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Behind Microsoft's very big climate tech quarter

Illustration of the roof of a house with solar panels in the shape of the Microsoft logo.

Illustration: Gabriella Turrisi/Axios

In Q3, Microsoft's climate tech fund became one the most active investors in the space, jumping into the No. 3 slot for the first time.

Why it matters: Microsoft's $1 billion Climate Innovation Fund is providing much-needed funding for mature companies.

Catch up quick: The fund made its first investment in the summer of 2020. It has deployed about $700 million since.

  • The fund can invest across stages from early to growth to even project equity. It recently provided the funds for Climeworks' direct air capture and storage plant, Orca.
  • Axios chatted with Brandon Middaugh, Senior Director, Climate Innovation Fund at Microsoft.

This interview has been edited for lengthy and clarity.

On the big third quarter: "We've become more focused on the target technologies that we view as our 'go gets,' and have a prepared thesis to tackle opportunities as they arise in those sectors.

  • The priority sectors for us on the carbon front are carbon-free electricity, advanced materials, fuels and carbon removal.
  • What sets this quarter apart is the emphasis on scalability. So both of the solutions you mentioned, Redwood and Boston Metal, are both later-stage investments. They're productizing their solution and really taking it to scale, and that's been a lot of our focus lately."

On sustainable aviation fuel: "Business travel represents a relatively modest part of Microsoft's own emissions footprint. It's only about 1% of our Scope 3 or less than 1% of our overall emissions footprint.

  • That said, we've recognized that it's really one of the deep decarbonization strategies that requires capital participation to kickstart the market. In the sustainable fuel space, we are both a buyer and an investor.
  • Sustainable aviation fuel is one of the most difficult markets because of the relatively high cost relative to conventional fuels."

On playing an active role in climate tech startups: "We view this as part of creating the market. If the solutions were already there, we wouldn't see the need to do this.

  • But when we made our sustainability commitments in 2020, we recognized that to get there, we were dependent on the presence of new technologies and new solutions in the market that aren't there today.
  • It was that recognition that we need to have a role in building those markets for them to be there to buy from, that was what drove the thesis, ultimately."

On 2024: "I think the overall theme going into 2024 is: pull all the levers.

  • We're trying to do more with our existing portfolio companies on policy advocacy."

On new sectors: "Agriculture and land-based strategies. I think that there's more we can do in that space. And that's the new sector that we're looking at right now."

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