Microsoft has committed to become carbon neutral beginning on July 1, the start of the company’s new fiscal year. The shift results from three years of internal discussions within the company to improve Microsoft’s carbon footprint and environmental performance. The company will roll out the new changes, including a new accounting system, across its operations in over 100 countries.

The new accounting system at Microsoft will be based on an internal carbon fee that the company’s finance department will charge to all of the company’s business groups. Each division will be tasked with finding a more efficient way to offset the carbon emissions associated with their fuel consumption and air travel. Hence the new carbon strategy at the company’s Redmond, WA headquarters and beyond will have three pillars: be lean, be green and be accountable.

Employees within at all functions within Microsoft will be affected by the new carbon accounting rules, whether they work in data centers, software development laboratories, administrative buildings, or are traveling for the company. The carbon pricing and charge-back model will push the company to increase its overall energy efficiency and consume more renewable energy instead of conventional fossil fuels. For carbon emissions that cannot be canceled out via efficiency measures, Microsoft promises to purchase renewable energy credits and carbon offsets.

The plan will evolve through four steps. First, beginning on July 1, all business groups must include the price of carbon into their budgets. The business units in turn will be able to reduce their “carbon liability” by decreasing their usage of energy by sourcing renewable energy directly or cutting back on air travel. Each group in turn will pay a carbon fee for each metric ton of carbon associated with their operations. Finally, those carbon fees will be deposited into a central fund from which carbon offsets or renewable energy can be purchased.

Could Microsoft influence companies both large and small to follow its carbon neutrality path? The software giant has morphed into a sustainability and corporate responsibility leader within the technology industry, from improving its green IT credentials to embedding sustainability thinking throughout the entire organization. The challenge for public companies is to demonstrate that any such path like the one Microsoft is taking will not affect shareholder value in any way. For smaller firms, the complexities of carbon accounting may spook a CFO or controller. But at a time when governments across the world cannot agree on how to manage carbon, companies like Microsoft that have believed a carbon tax is all but inevitable are moving ahead and regulating themselves.

Published earlier today on Triple Pundit.

Photo courtesy Leon Kaye.