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ASCM Insights

Microsoft Computes a Winning Strategy for Supply Chain Sustainability

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Editor’s Note: Microsoft Corp. was the recipient of the ASCM Award of Excellence — Making an Impact. The company was honored for its dedication to supply chain circularity and its commitment to collaborating with suppliers in order to significantly reduce global emissions. The following article details the company’s efforts. The 2023 program is now accepting entries! To learn more and submit, visit ascm.org/awards

In January 2020, Microsoft Corp. announced a bold commitment to be carbon negative and be water positive by 2030 — and remove from the environment an equivalent amount of all its carbon emissions since its founding in 1975 by 2050.

“We likened it to a moonshot: a grand goal that will require exceptional organizational focus, an integration of innovation from multiple sectors and a can’t-fail mentality,” recalls Paul Clark, general manager of cloud engineering and supply chain sustainability. “We grounded our sustainability strategy and commitments in the belief that technology can help solve the world’s biggest challenges.”

To fund its sustainability programs, Microsoft collects a carbon fee from its business units. This program started in 2012 and charged each business group for its scope 1 and scope 2 emissions plus its business air travel. Scope 1 emissions come directly from the organization and its assets, and scope 2 emissions are generated by energy suppliers, such as those providing electricity, steam, heat or cooling. 

In 2019, Microsoft raised this fee to $15 per ton, and in July 2020 it started charging internal business units for their scope 3 emissions, which essentially represent all other upstream (supply chain) and downstream (product use) emissions. Starting in July 2022, the fee was charged as three rates: $15 per ton for all electricity, $100 per ton for business travel and $8 per ton for all remaining emissions. The funds are used to support renewable electricity, sustainable aviation fuel and carbon removal.

Steps to conquer carbon

The company successfully contracted to remove 2.5 million metric tons of carbon in its 2021 and 2022 fiscal years, meeting the cumulative two-year goal. Brad Smith, president and vice chair, wrote on the Microsoft blog that, while the company reduced its scope 1 and scope 2 emissions about 17% year over year, it saw an increase in its scope 3 emissions. This increase was during a time of significant business growth in 2021 when Microsoft significantly expanded its global datacenter footprint to meet increased demand for its cloud business as well as a growth in devices sales and usage, due in part to the pandemic.

But Microsoft understands that sustainability is a long-term effort. The company is taking what it learned in 2021 and applying that knowledge to additional measures to strengthen its scope 3 emissions-reduction efforts, Smith says. Along with adapting how it sets carbon targets, Microsoft has increased the frequency and scope of its internal reporting to achieve greater transparency and more informed decision-making across the company.

One of the biggest challenges of reducing carbon emissions is the lack of industry standards for carbon accounting. In February 2022, Microsoft joined more than 20 organizations in forming the Carbon Call, an initiative focused on speeding the development of reliable and consistent carbon measurement approaches and reporting by uncovering and addressing gaps in existing global carbon accounting systems.

Architecting responsible approaches to water

The company’s water-replenishment strategy includes investments in projects such as wetland restoration and the removal of impervious surfaces, such as asphalt, in order to help replenish water back into the basins that need it most. In addition, it has added a sustainability design standard that requires water conservation at all locations globally. So far, the company has made the following design choices and facility improvements:

  • Silicon Valley — An on-site rainwater collection and a waste treatment plant ensure 100% of the site’s non-potable water comes from on-site recycled sources. An integrated water management system manages and reuses rainwater and wastewater, saving an estimated 4.3 million gallons of potable water each year.
  • Israel — Water-efficient plumbing fixtures drive up water conservation by 35%. In addition, 100% of water collected from air conditioners is used to water plants on-site, resulting in an estimated savings of more than 3 million liters annually.
  • India — The company is piloting air-to-water generators that will capture the moisture in humid air, purify it and produce safe drinking water. This helps offset 4 million liters of groundwater extraction per year in a water-stressed region.
  • Arizona — Adiabatic cooling uses outside air instead of water for cooling when temperatures are below 85 degrees Fahrenheit. When temperatures are above 85 degrees, a highly efficient evaporative cooling system uses less electricity to help keep the facility comfortable. In addition, the company partnered with First Solar’s solar power plant to offset the site’s energy usage, which is expected to save more than 350 million liters of water annually.
  • Puget Sound region — As part of Microsoft’s headquarters redevelopment, all new office buildings reuse harvested rainwater in flush fixtures and low-flow systems, which is projected to save more than 5.8 million gallons annually.

