Cracking the Code - Decarbonizing the Built Environment Fireside Discussion

Thank you all. I think we only had even a bit of attrition. This has been quite an exciting day, and I think all around really appreciative for not only the attendees to be here, but also the companies who came together and took the time out and presented and made the time here during Climate Week. That leads us to our C-suite fireside chat. I was now calling it maybe a bonfire since we had quite a few folks. But just kicking us off, I'll do a quick introduction. First we have George Oliver, he is the Chairman and CEO of Johnson Controls. George led the integration of Johnson Controls and Tyco following their September 2016 merger. He's been Chairman and CEO of Johnson Controls since 2017, and previously served as the CEO of Tyco since 2012. So thank you, George, for making this work. Next up we have Christophe Beck. Christophe, thank you for joining. He is the Chairman and CEO of Ecolab. Really happy to have him join us because we've been talking a lot about energy and carbon, and I think we all know that water goes hand in hand. So I appreciate you being here. Christophe joined Ecolab in 2007, was appointed CEO in 2021. In his first year as CEO alone, Ecolab helped customers avoid 3.6 million tons of greenhouse gas emissions and preserve 215 billion gallons of water, equal to the annual drinking water needs of more than 700 million people. So thank you for being here and thank you for the good work. Next up we have Melanie Nakagawa, Chief Sustainability Officer from Microsoft. Melanie leads company-wide environmental sustainability work, accelerating the momentum for Microsoft's carbon negative initiative by 2030 and removing historical carbon emissions by 2050. She was previously Deputy Assistant Secretary for Energy Transformation at the US Department of State and was Secretary of State. So thank you, Melanie, for hosting us all here at this beautiful facility. And last but not least, as we've met her before, Katie McGinty, Chief Sustainability and Relations Officer for Johnson Controls. Katie champions technology development, sustainability, and creative policies to tackle climate change, encourage smart buildings and energy efficiency, drive impactful net-zero carbon strategies, and bring forward initiatives and partnerships that are needed to solve tough environmental problems. She was the first woman to serve as Chair of the White House Council on Environmental Quality and was Deputy Assistant to President Clinton. So welcome, Katie. All right, so thank you guys so much for being here. I feel like this is a nice end to the day, hearing the leadership and inspirational part of what you do in leading organizations full of tens of thousands of people. So my first question will be to Christophe and George. Within sustainability, as you look across Climate Week, the topic of decarbonization is broad and there's no shortage of opinion on how to solve the crisis. Both of you are steering large organizations towards a more sustainable future, both internally and externally. So first to you, Christophe: what value does sustainability bring to your organization and business model, and what have been your learnings over the last few years?

So I'll take the next 25 minutes to share my views. I think it's working. Hopefully. So for us, sustainability is what we do, what we've done for 101 years. Right now we celebrated our first century a year ago, and we're often called the world's sustainability company because what we do is help a million customers around the world in 40 industries in 172 countries produce better outcomes, better products, while reducing their cost by reducing the impact on the environment, usage of natural resources, energy, water, the waste that you create, and ultimately the cost. So it's always been a very straightforward transition for us. When people ask us, 'How do you grow? How is sustainability related to what you do?' Well, when we grow our impact, we grow as a company, and we've been a fantastic growth story over the years as well. We touch a third of the world's food production and a quarter of the power that's generated around the world. And our name, Ecolab, because too often when we say 'Eco,' people think it's about ecology. Well, it was Economics Laboratory in 1923 because the idea was a business idea, an economic idea, not an ecological idea. But it's the same today, and I think it's one of the core points that we should be discussing as well after what happens this week here in New York. So $15 billion in sales last year, but the most important is that we helped our customers save $7 billion at the same time while reducing the impact, as you mentioned before, which we're proud of. And for us, sustainability and business performance is everything. That's how we sell, that's how we get paid, and that's how we inspire our people ultimately to drive.

That's great. Thank you. George, how about you?

