Microsoft's Saunders talks Sustainability Mega-Trends

Tim Verras (00:01):

Welcome to Forging Connections, a podcast from Honeywell about the convergence of IT and operational technology for industrial companies. We'll talk about the future of productivity, sustainability, safety, and cybersecurity. Let's get connected. Alec, you are the worldwide sustainability partner, strategy leader for, for Microsoft. That's a, that's a long title for a guy who's really into to, uh, sustainability. So talk to me a little bit about like what, what got you interested in, in sustainability? Tell me a story.

Alec Saunders (00:36):

Sure. So historically, I have about 30 years of building partner ecosystems, both inside and outside Microsoft. I mean, I like to say I've been with the company for 16 years, but there was a 14-year gap in the middle of it. And I built some ecosystems for some other companies and did some different things while I was away. And then, I came back working with our startup ecosystems and with other parts of our business applications ecosystem. I guess it was about two years ago, the very beginning of Covid. So it was a little bit more than two years ago now. I was on vacation. I was on vacation in, um, we bought a National Parks Pass and we were going from park to park and driving all these different places. I ended up in a place called the John Day Fossil Beds in, in Oregon.

(01:19):

I said, you know, this place in the middle of the Oregon desert, dusty little town called Mitchell right beside it. Some really interesting fossils. I like the natural environment, anyway. And one of the things that really amazed me about it was that it has what they call paleo cells. Paleo cells are fossilized layers of soil that reveal what the environment was like at a particular point in time. And so with the John Day fossil beds, you can see 50 million years of climate activity showing up across all of these, um, different layers of soil. You know, the red ones are when it was wet cuz it's literally iron oxide. The hills are rusting. Uh, the brown ones are when it was dry. The black ones that you see periodically are places where manganese oxide was stored by the roots of the plants and ended up in the fields.

(02:08):

So, long story short, there we are later on that night. Mitchell has one bar, one restaurant, same place. It has no connectivity to anywhere. I mean, if you want to, you know, talk to the outside world on your cell phone, you actually have to go down to the hardware store and sit on the bench outside cuz they got wifi and you can use wifi calling to reach the outside world. And Joanne, my wife and I, were sitting and having a chat about, uh, what we'd seen, which was super cool and unexpected. And this gentleman at the next table starts talking to us about it and seems really, really knowledgeable. So we have this really fantastic, you know, interactive conversation. Eventually, I say to him, ‘so, what do you do?’ And he says, ‘Well, I calculate the carbon footprint for the state of Oregon.’ Oh.

Tim Verras (02:50):

<laugh>, you didn't

Alec Saunders (02:51):

Do that.

Tim Verras (02:51):

You found the right guy. You found the right guy. Yeah.

Alec Saunders (02:54):

And, and from there, I mean, he described it and went, Oh, oh, oh, oh, oh, oh, oh, this is a data problem. That's what this is. And so we, we drove away and I didn't think much more about it. I remember sitting in the car and, uh, and saying to Joanne, I said, You know, somebody's gonna make a business out of this. This is a big business opportunity. Eight, nine months later, I'm thinking about what I wanna do with my next act at Microsoft. Literally thinking about everything from, you know, leaving the company and doing something completely different. I have a baking hobby, maybe I should open, open a bakery. And I chat with my boss and he says, ‘You know what? Go and, uh, and figure out what you want to be. You got lots more to give the company.’ I said, ‘Okay.’ So I, I, my my mind went back to that conversation, and I started to take grad school courses on sustainability.

(03:36):

You know, Imperial College has a whole bunch that are online, others do. And as I dug into it more and more I realize that, you know what, not only is it something as achievable from the perspective lowering, you know, global warming and lowering the carbon concentration in the atmosphere, it's fundamentally a data problem. And digital has a huge role to play. And all the work that we've been doing for the last decade to digital digitally transform the businesses that, you know, both of our companies work with is directly relatable to sustainability. It's just another kind of digital transformation. And so then it's like, all right, so what do you wanna do? I started looking around inside Microsoft, talking to different groups of people, and eventually I came across an organization that wanted to build a partner ecosystem around a new sustainability platform, which feeds right into my sweet spot. If you remember the beginning of the story, I said, I've been doing for about 30 years working in partner ecosystems, and that's how I got involved with it. So I like to describe myself today is, you know, I'm a, a crunchy, granola, vegan grandpa who drives an electric car and wants to save the world for his grandchildren. <laugh>,

Tim Verras (04:41):

That's, I love it. I love it. That's great. And it, it, it kind of, in a way, it, it started and ended with, uh, with dinosaurs, right? <laugh>.

