How Microsoft Turned US$800m into US$12bn of Climate Funds

Microsoft is celebrating the first five years of its Climate Innovation Fund, which has seen an US$800m investment converted into US$12bn of projects.

CIF was launched in 2020 when Microsoft set groundbreaking sustainability goals to become a carbon negative, water positive and zero waste company by 2030 and to protect land and ecosystems.

The US$1bn CIF was designed to accelerate the development and deployment of emerging climate innovations through equity and debt capital.

Microsoft has now published its five-year progress report, saying it underscores its “core belief that Microsoft’s business thrives when the world thrives.

‘Big goals need bold bets’

Melanie Nakagawa, Microsoft Chief Sustainability Officer, says the business had to bet on things it could not yet see when it launched CIF.

She says: “Big goals need bold bets.

“When we launched Microsoft’s US$1bn Climate Innovation Fund in 2020, we knew the road to reaching our ambitious sustainability goals would need to be paved, in part, with new and innovative solutions.

“We needed to invest in technologies that weren't yet at commercial scale or, in some cases, didn’t yet exist.

“Our hope was that these early investments would spark broader interest and that momentum would help launch and scale solutions the world needs.”

The multiplier effect is moving markets

Melanie says that hope is becoming reality.

“We’ve allocated more than US$800m to date across 67 portfolio investors.

“On average, every dollar we’ve invested has attracted 15 more, catalysing billions in follow-on funding.

“This kind of multiplier effect is helping move markets and scale innovation.”

She adds: “From carbon removal and recycling innovation to low carbon building materials and sustainable aviation fuel, we’re helping turn bold ideas into tangible solutions.”

Five clear conclusions

Alongside showcasing the level and success of the investment, the report comes up with five key points that underpin its strategy and guide the coming years.

Push the frontier

It says: “Corporations can help expand the market for emerging solutions by prioritising target technologies based on the most critical and addressable market gaps with relevance to our business. We can validate emerging technology pathways, act as an early buyer, and mobilise financing to help pull these solutions into the market.”

Bridge to mainstream capital

Catalytic investors are key to early projects, thanks to their ability to create bankable, scalable ventures. The report says: “This enables follow-on investment from mainstream financiers – unlocking lower-cost capital, reducing risk and accelerating scale.”

Deliver catalytic impact

Transforming markets requires prioritising investments that create “change across value chains and industries.

“This calls for an investment approach, team structure, and governance model that considers both financial and nonfinancial outcomes.”

Partner to amplify

This includes collaborating with non-profits, accelerators, other corporations and policymakers to close critical gaps, as well as engaging across Microsoft’s product, research and commercial teams.

Accelerate with AI

The report says: “AI is an accelerant for bringing climate solutions online by advancing innovation, product development and delivery.”

It says the advent of widespread AI availability and adoption offers “game-changing abilities” to:

• Measure, predict and optimise complex systems
• Accelerate the development of sustainability solutions
• Empower the sustainability workforce.

Turning air into sustainable aviation fuel

The report includes a host of examples of global climate technology projects that have been catalysed by Microsoft’s CIF.

Twelve

Twelve electrochemical technology to convert captured CO2 and water into synthetic fuels and chemicals, including SAF.

Its flagship product, E-Jet, is a drop-in Power-to-Liquid (PtL) SAF made using renewable electricity, water and CO2.

CIF’s investment in Twelve supported the scale-up of its Moses Lake, Washington facility and led to SAF offtake for Microsoft.

The offtake included book-and-claim accounting, enabling Microsoft to report lower emissions from SAF use without physical delivery.

Microsoft partnered with Alaska Airlines to pioneer the book-and-claim model for SAF procurement.

The report says: “This approach is especially valuable for global business travel, where direct SAF access is limited as most business travel happens through commercial airlines, instead of company-owned aircraft.

“Microsoft’s early participation in the first SAF book-and-claim pilot helped establish a scalable framework that accelerates corporate demand and market growth.”

Following CIF’s investment, Twelve went on to raise US$645m in follow-on funding.

EFM

EFM is a US-based forest investment and management firm focused on climate-smart forestry. 

Through its fourth fund, EFM Fund IV, the company aims to buy and transition forestland in the Western US to improved forest management practices that enhance carbon sequestration, biodiversity and community resilience.

The report says: “CIF’s investment in EFM Fund IV secured Microsoft access to up to three million tons of high-quality, nature-based carbon removal credits through 2035.

“This access led to a long-term offtake agreement for up to 700,000 tons from a flagship property on Washington’s Olympic Peninsula, with a right of first offer on an additional 2.3 million tons from future projects.”

What’s next for Microsoft’s CIF?

The report says CIF will continue to focus on:

• Advancing clean, firm energy sources
• Low-carbon steel, cement, copper and aluminium
• Sustainable fuel pathways
• Underfunded carbon removal pathways.

It says: “Microsoft continues to pioneer innovative contracting models and market demand mechanisms that help to accelerate the deployment of climate solutions.

“This includes advancing the use of environmental attribute certificates and developing book-and-claim systems that expand market access for emerging solutions.”

It says Microsoft is sending “strong demand signals that can pull forward emerging technologies, attract and leverage private capital including CIF and create replicable frameworks to drive global decarbonisation”.

But there is a warning that scaling requires a “step-change in capital and more deliberate financing structures”.

The report says: “We will need to crowd in more mainstream investors and stay laser-focused on high-impact technologies for Microsoft and for global progress.”

It concludes: “In 2020, we set ambitious climate goals because we believed bold action and collaboration could transform markets and accelerate progress.

“Five years on, meeting those goals will take even greater urgency and collective effort.

“The strategies we share here are an invitation: to partner with us, to adapt these approaches, and to help shape resilient, sustainable markets, together.”