I think that's great. Thanks, George. And it's interesting: you have the businesses for a hundred or over a hundred years, you have sustainability as this mega trend, and I see it all kind of coming together. It's part of the future of business, regardless of the opinion. So with that, you always think about leadership: either you lead or you'll be led. And as industry leaders in each of your industries, you want to be leaders. So what are the key challenges and opportunities to continue to be the leader in each of your industries or organizations? How do you keep everyone focused on that future? George, go first.

That's great. And I think it speaks to the whole enterprise engagement and enterprise enablement. This isn't just a couple people who know the story around climate, but how do you get an organization? So Christophe, how about you?

I'd like to build a little bit on what George said on the inspirational part. Because as company leaders, well, we're in the business of making money. And as I'm sharing with our team, if I'm not helping the CEO make more money, my successor will. And as we know in corporate America, that goes pretty quickly. Mine will too, I guess we're in the same club here. And the key question is, it's about performance, it's about growth, it's about earnings per share, it's about where you're going, your opportunities. Is it what's driving your team? Whether you have 50,000 like we have or 100,000, well, it's hard to drive people with those numbers. They can't connect to earnings per share. But at the end of the day, it's where we need to get to because that's what's feeding our future. So for us, it's really been to find a way over the years to connect performance with impact. And listening to our teams around the world, being in a plant, serving a customer in the northern part of India or wherever you might be, how do I connect to the purpose of the company? And for us, it's the core driver of growth. And we've clearly said, okay, we want to reach our financial commitments, which are pretty high, while protecting a billion people from infection and protecting enough water for a billion people. And those are the two goals that we have by 2030. And saying those two billion people that we're going to protect, well, this is how we're going to grow. The water that we're going to protect for the drinking needs of a billion people, that's how we're going to grow as well. And we've set our teams as well how we're getting there, how we behave, how we lead. And we said we're going to be net positive by 2030 in water and carbon, and 100 percent renewable power. We're 80 percent already today, 100 percent in North America, 100 percent in Europe, and we're still working our way around the world. And 100 percent committed to safety and to equity. And that's really bringing it all together so that everyone around the world knows that if I contribute to the purpose of the company, I'm going to contribute to the performance of the customer, I'm going to contribute to the performance of the company as well at the same time. And we measure that. So for everyone around the company at every location around the world, everybody knows for that customer how much did I help, and for that country how much did I help. And we were with a steel company in India a few weeks ago, and we knew that we helped them save enough water for the drinking needs of Mumbai. And they can put it in perspective. And for them, that's one way to grow and to know what's next, which goes way beyond the earnings per share or the top line growth that matters to me and investors matters less to our front line.

Well, first of all, let's give them a round of applause on the drinking water. But also, this is where the drivers for people are all different, but sustainability allows you to connect some of that purpose driver with the financial driver. Great. Okay, so we're going to hop on down to our chief sustainability officers. Buildings account for 40 percent of all greenhouse gas emissions as we've talked about earlier, and over the last few years we're just pounding that drumbeat. The majority of emissions coming from buildings in operation for scope one and two within those building operations. But let's pivot to scope three, one of our favorite topics. I'll go first to you, Melanie. Scope three has the most significant of any organization's emissions. Where are you focused on reductions of scope three, and how do you see it all evolving over the next few years?

