloud enables you to define your on-premises infrastructure workloads and then uses the information to report your current on-premises footprint and comparable Azure footprint.

Using the emissions savings estimator will help you understand the emissions-related usage of Microsoft Cloud services and estimate how much you could save by migrating to Azure.

Emissions Impact Dashboard

Once you migrate or create resources within Microsoft Azure, you'll need a reliable way of monitoring those emissions as well. The Emissions Impact Dashboard provides transparency into greenhouse gas emissions associated with using Microsoft cloud services and enables a better understanding of the root causes of emissions changes. Organizations can measure the impact of Microsoft cloud usage on their carbon footprint, and they can drill down into emissions by month, service, and datacenter region.

Microsoft’s emissions reports are determined via a methodology that was validated by Stanford University in 2018, which aligns to ISO standards for measuring greenhouse gas emissions. These calculations are inclusive of Microsoft’s scopes 1, 2, and 3, which means that they include emissions from Microsoft’s extended network of vendors and suppliers. Reports reflect Microsoft’s investments in renewables and the fuel energy mix in the regions where your computing takes place alongside other factors.

Examples of sustainability outcomes

Focusing on sustainability and protecting limited environmental resources is key to our future, and this focus also benefits business. Today, companies can draw from a broad range of assets and resources that can help them to expand into new geographic areas and develop innovative resource management solutions.

AGL, one of Australia's leading integrated energy companies, built a solution on Azure that remotely manages networked solar batteries. Learn about how the company is growing an innovative energy partnership across Australia to help local customers give back to the grid.

Bee'ah is a sustainability pioneer in the Middle East that believes in technology and sustainability creating solutions for the future. Their services include waste management, environmental consulting, renewable energy, and sustainable transportation. Azure has supported the company to launch the first AI platform to digitize all operations and services. Read more about how the cloud drives sustainable management and digital innovation throughout the company's sustainability journey.

These customer stories demonstrate how prioritizing sustainability and environmental solutions can help organizations to create new business opportunities.

An intentional approach can help organizations to navigate their sustainability journey. These five steps can influence outcomes for your company:

Step 1: Record and understand your company's current carbon emissions. Start by categorizing your emissions, which will help you to list of areas on which to focus.

Step 2: Evaluate whether your vendors, partners, and providers are taking steps to reduce their emissions and if these steps align with yours.

Step 3: Create an incentive for teams to reduce carbon emissions. The Microsoft carbon fee: theory and practice guide can help your organization to drive alignment and accountability across your teams.

Step 4: Seek out teams in your business to enlist their support and generate ideas for areas for improvement. Build an innovation culture where individuals are participants with a sense of ownership.

Step 5: Assess ways to incorporate Green Software Development principles into your company's sustainability goals. How can you work towards designing sustainable software applications that can be  reused and has extended  longevity of use and minimal computational and memory resource requirements?

Learn more about how your organization can measure and reach sustainability outcomes with the cloud.

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Additional resources

McKinsey and Microsoft join forces to accelerate decarbonization transformations

September 12, 2022 Organizations driving towards net-zero often face a major impediment—the lack of an efficient, scalable technology solution. To calculate their organization’s overall carbon footprint, build a robust decarbonization plan, and execute it with confidence and transparency, leaders need technology that can rival the challenge.

To address this, Microsoft and McKinsey have joined forces to create an integrated solution that combines sustainability data intelligence from  Microsoft Sustainability Manager  with decarbonization planning and an execution engine using McKinsey Sustainability’s  Catalyst Zero . This technological collaboration will enhance companies’ sustainability transformations by integrating their data from activities that produce emissions with initiatives to abate them.

Powered by Microsoft Cloud for Sustainability, this combined solution uses Sustainability Manager to automate and scale the collection of companies’ sustainability-related data and support establishing an emission baseline. Following that, McKinsey’s Catalyst Zero solution, which draws on our sustainability expertise and proven transformation experience, provides a holistic understanding of emissions at company, product and value chain levels, and helps leaders create a detailed decarbonization plan by leveraging a vast proprietary library of decarbonization levers.

Creating value beyond the hype

Let’s deliver on the promise of technology from strategy to scale.

During execution, the ongoing data feed between Microsoft’s and McKinsey’s solutions regularly monitors whether the impact forecasted in the decarbonization plan is happening as planned. This creates confidence in the decarbonization impact achieved and transparency for all stakeholders, including clients, consumers, shareholders, and regulators.

The joint solution is powered with tens of thousands of emission factors and decarbonization levers across 70+ industry sectors to rapidly quantify baseline emissions, generate a company-specific Marginal Abatement Cost Curve (MACC), and finally plan and track granular decarbonization initiatives.

“We are focused on accelerating progress to achieve a more sustainable future, and our collaboration with McKinsey, to deliver innovative Cloud for Sustainability solutions will help customers unify their data intelligence, build robust IT infrastructure and gain insights into their overall carbon footprint in order to help them develop and execute robust decarbonization strategies to achieve their sustainability goals.” says Elisabeth Brinton, Microsoft Corporate Vice President for Sustainability.

Catalyst Zero: Accelerating decarbonization transformations at scale

“Urgent and decisive action to curtail emissions is needed if we are to reach net zero by 2050,” says Tomas Nauclér, senior partner at McKinsey and global co-leader of McKinsey Sustainability. “By combining our tech and sustainability expertise and experience, Microsoft and McKinsey will help businesses accurately and swiftly measure and reduce their overall carbon footprint.”

By combining our tech and sustainability expertise and experience, Microsoft and McKinsey will help businesses accurately and swiftly measure and reduce their overall carbon footprint. Tomas Nauclér, McKinsey senior partner and McKinsey Sustainability global co-leader

Microsoft and McKinsey have a long and successful history of collaborating to accelerate and scale client impact. Over the past three years alone, the two organizations have worked together to help clients de-risk transformations, redesign business processes through data and analytics, and build new digital businesses. These collaborations span across industries and include, for example, a technology transformation for a wireless-equipment manufacturer that achieved a 125 percent increase in output and tripled build speed, or technological innovations for a real estate company to mitigate COVID-19 risk for employees returning to the office.

Our two companies look forward to building on this history of collaboration of proven successes as we enter the next horizon of this alliance.

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How Microsoft takes up the ESG challenge

This interview appeared in a special report on ESG engagement, reporting and integration by IR Magazine sister publication Corporate Secretary

How did the ESG function come about at Microsoft, and how did you get involved? I’ve been at Microsoft for 11 years, always in an ESG [capacity] although we’ve used other terms. It started off being called citizenship and we evolved that term to CSR, but it’s really focused on the ESG topics at Microsoft. We sit within what’s now called our corporate external and legal affairs department. [We report] up to our president and chief legal officer Brad Smith, who sits on our senior leadership team. The topic always had that representation at the senior leadership level.

We’ve had a great partnership between the CSR function looking at transparency and reporting and our investor relations (IR) team and corporate secretary’s office. Functionally, our engagement with investors on these ESG topics has gone on for a long time with collaboration between those groups. In the last year we have formally pulled that outreach function from the CSR team to the corporate secretary’s office.

How many people work solely on ESG issues? It’s so widely embedded across Microsoft that the cast of characters numbers in the hundreds, if not more, across the span of issues. When it comes to thinking about transparency, reporting and engagement with investors, that quickly becomes a much more centralized group of probably two or three people. But again, that’s relying on great partnerships and collaboration with many hundreds of colleagues across Microsoft.