Alec Saunders (04:49):

Yeah. There you go.

Tim Verras (04:50):

I'm a I'm a dinosaur nerd myself, so I love how that started. So, yeah. And, you know, talk, I think one, one thing at Honeywell is we have kind of a, we've kind of divided our thinking into sort of three buckets, right? We have a, a sustainability bucket, we have a digitalization bucket, and we have a cyber security bucket. And one thing that I realized is, I was kind of going through things is that those aren't really buckets. They're more, it's more like a stepped pyramid and, uh, sustain with sustainability at the top. Cuz we have to be sustainable, but you can't get there without being fully digitalized. And then you can't keep it all protected unless you have that cyber security. And I think, you know, Microsoft and Honeywell is, that's what we're kind of figuring out together on, on, you know, where the layer of, if you talk about layers of sediment, right? The layer of where you have the digitalization and sustainability kind of sitting next to each other. And so talk to me a little bit about kind of how Microsoft views that interaction.

Alec Saunders (05:48):

Sure, sure. So, and again, we've been on this now as a company since 2009. We've been going through the, the process of how it is that we ourselves become a more sustainable company. And it began with, just as you say, it began with digitizing a lot of the information that we have. And so in 2012, we had our first companywide carbon tax, which is used to finance sustainability projects. And it was really low in the beginning, finance was concerned that it might introduce some unwanted behaviors. And when we just, when we, when we learned that it didn't distort the business so much as just focus people's attention on the issue, then we raised the tax. And so it went from three bucks a ton up to 15 bucks a ton. And this year we've actually raised it for some categories of activities. Were being much more proactive.

(06:37):

So for example, air travel is now at a hundred dollars a ton. And we went through this path of digitizing our own business, and it was driven by a lot of the things that our mutual customers have, right? I mean, so, so when you think about saving electricity, for example, digitizing the buildings and, and building smarter HVAC control systems and so on, became a pretty clear thing that we needed to do. Digitizing the data centers being more efficient about how it was that we used the power that was going into the data centers and deciding what it was that we were going to work with in those data centers and not. And so, so we went through that entire process for ourselves and put out our first sustainability reports. I guess it was probably 2020 now, maybe 2019-2020, but around what it was that we were doing and the emissions associated with the company and the kinds of things that we were, we were doing there.

(07:22):

And along the way we learned a lot and we started to build tools. And this is where, you know, Honeywell and Microsoft were really starting to intersect. We started to build tools that would help our  customers to do the same things for their businesses. You know, it's a process of let's first of all, baseline, let's figure out where we are, let's set some targets, and then let's measure and target and, and, and work to, to, to meet those targets. And especially around the pieces that have to do with impact. So often those are real world processes that the digitization, the IoT components that we both work on together. I mean, Forge is an immensely exciting initiative that you guys have to, to allow those, uh, those impacts to be made and those emissions to be reduced and to make the business itself more fundamentally sustainable and, and also more efficient.

(08:11):

I mean, it just requires that interaction between the two. So that's really how we think about it. I mean, all of the things that we do now everywhere in the company have got a sustainability focus of some kind, whether or not you're talking about, you know, recovering the cooking oil that we use in the kitchen and turning into soap for use in the bathrooms, or whether you talk about deciding what the AI algorithms are that should run on Azure systems and how, uh, trained they should be. Because AI itself, while it's a huge benefit training those algorithms is also a pretty significant source of emissions. So, so you've got that balancing going on all the time. We just, we've learned by doing this, it's two steps forward, one step backward, you know, it's never a completely linear trajectory forward, but we're making progress and we wanna share that with the world, and we wanna be able to, to share that with our customers and with our partners as well.