Great, well thank you so much and great to see everybody. Sound good? All right, perfect. I'll also just be very loud. So for scope three, just to put into context for Microsoft, our scope three emissions from this past fiscal year were 96 percent of our total reported emissions. So really, it is the bulk of our emissions. That goes into how we go on our journey to be a carbon negative, water positive, and a zero waste business all by 2030. And the first step in understanding what the challenge is is to find what the drivers of that challenge are. So for us, our scope three emissions primarily come from chips that we put into our data centers and our devices, the built environment when we physically build data centers, it's the building materials that go into building a data center, think steel and cement and concrete, and the third area is the fuels that we use to transport for logistics and flying around. So we saw those three drivers, and we then thought what are the levers we can pull to make reductions happen in each of those areas, because that's really the journey that we're going to be on as we think about reducing that by over half and removing the remainder, which is part of our goal to get to carbon negativity. So on fuels, the good news there, there are a lot of good news stories all throughout the week, and so I'll share three more good news stories. We're making progress. Sustainable aviation fuels are becoming more commercially viable, people are flying on it, and we're piloting new financial schemes such as book and claim, like what we did with Alaska Airlines and Neste, which is an innovative sustainable aviation company, to be able to pay for the attributes for that fuel. Alaska flies it on their planes and everybody benefits. It's a win-win-win. And we're seeing more buyers clubs for sustainable aviation fuel, and that market is growing. In the case of the chips, we're working really closely with our supply chain to help move them to advanced grids, to 100 percent renewables. We're working with those chip manufacturers to find new ways to decarbonize their manufacturing in the grids in the country they operate in. It's by no means easy, but at least we know what the challenge is and what we need to address it. And then when it comes to the built environment, this is where it gets really exciting and it picks up on the conversation today. It's around chips, it's around steel, it's around concrete. And we're now at a place where innovation is finally at a scale where we can start to invest into those technology companies, invest in those startups, and start to begin to look at procurement off of it. So through our Climate Innovation Fund, which is a billion-dollar venture fund we announced back in 2020, we saw that there are lots of things we're going to need in 2030 to hit our goals, but the innovation wasn't quite at scale. Let's use this billion dollars to invest in those solutions. We invested in a company called H2 Green Steel, recently renamed Stegra, which produces a steel that is 95 percent lower carbon than conventional steel. We're investing in that to hopefully scale that to commercial production, and then looking at ways we can procure or supply chain procure that steel off of it. Same thing when it comes to cement. This week we're announcing an agreement with Sublime Systems, it's a low-carbon cement company, to look at a way to do a book and claim type structure. We will look at how to get the environmental attributes off of a cement like that, with the goal that more and more buildings are built with a lower carbon cement. And there's ways you can buy down that green premium to really bring the built environment and the embodied carbon in our buildings and the data center growth down, so that we can actually continue to grow more sustainably and others can as well.

That's great. The buying down the green premium speaks to the third panel we had where we were talking about how do we overcome this cost to implement in technology. So moving on to you, Katie. What are your thoughts on scope three, where we focus, and how do you see it evolving?

Well, let me pick up on a couple of the themes here: the power of purpose and the power of partnership. George, when you were speaking, I loved when you said it's not just top down but it's bottom up. So when we look at some of our footprint in scope three, we're able to move forward in partnerships like with Microsoft. So to pick up on what Melanie just was talking about, when the challenge came in terms of grid capacity in order to enable data center growth, it was Microsoft who came to us and said, 'Look, we've been investing a lot to improve the materials around the chips themselves. And with that materials innovation, when we used to tell you guys our chips are going to faint and melt down unless you can give us 42-degree water, now they've come and said 72-degree water might be fine.' So that's the power of partnership, giving us that insight. But the power of purpose of everybody in the organization, that was a message right to our engineers, and that set them on fire to say we can totally reimagine the cooling system, which is our scope three and 40 percent of the energy that Melanie then has to deal with. When they got to work on that with the technology innovation around the chips, we were able to get rid of totally the oil-bearing compressor. When you get rid of that, you're able to use magnetic bearing. That magnetic bearing not only enables us to cut the energy, as I mentioned before, by 78 percent, but the neighbors become happier because mag bearing is quiet, and it is much smaller. So we cut the embodied carbon in our HVAC systems for Microsoft's data centers by 44 percent. So I think when you reach out in partnership and you know that everybody bottom up as well as top down has something to give, you can totally reinvent the story. And Christophe, just to add on to your point about the purpose of your customers, another project we're involved with is with a major healthcare company. Now the healthcare company found itself in a little bit of a pickle because it was realizing that it is doing a wonderful service for the world in terms of health and well-being, but that the employees inside its own building may not have had the benefit of the same healthy conditions. And so what did it take? It took my friend VJ, who was here earlier, to build our OpenBlue platform where we're processing a million data points a minute, popping that up to the Azure cloud, but enabling us then to totally optimize that company's operation so that absolutely highest quality indoor air conditions. And so for the purpose of that company to be able to say we don't just sell it but we live it, and have their employees totally aligned and energized. Power of purpose for sure.

