Review of Microsoft's 2016 Corporate Social Responsibility Report

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This series examines the state of sustainability of the brands that I consciously go for on a daily basis. I examine the latest annual sustainability reports of these brands and determine, according to my perceptions, how well they are doing on their journey to sustainability. I assess these reports against the generally accepted GRI standards and come up with a verdict. The verdict basically falls under three categories: ‘terrible’ (meaning they need to take major corrections), ‘doing okay’ (meaning they are making progress despite several challenges, and ‘pretty good’ (meaning they are well on track despite a few challenges). 

Microsoft has long since been a core part of most people’s lives, at least at one point or the other. They took the PC software market by storm and literally monopolized it until the rise of Apple. Even now, Microsoft plays a critical and dominant role in the software market, both in terms of the scale and reach of their business operations, and as an influencer in the global software industry.

The company recently released their 2016 Corporate Social Responsibility report. In doing so, they have followed the trend of an interactive website-based sustainability report which is intended as a living portal (which has frequent updates as required). They kept the report clear and concise, with options to download details. But I would also have appreciated an option to download the entire report as a single pdf.

Microsoft’s latest materiality issues make sense to their business. These issues are discussed below:

Access to technology and economic opportunity

Microsoft clearly states their commitment for accessibility in the design of their products such as Windows, Office, Xbox, etc., all of which have accessibility tools. They have a dedicated Inclusive Design website which describes this in detail. They also have a disability help desk (they also use American Sign Language via videophone in the US) which assists users to find and use the accessibility tools . In addition, their dedicated site for inclusive hiring focuses on advertising roles for people living with disabilities – they have also identified specific roles which can be filled by people on the autism spectrum. Although all this focus is impressive, I would have liked to know what specific targets Microsoft has for inclusive hiring and how far along they are to meeting these targets.

In addition, Microsoft develops tools specifically to empower people living with disability, specifically their Learning Tools for OneNote for people living with dyslexia, Cities Unlocked for people with visual impairments, and accepting this challenge to create a wheelchair eye-control technology for people living with ALS.

It should be noted that many of the activities under this material issue also satisfies human rights issues and are reported there as well.

Climate change and energy

This is thankfully one area where you cannot fault Microsoft for lack of data. They have a dedicated website where they comprehensively report on their environmental activities as a whole. In terms of climate change and energy, their unique approach to achieving and maintaining carbon neutrality has been widely reported; Microsoft charges their business units a carbon tax and use this tax to fund their green projects – from purchasing 14 million MWh of green power to reducing emissions by 9 million mtCO2e and buying carbon offsets.

The company reports regularly to CDP (details on CDP website) and they publish an annual GHG emissions report trending back the last three years and covering Scopes 1, 2 and 3. Since 2014, the company has been carbon neutral, largely through renewable energy use and buying carbon offsets. As at 2016, about 44% of their datacenters were run on renewables. They also practice energy efficiency techniques which have helped them reduce their energy consumption by up to 30%. Furthermore, they are contributing to energy efficiency technology innovations such as fuel cells for datacenters.

Water and waste

Water and waste were not part of Microsoft’s stated material issues but they have still done some reporting on this. On water, they have achieved zero waste on 45% of their real estate portfolio. On waste, only about 7% of their waste now go to the landfill. A full 71% is recycled and the others are either composted (18%) or incinerated. They have a zero e-waste policy for their internal operations though it is unclear how much this policy is being implemented.

Corporate governance

Microsoft’s Corporate Governance Framework is designed to align with the regulations stipulated by the NASDAQ Stock Market. They have reported their board composition, board committees, independent vs non-independent members, etc. There is however a lack of any analysis related to diversity on the board, etc.

Data privacy and security

Microsoft reports that the International Association of Privacy Professionals has recognized them for having the ‘second largest number of certified privacy professionals of any company. They are also one of the ‘first companies to be certified under the EU-US Privacy Shield Program’.

The company has established several polices such as not scanning emails for input into targeted online advertising, not giving any government direct access to their customers’ data, and transparently releasing law enforcement and national security request reports (links are provided). In addition, they report that they are ready to be compliant when the new EU General Data Protection Regulations (GDPR) start in 2018.

They also mentioned their work to reform government surveillance, but more value would have been added if they had detailed how they’ve done this, with whom and advocacy contributions they have made.