Tim Verras (08:57):

Yeah, that's that's great. And I think one of the advantages that, that a Microsoft and Honeywell do is we get to talk to a lot of different people and a lot of different businesses across the world. And, uh, as, as everyone's kind of learning to navigate these new waters, that there's, you know, you, you hear kind of some, some common themes. So talk to me a little bit about maybe some of those mega trends that you're seeing kind of across the board when, when you have these conversations with folks around the world.

Alec Saunders (09:23):

Well, gosh, I mean, as I, as I said in the beginning, it it, you know, or, or just, just previously, I mean, it sort of starts off, customers come to us and many of them are just starting to think about what it is that they want to do now. And they're being pressed, They're being pressed by, you know, a couple different trends. One of them is, uh, regulatory, um, you know, you think about what's going on with the SEC in the United States or CSRD in the EU. I mean, the, the requirement to disclose and comply is starting to become very, very, very real for customers. And the second one, and it goes with regulatories investor, you know, investors are increasingly rewarding sustainable companies and penalizing companies that aren't. And I think that the third big mega trend that we see is simply consumer preference.

(10:09):

You know, we did a survey a couple of years ago where 28% of consumers that participated in the surveys that they would prefer to buy from sustainable brands. And that number is only going up. The last numbers I've heard, you know, I've, I've seen reported recently is as high as 50%. It skews low, uh, skews you skews on it, Sorry, not low. It skews, skews, um, to a, a more youthful demographic. You know, you and I both know youth become big spenders as they hit middle age, and we just see that trend continuing. And so, so that's, that's one piece of just sort of the, the drivers from a, a market force perspective. And then the other piece that you, you see frequently is companies sit down, and they start to say, ‘Okay, so what are the things, the business processes that are impacting us?’

(10:55):

And some of those industries, industries that we both work with, you know, oil and gas, you know, heavy industries, th they're, they've got some significant emissions that they need to reduce. And we're not going to stop using concrete. We're not gonna stop using steel in the world. And we need to help make those businesses more efficient. And that's the kind of thing that Honeywell, Microsoft can, can absolutely do together in the manufacturing world. You know, process manufacturing or discrete manufacturing, either one of them. Those are places where there's just an immense amount of opportunity. And I think maybe the, the, the, the final thing that I'll throw into this mix, and then I'm gonna shut up <laugh>, uh, is that as you start to look at companies beginning, beginning to be compliant, they all focus on scope one and scope two emissions initially, those are the easy ones.

(11:44):

But there was a wonderful report that came out a couple of years ago from the World Economic Forum that went and categorized emitting industries by the supply chains. And supply chain is the place that's both the toughest to, to, uh, characterize and also the place where the largest impact can be made if we can figure out how to decarbonize big chunks of the agricultural supply chain. For example, you know, agriculture is responsible for a quarter of the world's emissions. You know, whether you're starting to, whether you're talking about growing cotton or you're talking about growing beans, the process of taking those raw materials and taking them to a manufacturing facility and turning them into products or turning them into, you know, refined raw materials and taking them to the next stage is just immensely complex. And especially with agriculture where there's so many small crop farmers that participate in the agricultural, uh, supply chain, it's just very, very difficult to characterize. So we can figure out how to do those kinds of things, supply chain, help companies, you know, make progress against reporting and investor needs, and help consumers see the impact of what it is that the business that they buy from are doing. I think that those are, those are just incredibly important things for, for us all to focus on.

Tim Verras (12:59):

Yeah, and you know, I think that's what brings us full circle back to digitalization because I think one of the reasons those industries are so complex is cuz it's very hard to get data out of that supply chain. I mean, we have, we have data that, like we, we've seen studies where it, in an oil rig in the North Sea, something like 99% of the data never makes it out of the oil rig. And, and so data generation is not a problem. You hear a lot of people talk about data generation, data generation's not about not a problem. We, we know how to generate lots of data. It's what, what we do with it and how it gets at, as, as I say, from the, from the shop floor to the top floor. And, and so like, what, what would, and that, those are the things that we can move the needle on. And I think by starting there we can begin to kind of unpack what's going on in those supply chains. But until we can get at the data, I think we're just kind of floundered.

