Episode 179: Corporate Climate Initiatives and the Clean Energy Transition with Microsoft's, Brian Janous

Today's guest is Brian Janous, General Manager of Energy and Renewables at Microsoft. We cover Microsoft’s climate commitments, the clean and sustainable energy future, and how we get there.

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Well, to kick things off, maybe just talk a little bit about your current station, what you're up to at Microsoft and where you sit within the organization.

So I'm responsible for our global energy strategy for our cloud infrastructure for our data centers, which for Microsoft is really all of our energy consumption. It represents about 95% of our energy consumption. And I- I've been in this role for 10 years. I started, um, I was actually the first person to come to Microsoft to work on energy. At the time, it wasn't even clear to me why a company like Microsoft needed someone like me. In fact, I told the person that was recruiting me into the role that it sounded like a dead-end job to be an energy guy at a tech company. I just didn't understand.

So when you came into Microsoft so many years ago, what was the landscape at that time? So you talked about how the cloud business was nascent and growing. What was motivating them to create this energy role and what was the charter of the role and of the organization then it sat in at the time?

Yeah. So at the time, it was pretty pragmatic. It was, hey, we're starting to build these data centers and someone said, "Hey, I think we're going to have to spend some money on electricity. I think we're going to have to, you know, figure out how to enter into a contract with a utility, how to acquire the infrastructure, how to think about how we manage the rates." There wasn't a whole lot that was super strategic behind at the time. It was- it was just very pragmatic.

But as time went on, I think it became clear that energy actually, in fact, I've heard Satya say, is an existential issue for the company. As we've transitioned to being a company where when I joined cloud was the low single-digit percentage of our revenue and today it's approaching you to know 50% of the company's revenue, it's become a lot more clear that, and again, all of that is runs on electricity. Energy is critically important to us, both for growing our business because we are a very large energy consumer, data centers represent about 1 to 2% of the world's electricity consumption and the big cloud players are in the hyper-scale companies are a pretty big percentage of that.

And as we look through this next decade, I think the cloud companies will be the sort of single largest commercial consumers of electricity in the world. So that's kind of a big deal. But the other issue of course is then how we think about the source of that electricity. And over that time, over the last decade, sustainability has increasingly come a more important issue for the company and therefore the focus quickly goes to, well, what are the biggest sources of carbon emissions for the company?

And of course, electricity rises to the top pretty quickly. And so that was the other issue that- that happened over the last several years, is that has sort of risen, increased the importance, I guess, of energy and how we consume energy and what the source of that energy comes from and when- why it's become so important for Microsoft.

So as it sounds like you know since you've listened to some episodes of my show before, I've been on this "climate journey" for the last few years, I've been so impressed by some of the recent moves that Microsoft's been making in terms of not only the boldness of your goals but also the detailed and structured thinking that's gone into the plan and the transparency to make all of that public. What's been Microsoft's climate journey, if you will? Did that all come from nowhere or was that kind of quietly brewing under the hood? Can you talk a little bit about what you've seen from the company when you came in today in terms of that evolution?

Absolutely. And I've been there for most of it 'cause I was actually doing some consulting for Microsoft dating back to 2008. And so I've been at the table for almost every decision that the company has made around commitments around climate. And- and the most significant one initially was in 2012 when we committed to being carbon neutral. And so this was sort of our first foray and at the same time we established an internal carbon tax where we said, "Okay if we're going to- if we're going to be carbon neutral, we're going to make sure that the businesses that are responsible for carbon emissions actually have to foot the bill." And so we started with a carbon tax that taxed all of the business groups, and that- that money then went into a centralized fund and we used it at that time to largely buy renewable energy credits and carbon offsets.

Why was it a pull from the top? I think it's great, but I want to understand it because even today, most organizations are not getting that pull from the top. Like they might get a push from employees, they might get a push from fear of future regulation that's coming, but they're- they're not excited about it, I don't think.

No. But I will answer that with a bit of a story. I was on Twitter yesterday and I saw our former CEO, Steve Ballmer, who was party to many of the early conversations around this when I would have said that sustainability was maybe a nice to have for the company, but it wasn't a priority. So Steve now the owner of the Clippers was discussing the new arena that they're building and he said, "You know, this hasn't always been an important issue for me, but within the last years, I've really come to take this issue seriously."

And he said, "The reason was my kids. My kids finally got to me." And he goes, "We're going to build the most sustainable arena," you know? And he starts going through all the stuff they're going to do about how important it is for their business to really lead on sustainability. And it was because it was a personal value of his. He's the boss, he's the leader, he gets to set the tone. He wasn't talking about, "Oh, because it's going to be more efficient, it's going to save us money or this is..." He was saying, "My values are driving this decision."

So what I observed over that period of time and Steve readily admitted those weren't core values for him back you know in that timeframe. So as the guy who was at the top, he was not pulling us to say, "Go faster, go bigger, do more." But what happened over time is that I started to see each and every year that sustainability started becoming more and more of a value of our executives such that when we made that commitment, the announcement, the carbon negative commitment, it was Satya, Brad Smith, our president, and Amy Hood, our CFO, who were the ones that were on stage announcing that this is our commitment, this is what we're going to go do.

And they're talking about scope one, two, and three emissions and there's like all this stuff that five years before that, there's no way the executives from Microsoft would have been on stage saying something like that. But it shifted to become something that was marginally important or at least, yeah, we'll spend a little bit of time thinking about this too. Something that elevated to becoming a core value of the company and then once it- once it's of value, then you're not debating about, you know, well, what's it going to cost or how many resources? It's like, no, this is what we're going to go do, go figure it out.