Your approach to ESG reporting uses a variety of platforms, including a privacy dashboard and blog posts. What are some of the key tools you use, and how do you ensure they deliver valuable disclosure rather than just marketing materials? In terms of our formal CSR reporting, we’ve been a long-term proponent of global reporting initiatives and sustainability reporting guidelines – which are now reporting standards – and look a lot to global external standards to guide that reporting.

We’re a signatory to the UN Global Compact and we issue our annual communication on progress. We were one of the first companies to follow the UN Guiding Principles on Business and Human Rights, and there’s a UN Guiding Principles Reporting Framework. We’ve released at least one white paper that bucketed the work we do according to the UN Sustainable Development Goals.

We also look at [SASB] or the Task Force on Climate related Financial Disclosures to help guide our reporting. We seek to ensure our reporting follows those external multi-stakeholder frameworks and I think that helps keep it robust and evidence-based.

The other thing I would say is that in the age of Twitter and 280 characters we’re starting to go the other way in terms of communicating about important issues in book length [publications]. Last year we put out a book – The future computed: Artificial intelligence and its role in society – that looked at what the ethical framework is for evaluating AI. The audience for that was certainly other firms but also regulators, policy-makers and public society, [with the aim of sparking] evidence-based discussion.

Brad and Carol Ann Browne, our director of executive communications, also have a book coming out called Tools and weapons: The promise and the peril of the digital age . Again, we are trying to stimulate an informed discussion about issues as opposed to saying we can fit the right answer into a soundbite. The right approach is complicated and will take multi-stakeholder efforts. We’ve called for government regulation of the use of facial recognition technology, for instance. We’ll have to wait and see whether [our] approach works in this age of limited attention. We think it’s worth the effort to try.

How do you decide what the key ESG issues are for your company? Is that something you reappraise on an annual basis, or do you take a more ad hoc approach? I think there is an evolution. What’s helpful sitting within what’s essentially the legal department is that the department maps to every part of Microsoft. Every business and operational group and every geographical subsidiary has a lawyer who is thinking not just about legal risk but also about brand and reputation and stakeholder interests.

As a result, we have a fairly cohesive but broad community of people who are seeing emerging issues, whether those are legal and regulatory issues, more reputational issues or issues that employees are raising. That group gets together once a year for a global meeting. It’s about 1,000 people who come together from around the world in Redmond, [Washington] to look at a set of preselected questions. That takes place about six months before the start of the next fiscal year when budgets are set, and we have a chance to shape our thinking and look at emerging issues

Are those just ESG issues or the full range of issues the company may be facing? I think both. At this point those two sets almost overlap. They look at geopolitical risk, emerging regulatory frameworks or emerging businesses Microsoft might be looking to expand in, but also core ESG subjects, whether that’s AI ethics, privacy, environmental sustainability, human rights, the rights of LGBT employees around the world – it’s a broad range.

How do you collect data for reporting purposes? Is it done through this network in other business units? Yes. We benefit from having a significant number of long-tenured employees, so this is a community that’s worked together over the years. I will be quite honest in saying that whenever we seek to report new information, it’s a painful process. It takes time to think through a range of issues in terms of what’s meaningful to stakeholders, what will help them judge our performance, what might be confidential and what legal risks there might be.

Over time, however, as we work through those issues, reporting what was once difficult becomes routine. A perfect example is our law enforcement request reports and our content removal request reports, which we’ve done every six months for five or six years now. I was involved in getting those started and it was a very challenging, thoughtful exercise. Now it’s like filing your taxes – it’s just that time of year to get the data together and put it out into the marketplace.

Who do you work with primarily in-house in terms of shareholder engagement? Is it the IR team or the corporate secretary’s office? We have the luxury now that my role is essentially leading that effort – leading shareholder engagement in an integrated way across ESG topics, including traditional corporate secretary governance topics. Investor relations is a great partner with us. We do about 50 engagement calls with institutional investors on ESG over the summer usually.

We’ve also done a number of ESG roadshows on which we go to markets that really care about these issues, such as London. Starting last year, we did a joint [trip] with IR, our corporate secretary and me across Europe, hitting six or seven countries in order to experiment with having a fully integrated discussion about the business fundamentals and ESG issues.

It feels like we’ve been talking about the same issues for 10 years – what’s changed is who’s interested in listening. Increasingly, where we [once had] those conversations with public pension funds or European investors let’s say five or six years ago, now those conversations are part of almost every governance engagement with the largest names on Wall Street.

Are you finding changes in the information investors want? The issue that has surprised me – as someone who has been in the field for a long time – is this tremendous and widespread focus on human capital management that’s emerged in the last 24 months or so. We saw a lot of interest in climate, and certainly climate is really important to Microsoft and to a number of investors. But just as we expected climate to hit an inflection point, it felt to me that the conversation shifted to being much more around topics of human capital management.

What has your experience been in terms of getting board directors involved in shareholder engagement? We have a great board of directors and John Thompson, our independent chair, is a wonderful partner in terms of being interested in leaning in to engage with shareholders. We tend to save his time for a few of our very largest investors, which tend to have been the ones that have asked.

In an effort to reach a broader part of our investor base, we’ve also had John speak. He’s given a keynote at the Council of Institutional Investors, for example. There are other ways to make contact with a wider audience without the time and transaction costs of one-on-one engagement. It’s been a mix of both.

At least in my experience, the majority of investors might be interested in talking to a director every several years or so but, absent a big controversial corporate governance challenge, they otherwise seem quite happy to talk to representatives of management.

What’s your approach to engagement in terms of timing across the year? Our annual meeting is in late November, early December, which helps a bit in terms of being outside the crush of the annual meeting season. We do the bulk of our one-on-one engagement over the summer before our proxy is published, after which we go back to that same set of investors to offer them the opportunity to connect. In the past year, probably 80 percent or 90 percent of investors have preferred the summer off-cycle and just a handful have wanted to wait and talk after the proxy is filed.

Is it important for your ESG reporting and engagement to address the opportunities presented by these issues, not just the risks? Definitely – and also to emphasize how some of the risks can be opportunities. One example is around the EU [General Data Protection Regulation] (GDPR), under which fines for violations can be up to 4 percent of global revenue, which is an eye-popping number when you think about Microsoft or any of our peer companies’ revenues. So the risk is there and there’s a significant compliance component.

But what’s interesting about GDPR – and Microsoft welcomed it and we’ve applied the key concepts of it to our customers around the world, not just the EU – is that it changes the value proposition for a number of our callout services. Suddenly if you’re a mid-sized US company with employees or customers in Europe and are subject to the GDPR, do you want to take on that risk in-house and rely on your own IT department? Or do you want to trust Microsoft cloud services where we’ve put in contractual guarantees that will ensure GDPR compliance for you?

That provides a nice example of where something is the right thing to do in terms of protecting customers’ privacy and it’s important from a compliance and legal risk perspective – but it also changes the value proposition of products we offer.

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Companies / Energy Transition / Environment

Microsoft to Require Key Suppliers to Use 100% Carbon-Free Electricity as Supply Chain Emissions Jump

Microsoft announced a new policy for some of its key suppliers to use 100% carbon-free electricity, as part of a series of actions being put in place by the company to get back on track towards its goal to reduce emissions across the value chain.

