Microsoft & Climate Innovation | Signal Magazine

Melanie Nakagawa joined Microsoft as Chief Sustainability Officer in 2023 and, as part of her duties, assumed responsibility for the company’s $1 billion Climate Innovation Fund (CIF). In his previous roles he worked in private equity, government and non-profit organizations, where he connected technology, finance and innovation. We asked him about the fund and how companies can help in the fight against climate change…

Why was the Microsoft Climate Innovation Fund created?

Melanie Made: When Microsoft released its sustainability commitments to be carbon negative, water positive and zero waste by 2030, we realized that there were some technologies and solutions that did not yet exist at scale, but would need to be widely available by 2030. The Climate Innovation Fund was created to build the solutions the world needs for the market of the future.

How do you decide what investments to make?

MN: As a global technology leader, Microsoft sees an incredible variety of new technologies as they emerge in the market. We identify the sustainable innovations with the greatest potential for climate impact at the edge of commercial adoption, and align the right kind of capital and collaboration to bring those solutions to market at scale.

What are some key things you’ve learned in the fund’s first five years?

MN: We have learned how we can push the frontier through validating emerging technologies. For example, Microsoft negotiated a ten-year purchase agreement [un acuerdo para comprar productos futuros a condiciones establecidas] with a carbon capture company called Climeworks to extract about 10,000 tons of carbon dioxide from the atmosphere and store it safely underground. The agreement, signed in 2022, was one of the largest long-term direct air capture contracts signed up to that time. And then, through the CIF, Microsoft provided pioneering project financing for Climeworks’ Orca plant in Iceland, the first commercial direct aerial capture facility. We’ve also learned how we can act as a bridge to core capital so early-stage projects can scale. An example of this is Stegra, a low-carbon green steel company, which we help secure project financing. We’ve also learned the role AI can play in accelerating and optimizing systems with speed and innovation, and we have a handful of companies in the portfolio that are going AI-first.

Tell me about a project the fund has invested in that you are particularly proud of…

MN: Something that is increasingly relevant for companies is how to reduce their emissions from air travel. Through the fund we invested in a company called Twelve, whose flagship product is a direct-to-liquid sustainable aviation fuel (SAF), made with renewable electricity, water and carbon dioxide. We invested to support the expansion of their Moses Lake plant in Washington, and also contributed to a purchase of SAF for Microsoft.

I think the way the offering was organized is very useful for other companies as a model because we structured it in a way called ‘book and claims accounting’. This allows Microsoft to report lower emissions from the sustainable use of aviation fuel, but without requiring physical delivery.

We don’t own airplanes, so what we did was partner with Alaska Airlines, a company based in Washington state. When the business trip occurs, Microsoft has paid for sustainable aviation fuel, Alaska can fly on that fuel, and Twelve receives the investment to continue scaling and growing its business. Everyone benefits.

You have worked in both government and the corporate world. What advantages do companies have to advance the fight against climate change?

MN: One of the things I have learned from the different roles I have played is that, in reality, it takes all actors to achieve change: it takes governments, corporations, technology and finance. The role corporations play is, above all, to act quickly and nimbly, rather than being tied to political cycles, and to respond quickly to emerging risks and opportunities. They can also influence their own value chain, how they integrate sustainability into their procurement, to influence emissions reductions across thousands of suppliers. And of course, corporations have the opportunity to build and drive markets by building the ecosystem for innovation.

Is there any concrete advice you give to CEOs and CSOs looking to multiply the effect of their spending on climate sustainability?

MN: We see how AI can have a transformative effect in accelerating solutions in almost every sector, and looking at CIF investments in AI-driven companies, they show how data automation and advanced analytics can open emerging pathways for decarbonization, resilience and market growth. So what we often say to others and to many of our clients and partners is that the pace of progress must increase.

This is an incredible time for corporate leaders, investors and innovators to thoughtfully integrate AI into their strategies and use its potential to support the transition to lower carbon solutions, cleaner energy opportunities and more resilient and affordable solutions.

What are some of the most exciting innovations coming in the next five years?

MN: As we look five years to 2030, we see promising new technologies at the forefront of energy storage and generation, concrete and steel production, aviation fuel, carbon removal and e-waste recycling, all of which apply to our own global operations.

Related to this, I am also passionate about how to attract more first-time co-investors to these technological innovations, especially those supported by the CIF. So far we have managed to catalyze $12 billion in follow-on financing of the more than $800 million we have allocated through the fund. So far, for every dollar allocated, a subsequent $15 has been attracted. If we can do this with those technological innovations I mentioned, we can accelerate the pace and scale of important solutions.

What keeps you moving and motivated in your work?

MN: One of the main reasons for me joining Microsoft a few years ago was the CIF, the idea that we can deploy and assign Microsoft resources, including our AI capabilities and knowledge, to the companies that build the future. I am very excited about the direct investments we are making to bring new energy supply, fuels, carbon removal and advanced materials.

It is comforting to know that ideas that five or ten years ago were only a scientific project are now products and projects of commercial and massive scale, which are used by millions. And then there is the opportunity to show the true meaning of strategic alliances that deliver concrete results to unlock the technologies, capital and talent necessary to scale this market faster. It’s an exciting time for the Microsoft Climate Innovation Fund.

This is a digital version of a sample article from issue 3 of Signal magazine. To explore the full issue, check out the full flipbook in English here.