Great, thanks Katie. Okay, so I think that we would be remiss to not talk about data centers and AI for a second. And I'm going to go to you first, Melanie, because we started to hear a bit about chips from you, not Christophe, doing great things together. Exactly. So I think we hear a lot in the news more around the growth of data centers, the energy usage, the water usage, and what does it mean. At the same time, it's enabling AI and critical infrastructure that will help us to accelerate climate action. So I just wanted to get your view on how do you see this near-term versus really long-term what we're trying to unlock?

Sure, this is a great question. I love the chance to be able to explain and talk a little bit more about the details of what's going into our data center builds and really the breadth and depth of our employees across Microsoft and our partners around the world in the supply chain. Because it is like a baton pass. When Katie starts to reduce her emissions, her embodied carbon in those chillers, she baton passes to me a lower embodied carbon that I'm reporting, and then back and forth. And then my cloud is a lower embodied carbon to her services as well. So it really is that partnership piece. It just keeps ping-ponging more and more megatons and gigatons of carbon saved the more we keep on racing in this way, and the planet benefits. So really to this question about AI and energy use within data centers, it starts with physically how we think about the growth of data centers. We think about first what is that load growth going to look like. We really are at this inflection point in time in history. I mean, I think we will be talking about the time before and after generative AI. So much of our daily lives will be greatly enhanced from everything from the mundane to the more complex. And so when we think about that, it's an incredible responsibility for a company like Microsoft that is building out these new technologies and building out the capability to do so. And so the way we think about it is how do we build, operate, and apply AI in a sustainable way. And that starts at the infrastructure level. So on the build side, it starts with the models themselves. How are we thinking about optimizing the models of AI and generative AI to be as energy efficient as possible, as model efficient? You'll see that we keep on coming out with both large language models and small language models. The Phi models, the most recent one, it's massively more compute efficient and energy efficient at the same time, and it's a faster trained model as well. And so what's great about this is that we think about with our IT department, our engineers, our designers, our coders, our developers, how are they bringing in principles of green software and how they think about coding and optimizing these models. So that's first on the build side: making sure that the compute process and the modeling is done with sustainability principles attached to it. The other piece is also the infrastructure inside. So I mentioned you've got low carbon steel, low carbon cement, but the physical build we're doing more. We're also piloting a 50 percent lower embodied carbon steel in the hot air cooled aisle section of our data centers. So think when you charge a phone or computer, it can get quite warm. Now picture that at a massive scale with a data center and servers. So we use steel to cordon off that section of a data center so that area can be more efficiently cooled with Katie's work and your work. But that steel now is going to be built with a piloting 50 percent lower carbon steel inside that building. So that's on the build side and the intentionality there to make sure the building is done more energy efficient. The second is operations. So we're growing, we're building out more, and these models do require more energy. And so there we want to make sure we're scaling our procurement of carbon-free energy just as quickly as we're scaling the growth of our business. We now have 34 gigawatts of carbon-free power procured by Microsoft to date, and that's part of a broader remit across many tech companies that are helping to really scale the clean energy marketplace through power purchase agreements. We're putting it on the map, and we're actually getting net new power. Most recently last Friday, you might have seen some news that Constellation Energy announced the bringing back of Three Mile Island Unit 2, the reactor that had been operating safely for about 17 years. And Microsoft is entering a power purchase agreement there to help bring back that facility, which is going to bring 800 megawatts of carbon-free power onto the grid into the wholesale market of PJM, which is a already constrained grid. So where you see AI load growth grow, you're seeing big bets and big investments from companies like Microsoft into adding net new power, and in this case 3,400 jobs, to ensure that we continue to grow and operate with more power in the Pennsylvania market and the PJM market. So that's on the operations side. And then we think about application, which sometimes we don't often talk about, but it's so exciting. It's exciting because those data centers are being built, they're delivering models that are optimizing energy systems, that are coming with new material breakthroughs, that are doing things not just futuristic but today. So a company based in the UK called Line Vision, they're using AI today with UK National Grid to optimize the existing transmission line in the UK. Through their program, they found that it can bring 600 megawatts of more offshore wind onto that transmission line. That's roughly 60 percent more renewables moving on existing transmission line today, and that's using these models. So this is an area where it's not just about what models can do or will do, but we've got, you know, we started the AI for Earth program in 2017, so we've got several years under our belt with partners around the world applying AI already today with use cases that are optimizing energy systems, predicting weather events, and really helping to bring new energy systems onto the grid. So I say all that because yes, we know the growth is coming, and I share this to say that we are preparing for this growth, we're readying for this growth, and we're making sure that we build, operate, and fly so that we can do this sustainably.