The new policy was reported with the release of Microsoft’s 2024 Environmental Sustainability Report, assessing the company’s progress on its key sustainability goals. Microsoft launched a series of goals in 2020, including commitments to become carbon negative, water positive and zero waste by 2030, as well as to protect more land than it uses by that date.

According to the report, while Microsoft is on track towards its goals in several areas, including reductions in operational emissions, accelerating carbon removal, minimizing waste, improving biodiversity and protecting more land than it uses, it is not yet on track on reducing Scope 3, or indirect, emissions or on its goal to reduce water use and to replenish more water than it consumes in datacenter operations.

Among the most challenging areas highlighted in the report are the company’s efforts to reduce value chain emissions. While Microsoft has set a goal to reduce Scope 3 emissions by more than half by 2030 compared to 2020, the company reported that Scope 3 emissions in 2023 were actually more than 30% higher than in 2020. In the foreword to the report, Microsoft President Brad Smith and Chief Sustainability Officer Melanie Nakagawa said that the increase has been driven by the construction of datacenters, including embodied carbon in building materials as well as hardware components.

Scope 3 emissions represent the vast majority – more than 96% – of Microsoft’s total emissions footprint, with the growth in Scope 3 driving a 29% increase in total emissions since 2020, despite a decline in the company’s direct Scope 1 and 2 emissions.

Smith and Nakagawa said:

“Our challenges are in part unique to our position as a leading cloud supplier that is expanding its datacenters. But, even more, we reflect the challenges the world must overcome to develop and use greener concrete, steel, fuels, and chips. These are the biggest drivers of our Scope 3 challenges.”

Microsoft announced that it has launched a company-wide initiative to identify and develop measures to address its Scope 3 emissions challenges, and the company reported that it has developed “more than 80 discrete and significant measures that will help us reduce these emissions,” including the new 100% carbon-free electricity requirement for select high-volume suppliers, as well as initiatives to improve measurement, increase efficiency at datacenters, forge partnerships to accelerate technology breakthroughs in areas including greener steel, concrete, and fuels, using the company’s purchasing power to accelerate market demand for breakthrough technologies, and advocating for climate-focused public policy changes.

Microsoft also detailed strategies that it is pursuing to accelerate its water sustainability efforts, including designing and innovating to reduce the intensity of water use, optimizing datacenters to support AI workloads and to consume zero water for cooling, partnering on water advocacy, and plans to finalize a strategy for water policy this year, and developing replenishment projects in high water stress locations where the company operates datacenters.

Smith and Nakagawa wrote:

“Even amid the challenges, we remain optimistic. We’re encouraged by ongoing progress across our campuses and datacenters, and throughout our value chain. Even more, we’re inspired by the scores of executives and employees across Microsoft who are rolling up their sleeves and identifying new and innovative steps that are helping us to close critical gaps. We all recognize the same thing: There is no issue today that connects everyone on the planet more than the issues around climate change. We all need to succeed.”

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Case study: How Microsoft helps its suppliers create and maintain safe working environments

Operating worldwide, developing, licensing and supporting a wide range of software products, services and devices, Microsoft interacts with thousands of suppliers every day. Microsoft’s aim is to make sure that all its suppliers, throughout a supply chain that spans 25 countries around the world, maintain high standards of health and safety.

This case study is based on the 2015 Citizenship Report by Microsoft pu blished on the Global Reporting Initiative Sustainability Disclosure Database  that can be found at this link . Through all case studies we aim to demonstrate that CSR/ sustainability reporting done responsibly is achieved by identifying a company’s most important impacts on the environment and stakeholders and by measuring, managing and changing.

Microsoft’s hardware business has grown since its inception in 1982. Today, Microsoft’s Device and Supply Chain Group manages this supply chain, spanning 25 countries across the globe, tryingto help suppliers create and maintain safe working envi­ronments. After measuring and setting targets, Microsoft took action to provide training resources for suppliers     Tweet This! – Microsoft created a training platform that includes labor, ethics, environ­mental, health and safety (EH&S) training course modules for suppliers –, work with factory management to build a culture of health and safety, track key health and safety performance indicators and, also, implement a new supplier improvement program.

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Please subscribe to the SustainCase Newsletter to keep up to date with the latest sustainability news and gain access to over 100 case studies. These case studies demonstrate how companies are dealing responsibly with their most important impacts, building trust with their stakeholders  (Identify > Measure > Manage > Change).

With this case study you will see:

• Which are the most important impacts (material issues) Microsoft has identified;
• How Microsoft proceeded with stakeholder engagement , and
• What actions were taken by Microsoft to help its suppliers create and maintain safe working environments

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What are the material issues the company has identified?

In its 2015 Citizenship Report Microsoft identified a range of material issues, such as climate change and energy, data privacy and security, device lifecycle impacts, environmental/social applications of technology, ethical business practices, talent management and development, human rights. Among these, helping its suppliers – across a supply chain that spans 25 countries around the world – create and maintain safe working environments stands out as a key material issue for Microsoft.

Stakeholder engagement in accordance with the GRI Standards

The Global Reporting Initiative (GRI) defines the Principle of Stakeholder Inclusiveness when identifying material issues (or a company’s most important impacts) as follows:

“The organization should identify its stakeholders, and explain how it has responded to their reasonable expectations.”

Stakeholders must be consulted in the process of identifying a company’s most important impacts and their reasonable expectations and interests must be taken into account. This is an important cornerstone for CSR / sustainability reporting done responsibly.

Key stakeholder groups Microsoft engages with:

How stakeholder engagement was made to identify material issues

To inform its decisions, Microsoft regularly communicates with thousands of stakeholders globally ranging from parents concerned about their child’s online safety to international human rights experts. These engagements take many forms. Employees from Microsoft’s business and operational groups regularly identify and engage with stake­holders in the course of their daily work activities. Microsoft’s Citizenship and Public Affairs team also manages a number of stakeholder relationships and ongoing dialogues to help inform and guide the company’s strategies. Microsoft connects with leading thinkers on corporate responsibility and societal challenges in groups such as Business for Social Responsibility, CSR Europe and the World Economic Forum. Microsoft learns from them and other advocacy groups, socially responsible investors, corporate responsi­bility rating agencies, other external stakeholders and its own employees to identify new and emerging citizenship issues. Microsoft also bases its work on international frameworks such as the United Nations Global Compact, the UN Guiding Principles on Business and Human Rights and the Global Reporting Initiative’s Sustainability Reporting Guidelines.

As regards customers, Microsoft gains insights from online feedback, support communities, product satisfaction surveys, usability studies, research forums, business account manag­ers and the company’s customer service representatives. Regarding investors, beyond traditional investor communications such as earnings calls and Microsoft’s annual meeting, Microsoft seeks to proactively provide investors with corporate gover­nance information through diverse communications, including a director video interview series and direct communications from independent members of its board to shareholders. Microsoft proactively reaches out to institutional investors—including public pension funds and socially responsible investors—about governance and citizenship-related topics and delivers a summary of their feedback to the board. In FY15, these engagements reached investors holding over 40 percent of Microsoft’s outstanding shares. Microsoft seeks to transparently provide information sought by socially responsible investors and corporate responsibility rating agencies and seeks their insights to identify new and emerging citizenship issues.