Device lifecycle impacts

Microsoft works with several organizations and their suppliers on the traceability of their raw materials. They report that they have phased out lead, mercury and cadmium in compliance with the EU’s restriction on the use of hazardous substances. They claim to have disclosed the full list of materials they use (up to 100,000 of them) but this full list cannot be sighted on the website.

The company further reports the energy consumption reduction mechanisms on their products, particularly the Xbox 360 and Surface Pro 4 (which is Energy Star certified).

In addition, Microsoft reports that 70% of the paperboard they use for packaging is recycled, and only 4% of their packaging materials is made of plastic.

It’s great to see that the amount of consumer e-waste recycled has consistently grown over the years - about 10 million were recycled in 2015...a 6% improvement from last year and a 600% improvement since they started reporting in 2006. No targets for recovery and recycling are mentioned though, and we remain unclear about the percentage of Microsoft’s consumer e-waste that is being recycled. 

Environmental/social applications of technology

This material issue is not explicitly reported but is described within several issues such as human capital (particularly community empowerment) and climate change and energy.

Partnerships

This material issue is also not explicitly reported but Microsoft’s partnerships are described across their reported material issues.

Ethical business practices

Microsoft reports that they apply their Standards of Business Conduct and train all employees annually on the standards. They have a whole team of 50 people investigating potential policy breaches and 120 people ensuring compliance. In addition, they also have the Anti-Corruption Policy for Representatives and the Partner Code of Conduct. What is missing here though, is a statement about the number of policy breaches that have been investigated and how this number has changed over the years.

Human capital

Microsoft reports on how they are empowering their employees. Their activities are guided by their Global Human Rights Statement. Annually, they ask for feedback from their employees (85% response rate from 117,000 employees) about their work experience in the company – they have had generally excellent feedback since 2014 showing that employees feel proud (92%) and respected (93%), and would recommend Microsoft as a good place to work (87%).

The company has a dedicated site for diversity and inclusion where they report diversity inside Microsoft in detail. As at 2016, female employees globally were 25.8%, still very low and actually a slight reduction from their 2015 figures. In America alone, Caucasian employees were greatest by far with 58%, followed by Asian (30.5%), Hispanics/Latino (5.5%) and African American/Black (3.7%). That shows some diversity, but not enough. Still, it’s good to see that there are employee networks around ethnicities (which builds strong communities) e.g. Persians at Microsoft, Blacks at Microsoft, etc.

I’m more pleased to see that pay has been equal – for every $1 earned by men, women earn $0.99, and for every $1 earned by Caucasians, racial and ethnic minorities earn $1. This is highly commendable especially in the tech industry which has been notoriously known for its lack of diversity and unequal pay.

Microsoft also reports the initiatives they have established to promote health and wellness for their employees. For example, the Microsoft CARES employee assistance program giving free access to family counselling. Others are gym memberships, free onsite health screening events, their Real Easy Wellness labeling system in all their cafes, etc. The company also has a Health and Safety team that periodically assesses occupational and work-related risks in their datacenters, factories and retail shops. They report a 0.14 incidence rate in their manufacturing sites.

The company also speaks about how they have personalized keyboards, language, font, content for Windows in 111 languages, Office in 91 languages, and Skype Translator and Microsoft Translator in 50 languages – ensuring that most communities have access to their services. 

In addition, Microsoft reports how their products and services have been used to empower communities around the globe through various CSR programmes. They mention the Lagos Solar project where intelligent batteries and inverters (powered by solar) in schools and clinics are connected to Microsoft Azure to allow for remote monitoring and maintenance. Their Microsoft Affordable Access Initiative facilitates access to internet and promotes innovation through partnerships and grants. Others are how Temenos uses Microsoft Cloud to give the unbanked access to banking services; providing access to technology and promoting innovation through the 4Afrika Initiative; delivering innovative digital services in their CityNext programme; and delivering grants and donating services through their Microsoft Philanthropies. The company publishes their donations on an annual basis.

What I love most about Microsoft’s CSR initiatives is that each one can be linked to their vision and mission as a business. They all have a direct link to the company’s products and services and ultimately achieve the dual goals of empowering communities and creating long-term business for Microsoft.