That's amazing. So I guess the Three Mile Island announcement was just scratching the surface of them readying for the clean power. Anyone else want to weigh in? Christophe?

I'd love to. Microsoft is doing a remarkable job. It's a hard thing, it's a fascinating journey. For sure, it's not a straight line to heaven, to say the least. But we serve most of the cloud companies, me neither, hope not far away. And maybe adding the water dimension as well. Because the power is something that we can ramp up. Water is way harder to ramp up because what we have on the planet is what we have. It's finite, it's local as we know. Carbon is a global value obviously here. And when we think about it, I always start a little bit with that picture: if we were to put all the water of the Earth in one bubble, well that bubble would be 800 miles wide. And if you were to put only the fresh water, lakes, rivers, what we drink and live with, it would be 36 miles wide. So it's on top of Manhattan, that's the bubble we would have. And when I was talking to the industry minister in India a few weeks back, by the way, you have only 4 percent of that bubble for 1.5 billion people in a country that's growing fast and investing in great technologies that need even more water as well going forward. So when we look at the AI perspective, not just data center, it's kind of interesting to look at that. Because talking to India as well, the water needs by 2030 for the whole AI industry is equivalent to the drinking needs of India. And that's incremental to all the challenges that we thought we would be facing by 2030 as well at the same time. So the work that Microsoft is doing in thinking how do we reduce power, how do we reduce water usage, because they're directly related. The more power you use, obviously the more energy you need to dissipate and to cool as well at the same time. They're directly related to something that is truly finite as well. But adding the microprocessor, the chip productions, with whom we work quite a bit especially in Korea, not to name that company, over there, one fab requires the same amount of water as the needs of 17 million people. They have seven fabs, they're building seven new ones as well. Even in a country that has enough water, they're running out of water as well at the same time. So we need to find ways on how do we reuse and recycle water in those fabs. And it's really interesting to be surrounded by engineers, which is by the way the case often at Microsoft as well, a lot of engineers, smart people, over there saying, 'Well, the way we've been thinking about water so far has been you take water, you use water, you dump water, and you hope that nature is going to take care of it.' Well, we've come to the end of that process. We need to start thinking how do we eliminate the concept of waste water. And telling to engineers this, a Korean firm as well, they say, 'Well, let's re-engineer the way you produce in ways that do not create any waste water. You reuse it at every step of the process to reduce chips.' And that's changing completely the way it's being operated. And at the same time, it reduces the power that's required as well for it, and it reduces the cost of those chips as well at the same time. So I think that at the end, AI, and we're convinced here, it's going to be a great transformation. It's going to add a lot of value for all of us obviously. But in the meantime, there's a lot of work that needs to be done both on the power front and on the water front as well to make sure that it happens in ways that are doable and renewable.