Microsoft asks for – and acts on – employee feedback in multiple ways, including conducting an annual online anonymous poll of all its employees around the world. The poll, with a nearly 85 percent response rate, asks employees to share feedback about the Microsoft work experience, including how they feel about their workgroups, organization and company as a whole. Microsoft engages with suppliers through capacity-building workshops and trainings, supplier advisory boards, hosting an annual supplier summit and participation in industry coalitions, such as the Electronics Industry Citizenship Coalition. Microsoft also conducts anonymous Voice of the Supplier Surveys, which include questions on citizenship issues.

Microsoft’s local citizenship teams work directly with community groups and in partnerships with local non­profits. They share views and insights from local com­munities with Microsoft’s global Citizenship and Public Affairs team in direct communications, through regular conference calls and at an annual global summit. Also, across the breadth of its business, Microsoft engages with thousands of NGOs working on issues ranging from environmental sustainability to employee diversity to child safety.

What actions were taken by Microsoft to help its suppliers create and maintain safe working environments?

In its 2015 Citizenship Report Microsoft set the following targets for helping its suppliers create and maintain safe working environments, based on the company’s approach to materiality – on taking action on what matters, where it matters:

• Providing training resources

Microsoft created a training platform called SEA (Social and Environmental Accountability) Academy that includes labor, ethics, environ­mental, health and safety (EH&S) training course modules for suppliers. In FY15, Microsoft also conducted trainings for 504 trainees from its high-risk sup­pliers. The courses are also designed as a “train the trainer” with project management training to complement the expert content and provide tools on how to successfully improve their factories.

• Working with factory management to build a culture of health and safety

Microsoft worked with factory management to emphasize the need to use competent and experienced EH&S professionals to define and implement the programs necessary to build a culture of health and safety. To address this, Microsoft piloted a number of training modules in its Tier 1 and high-risk Tier 2 suppliers, including: Safety Culture, EH&S Professionals and Senior Management Capability Improvement, EH&S Employee Participation, Risk Behavior Change, EH&S Standardization, Risk Assessment, Chemical Safety and Management, Line Manager EH&S Skills Improvement, Safety Officer Certification for EH&S Staff, Prevention of Occupational Disease, Effective Water Management. In FY15, 528 SEA (Social and Environmental Accountability) professionals from the Microsoft Device Supply Chain attended the company’s SEA in-house training, representing factories with more than 32,000 workers.

• Tracking key health and safety performance indicators
• Implementing a new supplier improvement program

In FY14, to address the growing need for additional capacity building among some Tier 2 suppliers, Microsoft launched a new program to provide targeted component suppliers with onsite consulting from the SEA program team. Microsoft also continued its program to target its lowest performing compo­nent suppliers with special additional inspections that include Microsoft executives as well as SEA and Sourcing team members. This subset of suppliers face an additional compliance scorecard and must improve their performance within a quarter. Additional time may be given in certain occasions that are justified and approved by the SEA team. As a result of the close engagement and collaboration with suppliers to make improvements identified during these audits and assessments, factory and worker conditions have advanced at many of Microsoft’s suppliers. Suppliers who failed to meet the requirements are subject to phase-out and termination of business with Microsoft.

Which GRI indicators/Standards have been addressed?

The GRI indicators/Standards addressed in this case are:

1) G4-12: Describe the organization’s supply chain – the updated GRI Standard is: Disclosure 102-9 Supply chain

2) G4-LA14: Percentage of new suppliers that were screened using labor practices criteria – the updated GRI Standard is:   Disclosure 414-1 New suppliers that were screened using social criteria

3) G4-LA15 : Significant actual and potential negative impacts for labor practices in the supply chain and actions taken – the updated GRI Standard is:   Disclosure 414 -2 Negative social impacts in the supply chain and actions taken

References:

1) This case study is based on published information by Microsoft, located at the links below. For the sake of readability, we did not use brackets or ellipses. However, we made sure that the extra or missing words did not change the report’s meaning. If you would like to quote these written sources from the original, please revert to the following links:

http://database.globalreporting.org/

https://www.microsoft.com/about/csr/responsible-supply-chain/ (June 2016)

2) http://www.fbrh.co.uk/en/global-reporting-initiative-gri-g4-guidelines-download-page

3) https://g4.globalreporting.org/Pages/default.aspx

4) https://www.globalreporting.org/standards/gri-standards-download-center/

Note to Microsoft: With each case study we send out an email to your listed address in request for a comment on this case study. If you have not received such an email please contact us .

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Global Governance: Goals and Lessons for AI

May 17, 2024 | Brad Smith, Vice Chair & President; Natasha Crampton, Chief Responsible AI Officer

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As AI policy conversations expanded last year, they started to be punctuated by repeated references to unexpected abbreviations. Not the usual short names for new AI models or machine learning jargon, but acronyms for the different international institutions that today govern civil aviation, nuclear power, and global capital flows.

This piqued our curiosity. We wanted to go deeper and learn more about how approaches to governing civil aviation might apply to a set of technologies that would never be assembled in a hangar or guided by air traffic control officers. And we were eager to learn about nuclear commitments that emerged in an entirely different geopolitical era to regulate technology that showed promise as a tool but had only been used as a weapon.

Indeed, history has long taught us that the way in which technology transforms our world is in part a product of how effectively it is governed, and that international governance is vital for technologies that know no borders.

Today, we’re excited to share Global Governance: Goals and Lessons for AI , a collection of external perspectives on international institutions from different domains, brought together with our own thoughts on goals and frameworks for global AI governance. Through case studies and analysis, experts chart the history and evolution of institutions such as the International Civil Aviation Organization and the Financial Stability Board and share insights on their successes and challenges to inform the global governance of AI.

YouTube Video

Drawing on this deep, expert insight, we came away with three high-level takeaways for AI:

• As with civil aviation and global capital flows, AI governance involves three interrelated layers : industry standards, domestic regulation, and international governance
• At the international governance layer, three outcomes are important for AI: globally significant risk governance, regulatory interoperability, and inclusive progress.
• Four international governance functions will enable those outcomes: monitoring for and managing global risks, setting standards, building scientific consensus, and strengthening appropriate access to resources.

Below, you can hear directly from our expert contributors, sharing some of their insights that helped us land on these takeaways.

From Sir Chris Llewellyn Smith, former CERN Director General and an Emeritus Professor at the University of Oxford, we learned that enabling access to resources is core to the European Organization for Nuclear Research or CERN.

Building scientific consensus is a governance function epitomized by the Intergovernmental Panel on Climate Change (IPCC), about which we learned from Diana Liverman, a lead author at IPCC, and Youba Sokona, an IPCC vice-chair and lead author. Reflecting on the IPCC’s link to the United Nations, they shared the benefits and drawbacks of working to infuse a political process with science-based decision-making.

As we learned from Dr. Julia Morse, an Assistant Professor at the University of California, Santa Barbara, many different international institutions have a standards-setting function, though how they perform it varies depending on the formality of their governance structures. Dr. Morse contributed a chapter on our “highly institutionalized world,” comparing international institutions that emerged in the immediate post-World War II era to those that have emerged more recently.

The International Civil Aviation Organization (ICAO) facilitates collaboration among government and industry experts to set standards that are primarily enforced at the domestic level through member state audits. Incentives to implement standards are strong – ranging from safety and security imperatives to economic drivers, as detailed by David Heffernan and Rachel Schwartz, aviation law experts.