Alec Saunders (13:49):

Yeah, yeah, yeah. And I mean, I think there though are interim steps that are being done, right? You know, some businesses or some parts of some supply chains will say, Okay, we've got an estimate for this, but an estimate is only as good as the estimate. It's never the actual output. And the outcomes can vary pretty wildly from one to the next. And your point about data, there's no, no difficulty in generating data. You know, I remember one of my college courses, they talked about the difference between data and information. Information is what you get from the data. And that whole process of gathering and interpreting that data and making it usable in some way is another place where digitization excels. You know, we can take that information, we can apply pretty sophisticated algorithms to it and we can spot patterns and trends and predict where faults are going to occur and start to do some things to make businesses more efficient.

Tim Verras (14:41):

And, you know, when, when you're out talking to, to the folks that are trying to solve these problems, like what, what are some of the, the barriers that, that they feel are kind of in their place and maybe what are some, some ways we might be able to help them overcome those?

Alec Saunders (14:53):

Yeah, yeah. I'll go back right back to oil and gas where, and we both have customers in that space. You know, when you think about methane, which is the one of the top things that, uh, you hear about today, fugitive emissions are really difficult to characterize cuz fugitive emissions by definition or unexpected. And we have such a huge amount of infrastructure in place today that being able to go and, uh, sensorized all of that infrastructure is impossible. You know, there's something like 400,000 retired oil wells that are capped across North America and a bunch of them are leaking. How do we figure that out? So, so building predictive models rather than trying to sensorized everything is, is one place that I think there's a potential solution for that. And just in general, we see that there's a lot of equipment, you know, these plants are built, whether it's a, a oil and gas plant, uh, you know, a refinery or a manufacturing plant, many of them were built sometime ago and have equipment in place that just simply is not capable of being, uh, data can't be gathered from it.

(15:54):

And so we need models to be able to go and do that. We need models to do things like, uh, predict where faults are gonna occur and, and, and that sort of thing. So I think that that in particular is one area where, uh, it's a barrier and where computing science and data science can help to, to solve that problem. And I think also, you know, even when data is available, normalizing that data into a consistent format that we can all use and interpret in a consistent fashion is another barrier. And, you know, I'm heartened by efforts like the carbon call and other elements where their industry standardization is starting to occur because I think that having us agree on standards is gonna be a really important route forward.

Tim Verras (16:37):

Yeah, I mean, I I I think this is especially kind of playing out on the international scene where we've got, you know, we've got our own acts here in the US that we're passing around, you know, some of the reduction acts that you're seeing and where we have our own metrics and our own approach, and then you go to Europe and they're, they're advancing their, their own. And, and so I think right now there's kind of a situation where globally we're trying to figure out a, a common framework in architecture to, to talk about these kinds of things in a way that we can compare apples to apples and kind of get out of that nation by nation approach to it. But until then it's, it's very hard because you, especially for a global corporation like, like we are, like Microsoft, you've gotta know the different rules and regulations in every market that we exist in. And they're growing rapidly, but they're also growing in complexity. So managing those is, is going to be kind of the challenge for, for the next five to 10 years, I would say.

Alec Saunders (17:30):

Yeah. Well, and you know, I mean this is an opportunity to partner in a lot of ways. Uh, when you think about what we do and Honeywell and Microsoft are, neither one of us are in the business of providing, uh, financial compliance reports, right? And that's in particular because compliance varies from country to country to country and compliance models, regulatory models evolve. And so there are specialist players, you know, that that, that do this kind of work. And I think that's an opportunity, You know, I like to say when, when you, when you look at what sustainability implies, we are trying to drive the single largest transition that the world has ever seen. The last time we did anything on this scale as a, as a, as a species, as a civilization, it was the industrial revolution, right? When we moved from, you know, biomass as our fuel source to to, to fossil fuels and, uh, sparked the industrialization in the world, well, we're doing that again, but instead of doing it for under a billion people, we're doing it for seven and a half billion people on the planet.