Well, it's good. And I think just add one other piece which I get really excited about is because this water issue is so vital and critical and also personally near and dear to my heart and frankly all of us who drink water. And one of the things that I've been working really hard at at Microsoft is how do we get to water positive. We set this commitment to be water positive by 2030, but then it really was what does that mean, what are the components of it. So we've broken it down to obviously first and foremost reduce our water consumption as much as possible, whether through the chips, different cooling technologies, closed loop systems, but really focused on that reduction and a reduction of water use intensity. The second part that's a bit more innovative and unique, and I want to underscore, is what we're doing on replenishment. So we want to replenish more than we consume because exactly what Christophe pointed out: it's not just about reducing the water use, it's about you also have to think about the replenishment side. So with that, we charge an internal water fee within our company, and that provides the fees and the ability for us to then go invest in these replenishment projects. We've done about 90 access and replenishment projects, we've reached over one and a half million people with water access. But replenishment has been really interesting because it touches on what George points out: the combination of technology and innovation coming together on this topic. Because one example is we hear about the water consumption that's needed and the water that's used. What we also don't hear about that often is how much water is lost to leaks in cities. So I was with someone from New York recently. 15 percent of water is lost on average here in New York City. Globally it's around 30 percent, much higher in developing countries, lost every day to leaks. And so one of the companies we've invested in is a company that can detect using AI sensors leaks in the underwater systems and in water municipalities, and can start to address those leaks faster, more efficiently. So as we think about the water needs and the challenges, if we can use technology to go find those leaks and fix them faster and actually stop those leaking problems, we actually now have a better play for due replenishment and start to address the challenge of both supply and demand with this technology coming together. It's a really exciting space we think about how we be responsible stewards of water, especially with the growth in mind.

And to underscore on that as well, just the double bottom line possibilities when you bring technology to this water challenge. So we just, can't give you the details in terms of who, but we just cemented a partnership today with a community in Philadelphia, Florida. And in this particular community, it's all about AI-driven advanced metering systems. And to that community that needs every single dollar to invest in its infrastructure to lift up its capabilities, to invest in its education, it's going to deliver $26 million of utility bill savings. So millions and millions and millions of gallons of water saved, but the power of AI, the additional visibility that brings, and then delivering a lifeline to the community in terms of its basic services and infrastructure that now can take off and make that community the destination community where you want to live.

Wonderful. And I think this does all bring together the very first question of business transformation, industry leadership, underpinned by sustainability for all these other reasons, not just for sustainability's sake. So we do need to wrap up. So we'll start with Katie and come back down. What is your observation or call to action kind of thought to leave the group with?

Sure, sure. So I think this is the inflection point. The inflection point of just studying the problem, worrying about the problem, to being so energized by this problem that you see it as the opportunity that it is to supercharge the power of your organization and to give you an unbeatable competitive edge. When you say sustainability is going to supercharge our innovation, it's going to super support our bottom line, and it's going to help me to attract and retain the best people anywhere, including and especially everybody in this room.

For me, I'd say it's really highlighting both Climate Week and these events is the power of data. Understanding what's happening within your systems so you can manage it better, you can measure it better. But what we see a hyperfocus on right now is the power of corporate procurement, and that fundamentally rests in understanding your data, where it's coming from, because those insights you get off of that. What I'm hearing throughout this week is you're taking those insights from just the chatter in the hallways to actually taking those insights and saying, 'Well, what will I procure? What will I stop procuring? And what will I procure more of?' But it really starts with understanding where all that information is coming from.

Three things. There's a lot running in my mind after those last three days. But the first one is what I shared before: we need to shift the narrative in sustainability to see it as a benefit to improve performance of companies versus this cost premium that doesn't work. And the thing that we've learned the last few years is consumers are not ready to pay more for sustainable products, and investors are not ready to earn less for sustainable companies. It's the ugly truth that we should have known for a very long time and that we are clearly facing right now. But the good news is that it's feasible to get that done and all of us to grow faster and to create even more value. And you have great examples on that stage obviously of doing that. The second is what you said: the power of partnership. Because when we hear around in New York, it's pretty clear that the solutions exist to the major problems that we have. Whether we connect the dots or not, that's a much bigger question, and we have a hard time. So to sit together, to learn from each other, to work together, and I think this example here between Johnson Controls, Microsoft, and us working together, that's how we solve those big challenges. And I think that's a bit of a hope for the future. And the last thing is with all the data that we have all collectively, we launched a few months ago in our own organization this 'best-in-class' concept because we are connecting a million customer locations around the world. Well, I had a customer one day asking me, 'Do you know which one was my best restaurant out of the 40,000 I have out there with the best guest satisfaction, the one that is the best cost effective, and the ones with the least environmental footprint?' Well, those were the right three questions that we know how to answer and that we should spread collectively as well to our customers in order for them to get to that best-in-class performance.

Fantastic. Well, thank you. Round of applause. That was amazing, guys. Thank you.