As we learned from Christina Parajon Skinner, an assistant professor at the University of Pennsylvania, the Financial Action Task Force (FATF) and Financial Stability Board (FSB) also have a standards-setting role. However, the evolving nature of global financial institutions is emblematic of more recent and informal international governance structures, especially around the function of risk monitoring and management.

Despite its more formal treaty basis, the International Atomic Energy Agency (IAEA) has evolved since its establishment. Best known for its mandate to monitor for and manage risks of nuclear weapon development, it has also grown to develop safety and security standards and to provide technical assistance to member states, as Dr. Trevor Findlay, a Principal Fellow at the University of Melbourne and former appointee to a United Nations advisory board on disarmament matters, helped us understand. Dr. Findlay also pointed out the nuclear energy industry’s limited involvement in IAEA until recently.

These expert insights articulate the layered, evolving, and interconnected nature of global governance, and help us chart an informed path forward for international AI governance. There is a growing need for effective governance at the global level to ensure that domestic efforts towards safe, secure, and trustworthy AI are interoperable; that AI’s benefits are shared widely; and that globally significant risks are managed effectively.

Today, many governments, international institutions, and members of the private and non-profit sectors are engaged in initiatives that ladder up to these goals. But it remains the case that we are still in the early days of AI governance. To achieve the outcomes that we have offered in the book, we need durable frameworks to guide an evolving global governance system and new approaches that are informed by lessons of the past.

We hope that this book and the rich insights it shares are a useful contribution to that effort.

Global Governance: Goals and Lessons for AI is also available in print and e-reader versions.

Click here to order.

Tags: AI , AI for Good , Global Governance: Goals and Lessons for AI , Responsible AI

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ESG in Action: Case Studies of Companies Making a Difference

Discover how companies like Patagonia, Microsoft, and Tesla are making a difference through their ESG initiatives. Learn about the benefits of ESG, common implementation challenges, and how Vakilsearch can help.

Environmental, social, and governance (ESG) considerations have become increasingly important for companies as they seek to build sustainable business models and create long-term value for their stakeholders. Many companies are taking proactive steps to integrate ESG principles into their decision-making processes, and the results are impressive. In this blog, we will explore some case studies of companies that are making a difference through their ESG initiatives.

Table of Contents

Case Study 1: Patagonia’s Sustainable Supply Chain

Patagonia, a popular outdoor clothing and gear brand, has made sustainability a core part of its business strategy. The company has implemented a range of initiatives to reduce its environmental impact, including using organic cotton, recycled polyester, and responsible down in its products. Patagonia has also developed a sustainable supply chain, working closely with its suppliers to ensure that they meet strict environmental and social standards. As a result, Patagonia has been able to reduce its carbon footprint, improve the lives of workers in its supply chain, and create a loyal customer base that values sustainability.

Case Study 2: Microsoft’s Carbon Negative Pledge

Microsoft, a leading technology company, has set an ambitious goal to be carbon negative by 2030. This means that the company will remove more carbon from the atmosphere than it emits. Microsoft has developed a comprehensive plan to achieve this goal, which includes investing in renewable energy, improving energy efficiency, and developing new technologies to reduce carbon emissions. The company has also committed to offsetting all of its historical carbon emissions by 2050. By taking these steps, Microsoft is demonstrating its commitment to sustainability and setting a high bar for other companies in the technology sector.

Case Study 3: Unilever’s Sustainable Living Plan

Unilever, a global consumer goods company, has developed a Sustainable Living Plan that aims to improve the health and well-being of people and the planet. The plan includes ambitious targets to reduce the environmental impact of Unilever’s products, improve the lives of workers in its supply chain, and promote sustainable agriculture. Unilever has also taken steps to increase transparency and accountability by publishing regular reports on its progress towards these targets. By implementing the Sustainable Living Plan, Unilever is showing that sustainable business practices can create long-term value for both the company and its stakeholders.

Case Study 4: Tesla’s Electric Vehicles

Tesla, a leading electric vehicle manufacturer, is driving the transition to a more sustainable transportation system. The company has developed a range of electric vehicles that are designed to be more energy-efficient and environmentally friendly than traditional gasoline-powered cars. Tesla has also invested in developing a network of charging stations to make it easier for people to drive electric vehicles. By offering a compelling alternative to traditional cars, Tesla is helping to reduce carbon emissions and create a cleaner, more sustainable future.

Case Study 5: Starbucks’ Ethical Sourcing

Starbucks, a global coffee company, has made ethical sourcing a top priority. The company works closely with farmers and suppliers to ensure that its coffee is produced in a way that is environmentally and socially responsible. Starbucks has also developed programs to improve the lives of coffee farmers, including providing access to credit and technical assistance. By promoting sustainable agriculture and supporting local communities, Starbucks is demonstrating its commitment to responsible business practices.

Case Studies of Companies Making a Difference with ESG: Challenges of ESG Implementation

Implementing ESG initiatives can present various challenges for companies. Here are four of the most common challenges that businesses may face when trying to implement ESG strategies:

• Cost: Implementing ESG initiatives can be costly, especially for small and medium-sized businesses. There may be significant upfront expenses for things like implementing sustainable technology, conducting impact assessments, and training employees on new practices. However, companies that successfully implement ESG strategies often find that the long-term benefits outweigh the initial costs.
• Lack of Knowledge and Expertise: Implementing ESG strategies requires specialised knowledge and expertise. Many companies may lack the in-house expertise needed to develop and implement effective ESG strategies, such as conducting environmental impact assessments or setting up sustainable supply chains. To overcome this challenge, companies may need to hire outside experts, collaborate with other organisations, or invest in training for their employees.
• Resistance from Stakeholders: Implementing ESG initiatives may encounter resistance from various stakeholders, including investors, customers, suppliers, and employees. Some stakeholders may not fully understand the importance of ESG or may be resistant to change. It’s essential for companies to communicate the benefits of ESG initiatives and involve stakeholders in the planning process to address these challenges.
• Measuring Impact: Measuring the impact of ESG initiatives can be challenging. Companies must develop appropriate metrics and methods for measuring the impact of their ESG initiatives. This involves collecting and analysing data to assess the effectiveness of their initiatives and make improvements where necessary. Companies that can effectively measure the impact of their ESG strategies can use this data to report on their progress and improve their strategies over time.

These case studies demonstrate that ESG considerations can create significant value for companies and their stakeholders. Patagonia, Microsoft, Unilever, Tesla, and Starbucks are just a few examples of companies that are making a difference through their ESG initiatives. By prioritising sustainability, social responsibility, and ethical business practices, these companies are building strong reputations, attracting top talent, and positioning themselves for long-term success in a rapidly changing business environment.

As a leading legal and compliance services provider, Vakilsearch can assist companies in their ESG journey by providing legal counsel and compliance guidance, helping them develop and implement effective ESG strategies, and ensuring regulatory compliance. Vakilsearch’s team of experts can help companies navigate the legal and regulatory landscape related to ESG, enabling them to achieve their goals while minimising risks and costs. With Vakilsearch’s support, companies can successfully implement ESG initiatives that create significant value for their stakeholders and position themselves for long-term success.

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A Microsoft under attack from government and tech rivals after 'preventable' hack ties executive pay to cyberthreats

• Both the U.S. government and rival tech companies including Google and CrowdStrike recently called out Microsoft for failing to prevent a Chinese hack of its systems.
• One change Microsoft is now making is to tie its executive compensation to a successful cybersecurity strategy.
• The new approach to pay for top business leaders isn't common, but compensation experts say Microsoft's move has started conversations at other companies.