In total, 1.3 million cubic meters of water replenishment projects were funded in fiscal year 2021. The organization also is on track to reduce water waste in its datacenter operations by 95% by 2024.

Circular centers solve waste challenges

To reach its zero-waste goals, Microsoft’s Circular Centers process decommissioned cloud servers and hardware, sort the components, and intelligently channel the components and equipment to optimize reuse or repurpose. The first center, which opened in Amsterdam in 2020, achieved 83% reuse and 17% recycle of critical parts within two years while helping to reduce carbon emissions. Some decommissioned servers are sent to schools for training future tech employees, while used memory cards are finding a new life in electronic toys and gaming systems.  

The effort has increased the availability of server and network parts for reuse, thus extending the life cycles of servers in use and increasing the amount of spare and repair parts. The company estimates its Circular Centers will contribute to increased reuse of servers by 90% by 2025.

But achieving the zero-waste mark will require a plan for every part — and Microsoft has one. The company developed the Intelligent Disposition and Routing System (IDARS), an end-to-end planning system that defines the most sustainable path for every part at any point in its life cycle across the entire Microsoft supply chain. IDARS leverages artificial intelligence and machine learning along with Microsoft Dynamics 365 Supply Chain Management and the Microsoft Power Platform to process and sort end-of-life assets, optimize routes for those assets, and provide Circular Center operators precise instructions about what to do with the asset.

This recycling and reuse effort is especially important because the United Nations reports that e-waste is the fastest-growing domestic waste stream on a global scale. This is fueled by higher consumption rates of electronics and related equipment, short life cycles and few options for product repair. The organization predicts that e-waste will exceed 74 million metric tons by 2030, doubling the amount from 16 years prior.

Beyond this life cycle strategy, Microsoft is working to eliminate single-use plastics, including plastic film, primary product packaging and information technology asset packaging in its datacenters by 2025. Through its Climate Innovation Fund, the company is investing $30 million in Closed Loop Partners’ funds to help accelerate the development of infrastructure, business models for supply chain digitization, e-waste collection, food waste reduction and recycling to build a more circular economy at scale.

ESG success lies in the supply chain

All of this is essential to achieving the company’s environmental, social and governance (ESG) goals. However, Clark says Microsoft’s most important contribution will come from helping its suppliers and their suppliers reduce their carbon footprints. Prior to the company’s major sustainability pledges, Microsoft was holding its suppliers to high ESG standards regarding human rights, labor, health and safety, environmental impacts, and business ethics practices. In 2020, Microsoft expanded its supplier code of conduct to require them to report their greenhouse gas emissions.

“This was a first step to increase transparency and enable us to work collaboratively with our suppliers to help reduce their emissions,” Clark says. As of July 2021, 87% of Microsoft’s in-scope suppliers reported their emissions to CDP — a not-for-profit organization that manages disclosures of environmental impacts — up 12% from 2020.

Microsoft also helps its suppliers assess their emissions contributions and opportunities for reductions and educates them about how to move forward in their own sustainability journeys. In addition, it offers supplier incentives to encourage engagement toward mutual sustainability objectives.

Sharing insights to save the world

Importantly, Microsoft shares its sustainability lessons learned with its customers and the world at large. The company developed the Microsoft Emissions Impact Dashboard to give customers sustainability insights regarding their use of Microsoft’s Cloud. And the Microsoft Cloud for Sustainability offers organizations a more comprehensive view into the emissions impact of their entire operations and value chains by centralizing previously disparate data into a common format.

“The world needs to reach net zero, and those of us who can afford to move faster and go further should do so,” Clark says. “This will take aggressive approaches, new technology that doesn’t exist today and innovative public policy. It’s an ambitious goal, but science tells us that it’s a goal of fundamental importance to every person alive today and for every generation to follow.”

About the Author

Jennifer Storelli

Jennifer Storelli is a freelance writer. She may be contacted through editorial@ascm.org.

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