We believe the world needs a bold ambition and a broad vision for the future of carbon accounting and the SEC has a vital role to play.
Today, Microsoft is submitting comments to the U.S. Securities and Exchange Commission (also shared in full, below this post) on the topic of climate change disclosure. It’s an important filing that we’ve been working on the past two months, and I want to share why we believe the SEC’s process is so important.
We fully believe the world needs to create a net-zero carbon economy by the year 2050. While many different steps are required, they all rely on a common foundation that ensures carbon emissions are measured in an accurate, consistent and reliable manner globally. In short, if we don’t all measure carbon emissions the same way, we’re likely to talk past each other, create confusion and ultimately delude ourselves about the pace of progress. Within Microsoft, we often talk about our own “carbon accounting.” It may not be the most dramatic aspect of the world’s carbon crisis, but it’s an indispensable early step on the path to progress.
Accurate carbon accounting is only impactful when it is put together with two other key ingredients. As I wrote in January 2021, a “growing theme around the world is the need for institutions to put in place the transparency and accountability that will hold everyone’s feet to the fire.” In other words, we need to couple common accounting standards with the public reporting of carbon emissions by companies, non-profits and governments themselves. As we see it, carbon reporting quickly is becoming important to the stakeholders of all these groups, whether the stakeholders are investors, customers, donors or citizens.
Put in this context, the SEC has a vital role to play. We readily recognize that there are many issues that are important to society that are not appropriate for SEC disclosure requirements for public companies. But, as we explain in our comments, climate change disclosure is an appropriate area for SEC rulemaking because of its increasing significance to investors. BlackRock CEO Larry Fink captured this well in January when he wrote, “We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.” Indeed, we increasingly see universities with large endowments and other major institutional investors wanting to factor a public company’s carbon emission practices into their investment decisions.
Of course, there’s much more to this rulemaking than an endorsement of its importance. In our comments, we explain why we believe it will be critical for the SEC to have a common and well-defined framework for climate change-related metrics and methodologies. And, as we note, any disclosure rules should be rooted in established concepts of materiality and based on clear principles and goals that advance the SEC’s three-part mission: protect investors; maintain fair, orderly and efficient markets; and facilitate capital formation. We’re encouraged that the commission is moving in a direction that takes account of these factors, with a thoughtful and deliberate process that provides an opportunity for broad input.
SEC disclosure requirements will also need to be adaptable over time. In many ways, we all live in an early stage of carbon accounting. This is a broader problem that the world needs to attack with a sense of urgency. We have no time to spare in developing common and, ultimately, global standards for measuring, recording and reporting carbon emissions. Like the sophisticated financial controls that were advanced more than a decade ago by the SEC after the enactment of Sarbanes-Oxley, these will need to be automated across organizations with new technology - a high priority for R&D across Microsoft itself. As all this evolves, both within individual industries and across the economy, the SEC’s disclosure obligations likely will need to adapt to what becomes possible and to changing investor expectations.
We also look at the SEC’s current efforts as an indispensable part of a much broader and global initiative to reduce carbon emissions. We are encouraged by the possibility of U.S. government agencies - guided by a whole of government approach - now creating common standards for carbon accounting and climate change data. This can and should connect to similar efforts by other major governments, including the European Union. While the SEC only applies its regulations to companies that are publicly traded in the U.S., we believe the commission’s rules should play a connected role in the broader private sector and to regulatory initiatives that, by the middle of this decade, will likely reach every part of the economy worldwide.
Individual companies will clearly have a vital and ongoing role to play. At Microsoft, we are on our own journey to improve the rigor and accuracy of environmental data, which helps our risk assessments. We report our emissions and water data to CDP, share our Climate Risk and Management Plan as part of our annual Environmental Sustainability Report and conduct TCFD-aligned analyses of our global physical assets. We have also joined with customers and partners in initiatives such as OS-Climate and Transform to Net Zero aimed at creating greater standardization of sustainability data, including work to improve consistency of data and better sharing across businesses.
Ultimately, we believe the world needs a bold ambition and a broad vision for the future of carbon accounting. Just as we have well-understood and precise metrics for currency in finance, kilowatt hours in energy and calories in food products, precise measures of emissions will be fundamental to the future. Individual consumers will have the ability to choose among competing products based on relative carbon emissions, as they do today when it comes to the nutritional content of food products. And investors large and small will have the ability to factor carbon measurements into their investment decisions.
Not everyone will make investment and purchasing decisions based on these factors. But everyone will have the power to choose. Already, this information is important to a rapidly expanding group of investors. With thoughtful and decisive action, the SEC can help build a stronger foundation, both for the investing public and the planet’s future.