Microsoft has come under fire recently from both the U.S. government and rival companies for its failure to stop a Chinese hack of its systems last summer. One change the tech giant is making in response: linking executive compensation more closely to cybersecurity.

In April, a government review board described a hack of Microsoft last summer attributed to China as "preventable." The U.S. Department of Homeland Security's Cyber Safety Review Board pointed to "a cascade of errors" and a corporate culture at Microsoft "that deprioritized enterprise security investments and rigorous risk management."

Competitors have taken advantage of the cyber lapse, with Google publishing a blog post this week highlighting the government findings and noting, "The CSRB report also highlights how many vendors, including Google, are already doing the right thing by engineering approaches that protect against tactics illustrated in the report." 

CrowdStrike prominently displays the government conclusions on its site.

Nation-state attacks from China and Russia are increasing, and targeting corporations across the economy, as well as the U.S. government and social infrastructure. Microsoft has been a very big target, including hacks by Russia and China . There is growing pressure from the U.S. government for the company to improve its cybersecurity protocols, with its top corporate lawyer, Brad Smith, being called to testify on Capitol Hill.

Microsoft is in damage control mode. After a hack of executive email accounts in January attributed to Russian hackers, the company disclosed the incident in compliance with new federal cybersecurity disclosure rules, even though technically it was not a "material" hack that it was required by law to share, leading to discussion at other firms about where to draw the line on the new disclosure. The decision by Microsoft to link executive compensation to successful cybersecurity performance is prompting discussions at other firms. 

Microsoft launched its Secure Future Initiative in November, and earlier this month, the company outlined in a blog post from Charlie Bell, executive vice president of Microsoft Security, that as part of its SFI goals it will "instill accountability by basing part of the compensation of the company's Senior Leadership Team on our progress in meeting our security plans and milestones."

A Microsoft spokesperson declined to provide specifics on the compensation, but said as a company which plays a central role in the world's digital ecosystem, it has a "critical responsibility" to make cybersecurity a top priority. It is part of the company's "important governance changes [made] to further support a security-first culture," the spokesperson said. 

Companies often provide more details, though often only limited details, on executive compensation performance targets in annual meeting proxies, which in Microsoft's case was last held in December 2023.

Cybersecurity as a core corporate risk and bonus metric

It has become more common for corporations to tie a percentage of annual executive bonus payouts to various goals that go beyond meeting sales and profit targets. In recent years, many Fortune 500 companies, including Apple, have added bonus pay tied to ESG metrics. Risk management and safety goals have long been a part of executive compensation, dating back to an era before the rise of ESG — for example, mining and energy companies, as well as manufacturers and industrials, tying bonuses to environmental and worker safety.

The conversations about cybersecurity-linked executive pay have started taking place at other companies since Microsoft made its move, according to Aalap Shah, managing director at executive compensation consultant Pearl Meyer. It's not prevalent as a compensation practice today, he said, but he added, "post-Microsoft's announcement, I've gotten phone calls asking, 'Should we do it? Would it work?' ... These conversations are very similar to the ones we were having a few years ago with ESG metrics and a significant percentage of companies adopted them."

Shah said there is a case to be made that cybersecurity is a core issue that can be equated to mining or industrial safety. But there's a big difference between a business in cybersecurity and, for example, a retailer, in making this case. And even in industries beyond technology and cybersecurity where keeping data secure is a core issue, such as financial services and health care — which have been targets of high-profile hacks — it's not a clear case yet to tie executive compensation of the most senior people, such as a chief financial officer or general counsel, to cybersecurity, versus the chief information security officer or chief technology officer, specifically.

Tying pay to hacks is a 'good place to start'

Some firms will make the case that cybersecurity is already ingrained in their culture and such a move would be redundant, but with the escalation in hacking threats and increased importance of cybersecurity spending to the bottom line of companies like Microsoft, this new executive pay metric may be overdue.

Making executive compensation contingent, to some degree, on meeting cybersecurity aims is a good place to start instilling a security culture at the top of the corporate hierarchy that is fundamental to success, according to experts. 

"The most important message being sent internally and externally is it's very important to their culture and more and more companies will follow suit, regardless of whether the gain is significant," Shah said. "What they want to do is make sure it is becoming ingrained culturally, and the path to do that is by linking it to compensation."

"Cybersecurity has to be in the culture of the organization," said Stuart Madnick, professor of information technology at MIT. But prioritizing security can be difficult within a corporation, Madnick said, because it often means putting money into places that aren't clearly reflected on the bottom line. "Corporate culture prioritizes other things over security and risk management," Madnick said. "How do you know how secure you are? Maybe no one is targeting you at the time. But if you increase sales by 20%, that's money in the bank."

Madnick's research shows that gaps in corporate culture are often culprits in high-profile hacks, not just the Microsoft example. Prevention, he says, is as much about foresight as hindsight. In a recent article , he cited MIT studies on Equifax and Capital One security breaches of recent years as other prominent examples. "While some risks are true surprises unlikely to be recognized in advance, many are more like the burglar alarm known to be defective," he said.

Equifax and Capital One did not respond to requests for comment.

Madnick described the corporate mentality as most often "systematic, semi-conscious decision making." That means management decisions are made without analyzing the cyber risks that are being introduced by the decision. Tying executive compensation to security aims won't necessarily mean that approach evaporates from a corporate culture, but he said it has symbolic resonance, and from that symbolic register, the practical may indeed follow.

'An annoyance and a profit center'

For Microsoft, the stakes are higher than for most organizations. Its platforms and systems are so omnipresent — in business and government — that it's essentially impossible to live without it. "There's no alternative to Microsoft, from a productivity standpoint. You have to do insane things to try to work without it," said Ryan Kalember, executive vice president of cybersecurity strategy at cybersecurity vendor Proofpoint.

Adding to the complexity of Microsoft's unavoidability, he said, is the layered nature of its platforms, in which succeeding iterations are often buttressed by legacy applications stretching back to the 90s, before security threats remotely resembling what now exists.

The U.S. government has called on the largest, and oldest, tech companies to update systems that both businesses and consumers rely on. Last year, Cybersecurity and Infrastructure Security Agency director Jen Easterly said in a CNBC interview that cybersecurity is consumer safety, and compared it to automotive regulations. "Technology companies who for decades have been creating products and software that are fundamentally insecure need to start creating products that are secure by design and secure by default with safety features baked in," she said. 

Legacy platforms are far easier to plug into and build on rather than deploying a new system entirely, but "it's a security nightmare," Kalember said. "One MS365 for everybody from the State Department to Joe's Crab Shack is a fine business model, it just doesn't lend itself well to traditional security measures."

The architectural principles built into some of these legacy systems were designed "when ransomware was really a thing that simply didn't exist – except on floppy disks," he said. This has led to the company accruing massive amounts of what is called "technical debt " — decades of it — that can be abused by nation-states and allow foreign intelligence agencies "to steal anything they want," he added. 

Microsoft is caught between two competing impulses, with security "a combination of an annoyance and a profit center," Kalember said. It's a profit center because Microsoft is the world's largest cybersecurity vendor, reaching $20 billion in annual revenue last year. That makes the compensation move "a good gesture," he said, but he added, "without specifics behind it, it's very difficult to assess." 