(18:31):

And, uh, while we're trying to do that, and it's an existential crisis instead of just a, a more efficient way to run your business. So it took 150 years to make the transition to coal. We're gonna try and do the transition away from fossil fuels to electricity 30 years cuz you know, faster is better, right? And, and we're also gonna try and do some crazy things like swap out chunks of the protein, uh, value chain with plant along the way just because why not make the problem even bigger <laugh>, but we have to do these things. And so, so when I think about the, the kinds of things that we're trying to achieve, um, it can only be achieved with an ecosystem of players. It can only be achieved with all businesses working together around common standards. It can only be achieved if we collectively have the will to do it. And so, so when I look at that ecosystem play, gosh, there's a lot of players out there, there are players who know regulatory, there are players that know heavy industries and who, who who know IoT like yourselves. There are players who are operating in traceability, you know, across, across, uh, supply chains in other places. Man, we gotta stitch all that stuff together.

Tim Verras (19:40):

And we gotta find the right people to do it too. You know, and this is, this is a, this is a conversation that, that we have, uh, especially around Honeywell Forge, you know, I'm sure Microsoft is having very similar conversations, but we, we focus so much on the, on the performance side of things in our business as because that's our bread and butter. But what we're starting to, to tell our customers is also this is a, a, a talent recruitment model for you as well. Having, having this level of interoperability in these kinds of software programs like Forge on, on tap, uh, is a way for you to track talent. Cuz let's be honest, the younger generation's not exactly lining up for industrial jobs. And so with, you know, with the combination of the sort of the, the last generation kind of starting to retire and, and move on, you've got newer generations coming in, they have a whole different level of expectations around what tools they have available to them when, when they start and they're kind of moving beyond the clipboard. These are people that were raised with, you know, with, uh, automated AI assistance. They were raised with the internet at their fingertips. So they expect these kinds of levels of tools coming in and they're not gonna be comfortable working in a spreadsheet or going out and, and manually, uh, parsing through data to kind of do a gut feel kind of representation of things. So have you seen that on, on Microsoft side as well?

Alec Saunders (20:58):

Yeah, yeah. Not just that we are attracting, you know, a a new generation of people into the organization, but we're also attracting a new generation of sensibility into the organization. You know, I I got off a call this morning, which I tune into once a month, and it's our sustainability community call. And you know, this is an organically formed group inside Microsoft. We have employee resource groups, I'm sure you have the same, and there are three and a half thousand people that participate in the global one. And then every single country around the world has the same thing. And they're constantly looking, um, that, that, that group of people, I mean, they're passionate about sustainability, but we're constantly looking for ways to help the company be more sustainable. It's not just the tools, but it's also the ethic that the company has. It's do, am I gonna be proud to work for this company? Do I think that they're doing the right thing in the market? So, I, I think that, you know, it, it's not just about tools. It's not just about industrial processes. It's also about, okay, are we stakeholders in the world as opposed to being just simply businesses that that profit from the world.

Tim Verras (22:02):

And I mean, I think that brings us to the next obvious question, which is like, I think we're kind of painting the picture of, you know, what does great sustainability strategy look like? Um, and I kind of think it has to, has to have those pillars. So kind of architect that out for me. Like what, in, in your point of view and Microsoft's point of view, what does a great sustainability strategy, kind of, what does it look like?

Alec Saunders (22:24):

You know, that's a, that's a great question and we could probably riff on that one for hours. My boss, Elisabeth Brinton, the CVP that, uh, is responsible for our sustainability industry team, she talks an awful lot about the double bottom line. You know, how can we as a company ethically make a a profit for our shareholders? How can we improve the, the environment that we live and how can we leave the planet in a better place while we're doing that? And I've come to think myself, I've come to really believe in this idea of stakeholder capitalism. You know, it's not enough to reward the shareholders. You need to reward the shareholders and the employees that make up the company. And you need also to be able to have a, a respected position in the society that you're part of. That's how we, that's how we grow our company.

(23:11):

That's how we bring people to, to the business. So from a point of view of what kind of a business it is and how we talk to customers about sustainability and what our customers are thinking about sustainability, you know, we, we break it down pretty simply and to do we run a sustainable business and our operations, I mean, uh, I mentioned the soap in the bathrooms. The thing I didn't mention is that we're in the middle of constructing, We torn down a whole chunk of the old campus in Redmond, and we're in the middle of constructing a new one. And the centerpiece of that is a hole in the ground, 700 feet deep, actually. It's 60 odd holes that are 700 feet deep. And we're going to use geothermal energy to generate the energy that we consume sustainably to power that campus. And the concrete that's going into that is low carbon concrete.