Human rights

Microsoft’s approach to human rights issues are well detailed and include the international conventions they have incorporated into their 2016 Global Human Rights Statement as well as an organizational structure. They have described the human rights issues key to them including accessibility, online safety, freedom of expression and privacy, privacy and data security. There are links to pages that describe just what Microsoft is doing to promote these issues. For example, description of the accessibility tools on Microsoft’s products, the data Microsoft collects and how they use this to handle privacy issues, their YouthSpark Hub website with resources for online safety, and a report of their GNI independent assessment which concluded that they adhere to freedom of expression and privacy standards.

In addition to these detailed descriptions, I would have appreciated clearly presented information which shows how they have progressed with these issues. For example, comparing the number of people hired through their Microsoft Inclusive Hires website and Autism Hiring Program over the last few years, or the number of accessibility-related calls they have had and how many have been resolved.

Responsible sourcing and manufacturing

Microsoft has transparently published the list of their tip 100 suppliers, most of which are situated in Europe and Asia. They have published their Supplier Code of Conduct and Supplier Guidelines which their suppliers are expected to adhere to. Their Device Supply Chain group and indirect purchasing group carry out programmes aimed at suppliers. For example, the Social and Environmental Accountability (SEA) program, operation of the Environmental Management System, monitoring and evaluation of supplier’s environmental performance through the Audit Management System, etc. The company states that they require suppliers to disclose the material composition of 100% of their device and packing components, and they have evaluated 100,000 of such components for environmental compliance. I was glad to see a downloadable report with data about their hardware supplier assessment approach and findings.

It’s also good to see that Microsoft also evaluates their indirect suppliers (supplying other components from hardware and packaging). Their Committee on Supplier Ratings supports purchasers to engage suppliers on sustainability issues. They have also taken to including social issues into their contracts (e.g. mandating suppliers to provide paid leave time to their employees).

This issue was one of the few with concrete data showing progress over the years. Microsoft reports the progress made in getting their indirect suppliers to disclose their carbon emissions (17 in 2013 to 153 in 2015 – a 9x increase!).

In addition, you can view Microsoft’s Responsible Sourcing of Raw Materials policy and they work with partners such as the Initiative for Responsible Mining and Alliance for Responsible Mining to influence their upstream supply chain where they do not have contractual relationships. They report that the number of conflict-free materials in their supply chain is now 249, an increase from 148 materials in 2014. Their downloadable Conflict Minerals Report gives rich data on this issue. What would have made this data even more complete is a disclosure on the percentage of conflict free materials out of all the materials they use.

Furthermore, it’s great to see that Microsoft actively seeks to do business with disadvantaged groups (women, minority groups and veterans) - $2.5b in 2016 from $1.9b in 2013.

Public policy engagement

Although public policy engagement was reported, this was not included in the list of material issues. It is commendable that Microsoft reports year on year public policy advocacy spending in the USA since 2009. A statement showing that their public policy engagement is restricted to the USA would give more comfort in trusting the completeness of the report. Microsoft also reports its trade association membership contributions. 

Conclusion

What I liked the most about Microsoft’s sustainability report is that their stated material issues fit right in with their business mission, vision and model! Also, where Microsoft presented trending data (e.g. in their climate change and energy activities), it was obvious that much progress has been made. The company is also excellent at reporting their approaches to addressing these material issues.

However, there were two key things Microsoft could have done in their report that would have given better insight into their sustainability journey:

  • Although they stated several materiality issues, their reporting structure did not strictly follow, making it a bit messy and slightly confusing to read. For example, environmental/social applications of technology and partnerships were listed as material, but they were not explicitly reported on. Also, water and waste were not listed as material issues but they were explicitly reported.
  • Hard data was missing in many of the reported issues, and many issues would have done with trending data to show the progress over the years, as well as percentages to show how much has been achieved or specific targets for us to understand how far along in their journey they have come. Also, many data presented was for the US office – given the truly global reach of Microsoft, more should certainly be done to give the whole global picture.

Verdict: Overall, I give Microsoft a ‘Doing Okay’ score mainly because it is difficult for me to judge how far they’ve come given their lack of quantifiable targets. Upon reading the report, I came away with feeling that I did not really understand how much overall progress Microsoft has truly made. But of all the issues they reported on, I have the greatest comfort that Microsoft is making real progress on their responsible sourcing, accessibility to technology and climate change & energy. Perhaps they are doing ‘pretty good’, but I really can’t say because of the way they have reported.