No details on how Microsoft pay will be influenced

The lack of details on the compensation formula makes it impossible to properly evaluate the incentive. Many companies that adopted ESG metrics did so only in the bonus portion of executive pay, not the long-term incentive plan, which is much more significant. "That's putting your money where your mouth is," Shah said.

A bonus may comprise, on average, 20% of executive pay, and within the bonus pool specifically, non-core financial metrics such as ESG only contribute 20% of a potential total bonus payout. "When you have 20% of overall [bonus] compensation and divvy it up into a few different metrics, how much are you really tying something like cyber to it?" Shah said.

Long-term incentive plans tied to equity grants, especially in tech, are where the real money is made, and that's where these types of non-core financial metrics are low in prevalence. That would be the ideal place within a compensation plan to set pay against long-term cybersecurity and corporate goals, but it is difficult for firms to conceive of two-to-three year goals related to cybersecurity, consumer privacy and data breaches that can be measured like sales and profit. "It will be a challenge," Shah said. "Is it the number of incidents? The caution I have is the same as with ESG: you want to make sure not only the relevance is there, but you also want to make sure there are quantifiable goals. In a rush to adopt, if it's subjective, then it is less meaningful for shareholders."

Boards of directors already have the discretion to hold executives accountable each year and decide to do downward adjustments on bonuses, based on performance, including data breaches. To date, this type of bonus incentive/punishment has been mostly limited to chief information security officers, according to Mike Doonan, managing director at SPMB, an executive search firm where he specializes in technology. In his view, it's an imperfect comparison to look at the history of bonus pay tied to metrics such as worker safety, since many hacks occur due to third-party vulnerabilities, which are often beyond the company's direct control. But Doonan said he could see this type of executive incentive being adopted more broadly, "because it's good PR to say security is a top priority across the entire executive suite, and it might result in improvements." But he thinks there is an even better way to shore up corporate defense: "saving the bonus pool and investing those dollars into security programs."

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How Microsoft built a new mobility model for cross-border talent

Professionals from EY and Microsoft challenged old assumptions about workforce mobility, creating a forward-thinking and data-rich platform.

• 1. The better the question
• 2. The better the answer
• 3. The better the working world

The better the question

How do you make “work anywhere” work everywhere?

Microsoft’s workforce mobility function evolves to face new challenges and opportunities.

A s ways of working have settled into a “ next normal ”,  organizations have had to proactively refine how and where they work across jurisdictions, while fostering an exceptional employee experience. For Microsoft, workforce mobility is about more than solving the logistical challenges of moving highly skilled employees around the world. Instead, after years of health, economic and geopolitical challenges, their mobility function has transitioned to a place of strategic opportunity, requiring rapid adaptation and innovation.

“Employees are no longer seen as mere resources to be moved around, but as individuals with unique needs and aspirations,” says Juan Carlos González, Senior Director for Global Mobility at Microsoft. “Our mobility program is not just about moving people from point A to point B. It's about creating meaningful experiences, placing people at the center, fostering diversity and inclusion, and ultimately, driving business success.”

Microsoft’s strategic perspective challenges old assumptions and traditional designs of workforce mobility solutions. In the past, the Mobility function faced relatively low-volume scenarios: expatriate assignments and company-supported moves or travel. Now, mobility programs provide guidance and insights for employee-driven scenarios including personal relocations, commuting, and a mix of personal and professional business travel. This shift in focus is influenced by the expanded use of generative AI (GenAI), providing new tools and visibility into employee data, mobility processes, and automation.

To evolve the Mobility function, González and his team embarked on a journey to drive value to the business and better align with the organization’s overall goals. An important part of this journey would be working to meet the needs of employees, the needs of their mobility professionals, and looking at leading market trends in workforce mobility.

Microsoft eventually arrived at three focus areas that would contribute to a more effective and strategically-aligned mobility program:

• Reduce the number of vendors and systems.
• Help drive automation and efficiencies across their mobility function.
• Improve the employee experience.

To begin realizing this vision EY professionals worked with Microsoft to create new and improved mobility processes. The initial focus area was the launch of Microsoft’s US state-to-state business traveler program which required the ability to integrate with their human resources information (HRIS), travel, payroll and equity systems; provide a leading-class traveler experience; and automate all downstream processes.

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After the business traveler program was up and running, the teams then set out to reduce the number of immigration providers supporting Microsoft. At that time, Microsoft had 19 global immigration providers, with the goal of getting down to one global provider outside of the US to increase efficiency and effectiveness, and add value for employees and the organization.

“Microsoft realized that they could further evolve their global immigration program and improve on the sometimes-disjointed employee experience and process,” says George Reis, EY Americas Immigration Leader. “Instead of disparate providers, they wanted a more centralized strategic program, integrated with their mobility and global workforce strategy, informed by a common case management system, and supported in execution by their HR Services organization.”  

Reis adds that this undertaking would then create space to apply a strategic lens to immigration which was employee-focused, would support business goals, reduce risk, and understand government relations.  

With a more comprehensive, strategic approach to global immigration and US state-to-state business travel compliance, Microsoft sought a solution that would further transform the Mobility function and enhance employee experience. To experience cross-border work, even for a short-time, can be a life-changing experience, but without strategic coordination, it can create a strain on process and stress on employees. It’s an undertaking requiring streamlined process, adaptable technology, and a people-first mindset to realize the full potential of global teams and talents.

This mutual learning has helped both teams to develop a robust suite of technologies that can effectively address the challenges faced by Mobility functions.

Juan Carlos González

Senior Director for Global Mobility, Microsoft

The better the answer

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Microsoft worked with EY teams from across the globe to define the right approach for the digital transformation of its business travel and global immigration programs. The strategy would champion exceptional user experience (UX) and employee experience (EX), driven by leading-class technology.

Between data management, business travel, immigration, legal and tax requirements, such a comprehensive mobility solution would be stress-tested at every turn.  

“For EY mobility professionals, we have long worked toward a vision of combining leading technology with talented EY professionals to create a truly integrated mobility experience,” says Leslie Fiorentino, Partner, Ernst & Young LLP (United States).  

The right technology: EY Mobility Pathway

Achieving the kind of integrated mobility experience Microsoft wanted required a platform suited to digital ecosystem connectivity; a way to combine many data streams into a streamlined user experience. EY teams had a solution:  EY Mobility Pathway  is a scalable platform that integrates mobility lifecycle activity and services on a single, comprehensive platform.  

Built on Microsoft Azure, EY Mobility Pathway’s intuitive interface intelligently manages data from multiple sources to reduce time spent on administrative tasks. By building collaboration between Microsoft, external mobility providers, employees, and corporate users, the mobile talent lifecycle can also become more transparent and drive efficiency.

“An employee often, even working with one vendor, needs to go to multiple places, separate portals, and the data doesn’t mix — it’s not often a good user experience,” says Kushan Shah, Partner, Ernst & Young LLP (United States). “We have one product that integrates, in one place, multiple personas: corporate users, employees, and the entire Global EY network, too. There’s no smoke and mirrors, here, it’s one product serving all stakeholders.”

Having Microsoft as both client and project collaborator created an opportunity to iterate the technology in real-time, given its Microsoft Azure provenance: teams were able to create client-specific workflows with Azure Logic Apps; Azure Cosmos DB helped with questionnaire management; Microsoft Power BI enabled creation of relevant dashboards for clients, while keeping data models in check for scale.