One thing that I wonder about is in order for sustainability to really become of value in practice as you were describing, it can't just be a group that is preaching it that sits outside of the business units, it really needs to be infused in each and every decision within the business units. So if you have a group that it's not infused in the business units, but if it's infused in the business units, then everyone owns it and no one owns it. So how have you structured things at Microsoft and what learnings might there be from that journey that you've had internally that people at other companies trying to figure out similar to my benefit from? 

Yeah, you're right. I think you kind of alluded to, you know, if it's everyone's job, it's no one's job, right? And so I think there was a period of time where I would have said that about Microsoft, that if you would have asked, for instance, even on our SLT five years ago, who's accountable for sustainability, they would've thought it was a trick question. Like all of us are nobody or what? Like no one knew because there wasn't that clarity of- of priority and of stilling that as a value that we have today.

And so when we were actually around the time of making our carbon-negative commitment, Satya also tapped Brad Smith our president with being accountable for sustainability. That was the first time that any SLT member had ever been given that accountability. We have since added to that where we actually have a compensation scheme for the executives that are also tied to sustainability. Again, it's going back to, how do you make something of value? Right? You make it important to the executives.

And we actually have a committee that meets on a quarterly basis, a climate council, and each SLT member has to-to nominate someone to that council. So there's just a lot of just sort of fundamental things like that where once it's coming from the top and saying, hey, this is a- this is of value for the company, you are going to be you know, as a team member evaluated on the degree to which your part of the organization is driving towards certain sustainability goals and metrics. It becomes a non-negotiable.

And I get the question a lot about you know how do you build a business case? 'Cause you know, there's always going to be a price tag associated with these things. And once something becomes of value, people stop talking about the business case. Like for instance, customer privacy is a core value of Microsoft. No one sits around in debates, is it too expensive to keep you know customer data safe? It's like, well, that's a non-negotiable for the company.

There's no price at which we would say no, no it's too expensive to do that. No, that's- that's the reality of doing business in the world that we operate in. And it's gotten to the point within Microsoft where sustainability sort of sits at that same level, that there are not these debates going back and forth of like, well, can we really afford to buy more renewable energy? Can we really afford to buy lower carbon you know materials? Once we made the commitment to say this is what we're going to be as a company, we're going to operate as a carbon-negative operation. Now it's just the debate about how.

We knew, going in and as we sat around, you know, with the executives when we're making this decision about coming up with this you know, carbon-negative framework, we were very clear we have no idea how we're going to get there. Like there's a lot of stuff that we just don't know. Like we had some pretty clear path on some things like electricity, that was one. I was like, "Why shouldn't we go buy a lot more, a lot faster?"

But there were a whole lot of things in our supply chain where it's like we don't even have perfect visibility into what- what's in there, like what's in that giant bucket of scope three. And so we certainly don't have a roadmap yet or didn't at the time. We have, since, you know, since we made that announcement, I've done a lot of work to develop clear year by year roadmaps of how we're going to get to 2030 but we didn't when we made the announcement. That was really about saying, "Hey, this is just going to be of value. And as leaders, we're going to send this message and we expect everyone then to go figure it out."

Given that ultimately I would assume that the goal is low cost, highly scalable carbon-free energy, so there's kind of a cost lever, there's a carbon lever and there's a performance lever. And maybe there are other levers I'm not thinking about so feel free to enlighten me. But the question I have is not all of those are gonna come together at once, it's a journey over time. So how do you prioritize along the way?

That's great. And you hit the nail on the head. I mean, for us, it is, if you ask anyone on my team, what are their priorities, they're going to say it's- it's reliability, right? So we have to be able to keep the lights on to deliver services to our customers. It's cost, we've got to continue to drive costs down so that we can grow the business and you know, provide the services we wanna provide. And it's- it's sustainability. We have that, that is also a... So we basically have three non-negotiables that we have to balance all the time.

And of course, there's going to be trade-offs along the way. Of course, there's going to be times where we can't get all three together, you know, in the way that we like. I think, you know, an example of that right now for us is, you know, what we're trying to do with our diesel generation fleet. You know, we set a goal to be off of diesel fuel by 2030, once again, a goal that when we set it, we didn't really have a clear vision as to how we were going to get there.

But our thinking behind that was reliability for cloud services is a non-negotiable, therefore you- you always have to have that backup, some form of backup because the electricity grid is- is never going to be perfectly reliable. So that's why data centers are built with generators and UPS, you know, battery-based backup. So we were looking at that going, "Wow, that... this whole diesel thing is a perfect issue of thinking about cost and reliability and sustainability because we know we can't keep just building more and more gigawatts of data centers backing them up with diesel plants."

So we set that goal and that's really set us off on a journey to say okay, what can we do to drive down the cost of sustainable fuels for instance? And so we'd done some of our first deliveries. Our first one was in Sweden and we've recently done some more here in the US of renewable diesel fuel and HVO fuel in Europe. And there's a cost premium associated with that, and we get that, but we're also looking for opportunities you know via our climate innovation fund or our billion-dollar climate fund to start to invest in some of those technologies and some of those companies to help drive those costs down.

But we have to still have reliability. So we can't sacrifice that and say, "Well, the easiest way to you know lower the cost, improve our sustainability is to get rid of any sort of standby capability." Well, that's a non-negotiable. So we have to go solve that problem some way, we have to be able to provide reliability, but at the same time, achieve those other objectives.

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