(23:59):

And we made an investment in the company that makes that low carbon concrete because we want them to succeed. They inject, uh, carbon dioxide into the car, uh, into the concrete, which makes it so that it also sequesters, uh, carbon dioxide. We use low carbon steel in that. And so we go out of our way to not just build a good and profitable business, but also to build an ethically sound business. We made our business sustainable and we still got work to do there. Uh, you know, if you look at our sustainability report, uh, it's really difficult to balance growing a business which the stock market expects you to do with reducing your environmental impact. And last year, I mean, we're in the middle of the pandemic. Uh, a lot of people played Xbox, and guess what? Our data center electricity footprint went up as a result of that. And so, you know, we're, we're experiencing the same thing that I think that a lot of our customers are experiencing. So, so build a business that's sustainable, build products that are sustainable, and Azure is the lowest carbon cloud that's out there right now. And we continue to continue that. We continue to, uh, find ways to make it more efficient. And by 2025, we hope to be running the entirety of the Azure cloud globally with renewable energy, period.

Tim Verras (25:14):

That's huge. That's huge. Yeah.

Alec Saunders (25:16):

And then the next thing that we do, and the final thing that we've done is we, we've built tools to help our customers do that. So that to me is what a, a sustainable business looks like. You know, we made commitments that we're tracking and trying to, uh, uh, to follow through on, to be carbon negative by 2030, and to remove, have removed all the carbon from the atmosphere that we've emitted since the inception of the company by 2050. You know, water commitments, waste commitments. We're building this planetary computer, which is, again, it's a place where we've got digitalization at its heart. We're digitalizing the entire world and making that information available to help produce models to, you know, quantify risk, those sorts of things. So yeah, I, I don't know, I don't know if that answers the question. We can, like I said.

Tim Verras (26:00):

I think it does. Yeah, I think we could probably spend a whole, uh, podcast series on that, on that question, but, uh, <laugh>. Well good. Well, um, uh, Alec, thank you so much for, for your time and, and your insight today. I'm sure you're a busy guy, so we, we do appreciate you taking the time out to, to talk with us today. And I'll just kind of open it up to you if you could kind of leave folks. You know, most of our, our audience are kind of other industrial companies, people that work at those companies where mostly a, a B2B company. If you're, if you're, if you could leave some, some advice to a company that's looking to be more sustainable, uh, going forward, and maybe they're a heavy manufacturing company where, you know, they, they are, they are traditionally emitting a lot of, a lot of, uh, you know, carbon a a lot of methane maybe. What, what are some simple steps that they can take to start to approach that big gnarly problem?

Alec Saunders (26:48):

Well, well, you know, I mean, I, I think that one of the most important things they can do, and they're probably part way down the path now, is digitize the business. I mean, you know, you talked about forage and being able to just, you, you can't manage what you can't measure. And so begin by measuring, you got lots of emissions come fr coming from different places. Once you understand how you can characterize the business, by measuring it, by, uh, installing sensors where appropriate, by taking advantage of the systems that you already have in place, then start to map that onto emissions. And again, you know, I'm not gonna tell you you have to use Microsoft's product. The Greenhouse Gas protocol, though, which is embodied in this product, in the sustainability manager, will allow you to calculate based on the activities that you're recording, the things that you're trying to manage to be a better and more efficient business. We can also use that same activity data, uh, take it straight out of forge and turn that into, um, emissions data that you can then use to manage the business from not just an efficiency perspective, but also a sustainability perspective. Um, and that's where I would start measure, measure, measure. Once you have an understanding of measuring of what you've got, then you can start thinking about how to impact it.

Tim Verras (28:03):

That's a, that's, that's great. Well, Alec thank you again so much for your time.

This has been Forging Connections, a podcast from Honeywell. You can follow Honeywell Forge on LinkedIn and download new episodes from our website honeywellforge.ai. Thanks for listening.