Key trends FY21 was a year of progress and learning for Microsoft on our journey to carbon negative. 1 Carbon removal demand is hot—and durable supply is short. Carbon removal is a seller’s market. The pipeline is short for surging demand, and corporate buyers need more project development. Climate change is further complicating this, as wildfires erode the forest carbon purchases we’ve made and we, as well as other purchasers, need expanded credit buffers to ensure credits we pay for are removing carbon from the atmosphere. 2 Progress on carbon reduction will be “lumpy” as carbon data and measurement improves. As Microsoft and the world mature in carbon accounting, we will continue to get better at understanding how our decisions reduce, or sometimes increase, carbon emissions. For example, some of the data used to estimate hardware emissions within certain categories of Scope 3 is drawn from industry-average “secondary” data rather than directly from suppliers. This data may not be reflective of recent supplier activity, which may cause fluctuations in emissions as primary data from suppliers is introduced. 3 Carbon removal still lacks common standards needed to scale. Projects d on’t consistently account for durability, additionality, and leakage. To scale the market in the long term, we need the enabling infrastructure to measure, monitor, and verify carbon removal quality now, and we need clear guidelines under the Paris Agreement about how to reconcile corporate and country-level actions. See Microsoft Carbo n Removal - Lessons From an Early Corporate Purchase to learn more. 4 Climate change is a global issue whose impacts are felt locally. Displacing incumbent technologies and spurring innovation needs to be supported in all geographies to address the uneven distribution of those impacts—both positive and negative—around the world. 5 Small percentages of our emissions require big efforts to address. For example, diesel fuel accounts for less than 1 percent of Microsoft’s overall emissions. But finding solutions to reduce reliance on traditional diesel fuels, which power the backup infrastructure that supports our datacenters, will require significant innovation and investment by those with a much greater stake and reward than Microsoft alone. This same scenario plays out for electrifying our fleet and transitioning to induction cooktops. 41