“The collaboration between our two companies has been incredibly positive, fostering a rich cycle of mutual learning,” González says. “As a complex organization, we strive to scrutinize every process through a multidisciplinary lens. Implementing any change requires time and resilience, but it ensures that our initiatives are well-conceived and, most importantly, compliant.”

By building agility into the development process, Microsoft professionals could make recommendations on a technology solution, with the power of developer capabilities reaching the hands of EY service professionals, helping to discover and refine the experience to be provided to users.

“My team has had the opportunity to learn from a multidisciplinary group of EY experts who are leaders in their respective fields, bringing valuable market insights,” González adds. “This mutual learning has helped both teams to develop a robust suite of technologies that can effectively address the challenges faced by Mobility functions, particularly those arising from the limitations of major HR or Payroll systems.”

“This is a new model for doing this,” Shah says. “And it’s the right model.”

The right people experience

Technology is an important piece to solving a digital transformation puzzle, but solutions need to be attentive to how and why people are using them. Many employees go through cross-border experiences infrequently, giving greater weight to their first impressions of mobility and immigration processes, and workforce mobility more generally. While some repetitive tasks can be automated, and advances in GenAI can expand certain system capabilities, the best way to keep sight of the human experience of workforce mobility is with teams of responsive and empathetic professionals.

EY provided the strongest network of professionals — human beings — to drive people-centered thinking around workforce mobility.

George Reis

EY Americas Immigration Leader

“Mobility programs are being designed not just to facilitate relocation, but also to support the personal and professional growth of employees, enhance their well-being, and ensure their successful integration into the new environment,” González says. “This people-centered approach to global mobility is helping organizations attract and retain talent, foster a globally-minded workforce, and ultimately, drive business success. It's no longer solely about Mobility defining the experience in isolation, but rather about fully integrating it with the 'Hire to Retire' vision of our leadership team.”

The depth and breadth of experience of EY professionals, with a global capability at the scale needed to serve Microsoft, created the right people-focused service model to pair with the technology.

“EY provided the strongest network of professionals — human beings — to drive people-centered thinking around workforce mobility,” Reis says. “EY teams are able to connect dots between immigration law, geopolitics, the race for talent, and do so with empathy. To do this at a global scale is challenging, but EY teams are up to the task.”

The better the world works

Evolving for enhanced employee experience and efficiency

Collaboration between teams from EY and Microsoft creates a glimpse into workforce mobility’s future.

With implementation now complete, González says Microsoft has seen progress in key areas:

• Efficiency: EY Mobility Pathway has streamlined processes, reducing the time and resources required for mobility tasks. This has allowed teams to focus more on strategic initiatives.
• Collaboration: The close working relationship between Microsoft and EY teams has fostered a culture of collaboration, leading to more innovative solutions and better problem-solving.
• Compliance: With EY Mobility Pathway, Microsoft has been able to better manage and track compliance issues, reducing risks and adhering to regulations.
• Employee experience: The new approach has improved the experience for mobile employees, making it easier for them to navigate the complexities of mobility.
• Data-driven decisions: The use of EY Mobility Pathway has provided Microsoft with valuable data and insights, helping enable more informed decision-making around mobility.

“These improvements are testament to the benefits of adopting an agile, collaborative approach to global mobility,” González says. “It's a great example of how digital transformation can drive operational efficiency and enhance employee experience based on the hard work and high level of expertise of my team to properly open the path of success for EY and ultimately the partnership at the center of the power of the possible.”

The experience of Microsoft and EY teams building a new mobility model by pairing advanced technology and services gives a glimpse into the future of capability-based innovation on a global scale. For complex processes like those related to global immigration and workforce mobility, a technology solution alone cannot be all things to all organizations. The mobility function needs to evolve itself to serve new purposes. By remaining flexible, and fitting the needs of individual users and the professionals serving them, teams from EY and Microsoft collaborated on a technology and service model that can shift mindsets beyond traditional thinking, while keeping people at the center.  

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Colorado amends unitary combined reporting law effective in 2026

What happened?

Legislation signed by Governor Jared Polis (D) on May 14 amends the law for corporate unitary combined reporting effective for tax years beginning on or after January 1, 2026. Among other changes, the legislation replaces the historic “3 of 6” unitary test with a statement of constitutional principles for determining if a unitary business exists. [ H.B. 1134 , signed by Governor, 5/14/2024] 

Why is it relevant? 

The Colorado historic unitary test has been particular to the state and subject to judicial controversies and legislative amendments over the years. The amended law layers existing Colorado unitary reporting standards onto a new unitary combined reporting regime. All corporate taxpayers doing business in Colorado may be impacted by these changes. 

Actions to consider 

Taxpayers should analyze their Colorado combined group to determine if any affiliated entities that were included or excluded under the 3 of 6 test should be included on a unitary combined basis. This would include any newly acquired entities that could not be combined under the 3 of 6 test because they were not members of the group for three years. 

In detail 

The legislation provides, effective for tax years beginning on or after January 1, 2026: 

• The historic “3 of 6” unitary test is repealed. This test provided that members of an affiliated group of C corporations may be included in a combined report only when any three of six unitary indicators have been satisfied for the tax year and the two preceding tax years. 
• Instead, “unitary business” is defined as a single economic enterprise made up either of separate parts of a single C corporation or of an affiliated group of C corporations that are sufficiently interdependent, integrated, and interrelated through their activities so as to provide a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value to the separate parts.   
• A unitary business includes that part of the business that is conducted by a taxpayer through the taxpayer’s interest in a partnership, whether the interest in that partnership is held directly or indirectly through a series of partnerships or other pass-through entities. The legislation provides apportionment rules for partnership income, intercompany transactions, and allocation of a partnership tax item.  

Observation: The legislation replaced a concrete set of tests (although sometimes hard to apply to large groups) with more amorphous and subjective unitary tests. This change could be helpful to taxpayers because the Colorado combined group more likely would constitute the same members as the combined groups in traditional unitary combined states. Taxpayers also should consider the impact of new provisions providing for the apportionment of partnership income. 

The legislation also provides revised rules for unitary combined reporting: 

• All of the members of an affiliated group of C corporations, wherever incorporated or domiciled, that are members of a unitary business are required to file a combined report as a combined group. The net income of each member of the combined group is combined, eliminating items of income, expense, gain, and loss from transactions between members of the combined group, applying the consolidated filing rules under the IRC and the regulations thereunder, as if the combined group was a consolidated filing group. 
• The combined group apportionment factor numerator includes amounts sourced to the state for the combined group’s unitary business, regardless of the separate entity to which those factors may be attributed, and the denominator of the factor includes amounts associated with the combined group’s unitary business wherever located. Intercompany transactions among members of the combined group are excluded from both the apportionment numerator and denominator. 

Observation : In general, the legislation leaves in place some key features of Colorado unitary combined reporting, including the Finnigan rule and tax haven law adopted in 2021, application of the federal consolidated reporting rules, the consolidated filing election, and the 80/20 company exclusion (applies to both foreign and domestic entities).  

Effective date rule

The legislation takes effect the day following the expiration of the 90-day period after final adjournment of the General Assembly (i.e., August 7). However, if a referendum petition is filed against the legislation or any part of it within that 90-day period, then the legislation or part thereof will not take effect unless approved in the November 2024 general election.  

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