How to develop a carbon management strategy for business

If businesses want to confront climate change, they need to contain their carbon output. While there’s no one-size-fits-all way to do so, there are best practices that can be helpful to leaders developing a carbon management strategy.

And make no mistake: Corporations should have a carbon management strategy. “Decarbonization is a hot topic for every single industry right now,” said Cate Hight, a Washington, D.C.-based partner at Bain, who advises companies on sustainable energy and policy issues.

Hight was joined by directors from Microsoft and Ceres on a panel at the 2023 MIT Sustainability Summit entitled “Advancing Corporate Action: What Is an Effective Carbon Management Strategy?” The panel was moderated byJason Jay, a senior lecturer and director of the MIT Sloan Sustainability Initiative.

Here are three best practices that corporate leaders should think about when developing carbon management strategies.

1. Reduce emissions within your infrastructure and supply chain.

Even for a big company like Microsoft, “emissions reduction is quite hard,” said Phillip Goodman, director of carbon removal portfolio for the tech giant.

Microsoft has pledged to be carbon negative by 2030, cutting its own emissions by 50% and removing the rest by buying “high-quality carbon removal from different providers in the market,” Goodman said.

“While we have a small team working at carbon removal, we’ve got a bigger team that spreads across the entire company that’s thinking about emissions reduction in our direct operations on a daily basis and through our supply chain,” Goodman said.

In 2012, Microsoft introduced an internal carbon fee to hold its own business units financially accountable for carbon emissions. The fee goes toward Microsoft’s carbon-neutral purchases and gives business units a financial incentive to reduce their emissions.

“What we’re trying to do is both set an incentive for our different business groups, whether they’re creating Xboxes or hosting the Azure cloud services that power lots of cloud computing around the world,” Goodman said. “So we’ll charge a fee based on the cost of abatement, and then, on the other side, we’ll go deploy those funds. But we want to deploy those into things that are going to move the needle.”

According to the policy, any fees raised must be used within the same year. Unfortunately, “there aren’t enough quality removals out there for us to use our entire carbon fee that we collect across the team,” Goodman said, adding that Microsoft expects the market to converge in 2030, with more options available.

2. Invest in carbon offsets.

Bain’s Hight said that companies should, first and foremost, decarbonize their own operations: “Push that envelope as hard as you can” to procure renewable energy, and “electrify as much stuff as possible.”

But carbon offsets should also be a part of their strategy. Hight said that there are “pure removals,” such as planting new trees and direct air capture, alongside other actions that are equally valuable, such as avoiding deforestation.

Hight predicted an increase in nature-based solutions in the next five to 10 years and said she hopes that a means of pricing and valuing them will emerge so that companies can contribute to them.

For its part, Microsoft is buying carbon credits from CarbonCapture, a startup behind a direct air capture plant in Wyoming, among other offset options. The plant runs on technology that filters carbon from the air and stores it underground. The technology is still in the early stages, with around 18 direct air capture plants operating worldwide, according to the International Energy Agency.

Offsets are not without controversy. Some argue that if an offset is based on dubious assumptions, it can make climate change worse. That is why it’s important for companies and consumers to ensure that any offset they buy actually cuts emissions or removes carbon.

3. Help change policy to create a dependable ecosystem for decarbonization.

Goodman said that Microsoft works with different standards agencies, such as the Integrity Council for the Voluntary Carbon Market and the Voluntary Carbon Markets Integrity Initiative, and stays on top of rules and regulations.

“We’re very active in all those bodies and trying to set some common third-party standard on what a quality removal is, frankly, so that we take all this great activity out there and put it toward the most meaningful uses for the planet,” Goodman said.

Tracey Cameron, director of corporate climate engagement at Ceres, pointed out there is “a ton of money” going into carbon capture storage in the U.S. because of the recently passed infrastructure bill, which finances four direct air capture hubs, and the Inflation Reduction Act, which incentivizes the use of carbon capture and storage technologies.

That said, Cameron advises companies to proceed at a slow and steady pace, citing a Chevron carbon capture project in Australia that ran into issues. “We need to be very cautious about doing it smartly and thinking before we just do it at scale,” she said.

In wrapping up, Jay emphasized that voluntary markets are a way to prepare the practices and business models for full-fledged carbon pricing, a point that was echoed by Goodman.

“We've talked to countless companies out there about our carbon-fee-setting process. I think that's a good interim step,” Goodman said. “I think everything we're doing here are interim steps, trying to act where we want policy bodies to play a bigger role.

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